With a property portfolio heavily invested in Florida and Michigan, the Altman Cos. has been on the frontlines of the recession and its impact on multifamily market fundamentals, particularly when it comes to new development and community acquisition. While opportunities that pencil out for Altman have been few and far between, the company remains upbeat on firing up its development engine and even venturing into new markets via acquisition.
Altman CFO Tim Peterson, a veteran of Keystone Property Trust and an integral player in the Post Properties 1993 IPO, checked in with Multifamily Executive senior editor Chris Wood this week to share his thoughts on the capital markets, acquisition versus replacement cost, and the future of the GSEs.
MFE: It’s been a while since you took Post through its IPO. Is that process anything you’d consider doing again?
PETERSON: Well, I was at Post when we were a private company and went through the IPO and was there for five or six years after that until I was pulled into doing something a little more entrepreneurial. But it was a great experience for me. I was young, and we were coming out of a difficult economy. I liked to say I wasn’t the CFO there; I was the OFO—the Only Financial Officer. That in itself created a vacuum that helped to advance my career and learn a lot of things in a pretty compact time. I have fond memories—now that the all-nighters and some of the other things are in the past.
MFE: What is your take on the current state of multifamily capital markets and how they are impacting the Altman Cos. corporate strategies?
PETERSON: Right now we’re pursuing what I would call an opportunistic acquisition strategy. There is quite a bit of capital out there for that, probably a lot more capital than opportunity. To date, we have not found many opportunities that we think justify some of the risk, and via deal underwriting sometimes you end up knowing too much. For acquisitions, we are looking at using fund equity or accessing GSE debt or some kind of bridge financing to GSE debt. The opportunities to date have not been large in number, have been super competitive and priced where every one of your assumptions has to be at least 90 percent right. To date, we have not been willing to take on that risk.
MFE: Are you looking for opportunities in your existing markets in Florida, across the southeast, and in Michigan?
PETERSON: We’ve looked primarily in the southeast and the southwest: Texas, Georgia, the Carolinas, and Florida. So we’ve tried to cast our net a little bit wider [then our existing portfolio] because of the scarcity of opportunities. We have started firing up our development opportunities. There are some equity forces that are becoming re-interested in that. There are a small percentage of players saying we are ready, so bring us the opportunities, and there is a larger wave behind them that recognizes that development is no longer redlined. They are starting to take a look at things but might not yet be in full invest mode. But the idea that putting equity into multifamily development is no longer taboo.
MFE: What are your thoughts on the likely future of the GSEs and how they fit into the multifamily financing arena?
PETERSON: I went into apartment finance out of business school because I looked at all of the other career and industry options and figured that this was far and away the simplest. My ability to assess geo-political risk is pretty limited, however. Obviously, the GSEs have a precarious financial position, but more importantly, they seem to also be facing a fair amount of political risk regarding what happens to them moving forward. That’s impossible for me to handicap. If I step back and just try to be totally rational, the multifamily lending area is one where the GSEs have consistently been profitable in. Even today, while delinquencies have picked up, you’d hope that that profitability is continuing, and that rational thought prevails, and they continue to be lenders in this market. I don’t think we can underestimate the amount of stability that the GSEs have brought to multifamily real estate’s ability to ride through this economic storm. Compared to our brethren in the other food groups, we are certainly a lot stronger. You’d hope that a decision would be made to continue multifamily lending, but there’s certainly political risk.
MFE: Do you see any bounce back from the banks, particularly when it comes to construction lending?
PETERSON: We’ve seen the banks beginning to recover. Obviously, Wells Fargo has put renewed focus on its permanent loan program, which had not been in the forefront for some time. We are seeing that in some of the other banks as well—DNC has a similar program. On the construction front, the banks are starting to look at lending, but frankly I think the equity is a little bit ahead of them. They want to do the business, they need to do the businesses to get back to sustainable profitability, but they are a little bit bipolar. They look at their financial statements and recognize the need to do construction lending, and then they get pounded by the regulators on their loan portfolio, so they get extremely nervous about adding anything to it. You have to catch them coming out of the right meeting. The banks are looking at it, but they are very focused on structure and sponsor. That should sort itself out into the beginning of a return to the lending market in the second half of next year. That’s certainly my hope.
