View the 2011 MFE Top 50 Builders List
Let’s call 2009 the year of the bunker. That was when industry development giants like Marietta, Ga.–based Wood Partners and Phoenix-based Alliance Residential Co., once No. 5 and No. 12, respectively, on the list of the Top 50 Builders in the nation, hit the brakes on their pipelines. Turns out their disappearance was short-lived. This year, both companies are back in a big way—Wood started 2,027 units, placing it at No. 9 on the 2011 list of Top 50 Builders, while Alliance’s 1,952 starts placed it at No. 10.
They are not alone. After not starting a single unit in 2009, major builders all jumped back into construction mode last year. This re-emerging crop of companies included onetime condo king The Related Group of Miami (No. 44); Birmingham, Ala.–based REIT Colonial Properties Trust (tied for No. 48); Atlanta-based Post Properties (No. 35); Highlands Ranch, Colo.–based UDR (No. 25); Englewood, Colo.–based Archstone (No. 19); and Phoenix-based Picerne Real Estate Group (No. 17).
Indeed, 2010 marked the return of a number of builders, though certainly not all of the high fliers from the mid-2000s, to development. In fact, half of the 50 companies on this year’s list did not rank at all last year. The return of private builders, along with the REITs, meant that it took a higher volume of activity to make the cut for the list. Indianapolis-based Flaherty & Collins Properties squeaked into the final spot last year with 254 new starts—the firm had to build almost twice as much (480 units) in 2010 to hold on to the No. 50 spot this year.
Driving the re-emergence is a nationwide increase in rental rates that is allowing developers to better justify construction costs. Across the country, rents rose 2.3 percent in 2010, according to New York–based research firm Reis. First in line to break ground were the REITs, such as Arlington, Va.–based AvalonBay Communities (No. 3 with 2,446 starts), which had stockpiled cash and were ready to go (Avalon actually began building again in late 2009).
Private builders had more of a challenge last year. They may have had the land, but through most of 2010, the construction debt markets remained frozen. As financing began to thaw into the latter half of 2010, a number of these companies began to slowly move back in as well. “The private builders had sites they owned or controlled that needed to be monetized,” says Scot Sellers, CEO of Archstone. “The focus on doing this created more new development activity.”
Distinct Preferences
Though construction began to return in 2010, firms weren’t building just anywhere. The Washington, D.C., area, with its strong government job base, topped that list. Arlington, Va.–based builder Clark Builders Group rode that wave (along with its military housing business) to 2,736 starts, placing it at the No. 2 spot on the Top 50 Builders list.
“Nobody on a national basis lost interest in the D.C. market,” says Keith Anderson, president of Clark Builders Group. “We always felt like someone would find a way to make deals work [there], and it would recover more quickly than other markets. That turned out to be true.”
Other coastal areas, such as Boston, New York, and some California cities, also saw apartment construction begin to return as 2010 progressed. But markets with high vacancy rates, such as Memphis, Tenn., and Jacksonville, Fla., still have inventory that needs to be worked through. “A lot of markets are not ready for new development,” says Jim Butz of McLean, Va.–based Jefferson Apartment Group, which debuted on the list at No. 33 with 686 units, after the firm spun off from the now-downsized JPI, once one of the country’s top builders before the downturn.
Niche product development also made notable strides last year. Consider that the No. 1 firm, Marlton, N.J.–based affordable housing developer The Michaels Organization, started a sizable 3,747 units in 2010. The company used its self-syndication of tax credits (when the syndication market died) and a foray into student housing to boost its starts numbers.
A Look Ahead
Despite the strong rent increases in the apartment sector in 2010, the slow return of construction debt, and ambitious pipelines, this year’s top companies will have tough competition to remain on the 2012 list. Dallas-based Mill Creek Residential, for example, didn’t start any units in 2010 but plans 3,000 starts in 2011.
Buoyed by what analysts expect to be historically strong demand and low supply in the next few years, optimism in the multifamily development world is reaching highs not palpable since the mid-2000s. “We’re expecting a significant increase relative to 2010,” says Joe Keough, CFO at Wood Partners. “We’re looking to more than double our volume in 2011.”
And so it goes that the bunker of 2009 has been abandoned, and the bulldozers are being dusted off. For builders who can get their hands on debt and have sites ready for groundbreakings, 2011 promises to be even better.
