In the past two years, there’s been a massive consolidation under way in the apartment industry. Last year, MAA bought Colonial Properties Trust, Essex Property Trust purchased BRE Properties, and Equity Residential and AvalonBay Communities devoured what was left of Archstone. And that was just apartment owners. A historically significant deal brought together Greystar and Riverstone Residential—the two biggest managers in the country. After a slow start, 2015 has seen Brookfield Asset Management purchase Associated Estates, with deals involving Home Properties and Wood Partners rumored to be in the pipeline too.
As the big just continue to get bigger, it’s easy to wonder if smaller, regional players will be buried under larger competition. Up until the rise of the REITs in the ’90s, the apartment industry was dominated by these entrepreneurial, local sharpshooters who knew their markets and served their customers well. And, while these firms might not get the headlines their larger peers command, regional power players like Drucker & Falk on the East Coast, RMK Management and JC Hart in the Midwest, and FPI Management on the West Coast have set themselves apart in other ways.
Here are their stories:
J.C. HartAlthough John C. Hart builds and manages homes, he thinks developing a connection between renters and a place to call home is the most important thing his company is building.
Hart believes his firm, J.C. Hart, and those of a similar size are special because they’re able to deliver on a homegrown scale, instead of on a national platform.
Since Hart started the company, in 1976, it’s built 7,095 apartment units and currently manages 4,536 units, 96% of which it owns.
In 2007, Hart considered expanding into the Charlotte, N.C., market, which is about a nine-hour drive from the company’s Indianapolis headquarters. “But with the credit crunch and the [conduit] markets imploding, we got concerned with the financial institutions and decided that perhaps that expansion wouldn’t be a good thing at the time,” Hart says. “We ended up pulling out of the two opportunities we were aggressively into at that time.”
Since abandoning the East Coast expansion plan, Hart has never looked back. He’s comfortable in Indianapolis as well as nearby markets.
Hart, who grew up in Indianapolis with his nine siblings and graduated from Indiana University, says his knowledge of those markets helps him compete against the larger players. Indeed, Indy is part of his DNA, and he knows the personalities of the neighborhoods.
“We want to be in markets we can drive to that would be similar to Indy,” he says. “We want that so we can keep control on what’s going on.”
In addition to having a dominant presence in the Central Indiana market, the company’s footprint covers Louisville, Ky.; Dayton, Ohio; and Cincinnati, all of which are less than two hours from Indianapolis.
“If I were to wander off to Charlotte or Columbus, it would just take so much more time to get my arms around what’s going on there,” he says. “How could I get comfortable enough to say that if I built a project there, it would be a success?”
Hart also says he’s not interested in becoming a large-scale public because he prefers to call the financial shots and says he can understand why other similarly sized companies want to stay the size that they’re at.
“There are a lot of people who don’t want to deal with the minutia and challenges of reporting,” he says. “You want to be making the decisions that you think are best, without stockholders.”
Ultimately, Hart wants to deliver a place his residents can call home.
“It’s really fun and exciting to do what we do—to create [apartment buildings] where more than 200 families can call home,” he says. “It’s a responsibility as a manager to make it a special place for people to want to call it home. I think that’s what makes it fun for me and JC Hart. We don’t want to go outside the realm of that and lose that fun part.”
Drucker & Falk
Kellie Falk doesn’t think the largest management companies really compete with her company, Drucker & Falk.
“Those guys are big-time wheelers and dealers,” she says. “They’re buying and selling and buying and selling and getting bigger and bigger and bigger. We’ve been in this business since 1938, and that’s not how we do things.”
Newport News, Va.–based Drucker & Falk manages more than 30,000 units for long-term investment holders while bigger companies compete for the institutional clients.
“One isn’t better than the other, it’s just a different investment philosophy,” she says.
Falk has no interest in diving into the competition for institutional clients with the gigantic firms.
“There comes a point where you ask if they’re managing a commodity or an asset,” she says. “I know we’re managing an asset, for sure.”
She also notes that her business is different because she and her business partner, Wendy Drucker, often pop up at sites to check on things. With a larger company, an owner probably couldn’t be as hands-on, Falk says.
Ask Chicago-based RMK Management’s executive vice president, Diana Pittro, what sets her firm apart and she’s quick to cite the “warm and fuzzy”—essentially, the interactions between site-level associates and residents.
“The national companies do a great job with customer service, but I think what we’re able to do better is bring a face to the business versus sending an e-mail or notice,” she says.
For instance, RMK’s maintenance supervisors visit each resident during move-in, a practice that’s clearly paid off: The company, which manages about 8,200 units across 32 properties, was named the 2015 Management Company of the Year by the Institute of Real Estate Management.
Pittro also gets to personally meet with vendors—something unheard of at larger firms. She says being able to meet with the vendors who’ll be hands-on at each site is a huge competitive advantage because it enables her to get to know them. Additionally, some local vendors offer discounts for large-portfolio contracts, saving the management company money when it can sign on for several sites in the same city or local area.
“They’re all doing volume pricing,” she says. “I think that’s one of the things you have to do to keep yourself competitive.”
Pittro’s presence in the community where RMK operates also helps the company secure talent. As a director and advisor on the board at Rasmussen College in Naperville, Ill., Pittro can recruit and attract some of the best and brightest students to work for her.
“When you’re a local company, you’re able to spend that time out there and develop those relationships,” she says. “A national company may not have the ability to do that. Someone in a corporate office in Denver isn’t going to sit on a college board in Naperville.”
As Pittro has added talent, she’s kept turnover low. “I have dedicated employees,” Pittro says. “About 35% of my staff has been with me for over 10 years.”
With 78,000 units across 12 states under its belt, FPI Management is hardly an upstart. But unlike its larger competitors, the Folsom, Calif.–based company, which ranked No. 8 on the 2015 NMHC 50 Managers list, isn’t chasing exponential growth.
“We like controlled growth with the ability to ensure the success of the acquisition,” says Julie Brawn-Whitesides, the company’s executive vice president. “If, for some reason, we don’t think we can fully assist in success, then we may refer them to another company.”
Having offices spread across the country isn’t part of FPI’s strategy. Instead, the firm wants to outperform others and establish a strong reputation.
FPI takes a very selective approach with new opportunities, seeking scale before going to new places. “The lone soldiers often don’t work out,” she says. “We need them to feel like they’re a part of our company. We have about 1,000 units on the East Coast and [that’s] for a client that is based out of California; we do it as a courtesy, as more of an asset-management role.”
Other than that one foray to the East Coast, FPI plans to stick to its Western core.
“We’re going gang busters here,” Brawn-Whitesides says. “So there’s no particular reason why we’d have to venture into a market we don’t know.”
Even at almost 80,000 units, Brawn-Whitesides says, FPI can accommodate specific requests from clients. “We really have flexibility in what we can do for a client,” she says. “You tell us what your need is and we’ll find a way to do that for you.”