View the 2011 MFE Top 25 Renovators List

In 2010, Irvine, Calif.–based Western National Group topped the list of the Top 25 Renovators with 7,042 units rehabbed in the prior year. In 2011, no one came close to matching that number. Instead, the frontrunner this time around was Chicago-based REIT Equity Residential, which led the renovator pack with 4,331 units rehabbed in 2010.

While new starts rose across the board last year, renovation numbers stayed low. All told, the Top 25 Renovators completed 39,287 units in 2009; they completed only 35,176 units in 2010, a decline of 10 percent altogether.

Houston-based REIT Camden Property Trust, which missed this year’s renovators list with 248 units redeveloped, was doing 4,000 rehabs a year in 2007 and 2008. At that time, it had 35 properties in some stage of repositioning. “When the economy went backward, we put them on hold,” says Mike Archer, national facilities director for Camden.

Though things began to perk up in the second quarter of 2010, apartment owners weren’t quite ready to fuel up the rehab engine yet again. “Last year at this time, we were still hesitant in many markets, particularly in the South, to move off of the freeze position we were in during 2009,” says David Nischwitz, senior vice president and director of property redevelopment at Memphis, Tenn.–based REIT MAA, which placed at No. 8 on the Top 25 Renovators list with 1,760 units rehabbed.

However, going forward, renovators are not worried. 2010 rents grew—effective rents were up 2.3 percent nationally by year’s end, according to New York–based research firm Reis—which has made some redevelopment firms feel better about pulling out appliances and upgrading their apartments. “We loosened up the reins in 2010,” says Keith Knight, vice president of capital improvements and national accounts for Rochester, N.Y.–based Home Properties (tied for No. 2), which rehabbed 3,000 units in 2010. “We’ve seen stabilization in occupancy. That gives you pricing power. In the last half of 2010, we started feeling better about rehab.”

Growing Pipelines

Indeed, renovation figures are expected to shoot back up in 2011. Nischwitz says MAA owns a number of 12- and 15-year-old apartment complexes in need of rehab. The company wants to start renovating these properties, especially now that it’s seen rents grow enough in markets such as Savannah, Ga.; Wilmington, N.C.; and even hard-hit Jacksonville, Fla., to support rehab. MAA’s outlook for 2011 reflects the firm’s optimism: The company expects to increase its volume of rehabs by nearly 50 percent, to 2,600 units.
“We’re seeing more markets beginning to tell us that the pricing opportunity is attractive enough for us to do rehabs,” Nischwitz says. “We’re taking advantage of those opportunities as well as the shutdown in rehab over the past two years [to provide an upgraded product].”

MAA may also be pushing the envelope even further because it’s realized that the return on renovated properties may actually come in even after they anticipated it. “We always had thought that after five years, most folks wouldn’t find much value in renovated upgrades,” Nischwitz says. “Many communities haven’t seen a drop in rent six years after the rehab, and they haven’t seen prospects come in and say that they don’t see the value in the rehab. That’s been very promising.”

The end result is that MAA may be able to do more rehabs. “It’s allowed us to look at thresholds differently and allowed us to bring in more properties,” Nischwitz says.

MAA isn’t alone. The top six companies on this year’s Top 25 Renovators list all expect to do more renovations in 2011: Equity plans to jump 27 percent, to 5,500 units; Los Angeles–based JRK Property Holdings (tied for No. 2) expects to do 4,000 units, an anticipated increase of 33 percent; Charleston, S.C.–based Greystar (No. 5) expects to do 3,042 units, up 31 percent from last year; El Paso, Texas–based Hunt Cos. (No. 6) is readying to do 2,600 rehabs, an expected increase of 14 percent; and Home Properties is primed to do 3,500 units.

For Home’s part, its 17 percent expected growth in renovations this year is being driven by the acquisition market, which sprang to life in 2010. In 2008 and 2009, the company had almost no acquisitions. Last year, it bought 10 properties, providing ample rehab opportunities to take the firm’s properties from a Class C to a Class B by updating the landscaping, common areas, and unit interiors.

“We will be very active on those properties to get initial renovations and curb appeal,” Knight says. “We’re seeing more opportunities for rehab.”

Meanwhile, Dallas-based Riverstone Residential Group, which performs third-party rehabs for its apartment owners, has also seen interest in renovation work rising over the past six months. “We have dusted off our value-add pro formas,” says Walt Smith, CEO of the company. “People can see that if they spend capital [on renovations], there is the potential for rent growth. It’s been an interesting development since last fall.