Apartment Industry Still Fragmented

The MFE Top 50 Owners and Managers still account for less than one-fifth of the country’s rental stock.

By Les Shaver

Despite the rise of institutional owners, the apartment industry is still fragmented. The MFE Top 50 Owners collectively hold 2.5 million units, or 14.3 percent, of the country’s 17.5 million apartments. And the MFE Top 50 Managers oversee a similar portion—nearly 2.7 million, or 15.4 percent, of the national stock.

In the future, the gap between those figures will likely grow. For large owners (read: REITs), the trend is to shelve units. Take Denver-based AIMCO, which sold 40 percent of its stock last year. And many of the buyers of these assets are small mom-and-pop shops that don’t make it onto the Top 50 rankings. “We’re seeing local players with their own money, or those with private funds and friends-and-family kinds of syndication,” says Peter Donovan, senior managing director for the multi-housing group of Los Angeles-based CBRE Richard Ellis.

Conversely, the flood of distressed assets expected to hit the market this year might benefit larger managers. As banks take over troubled assets, fee managers such as Dallas-based Riverstone Residential and Seattle-based Pinnacle will likely step in. Pinnacle added more than 12 percent to its management portfolio last year; Riverstone added more than 25 percent.

“Managers are getting bigger, and they’re tapping into the CMBS problem,” says Ric Campo, chairman and CEO of Camden Property Trust, a REIT based in Houston. “They are managing on behalf of banks and CMBS servicers.”

Meanwhile, in the development sector, the companies on MFE’s Top 50 Builders list started 85,059 units—roughly one-third of the 266,000 new starts last year for structures with five units or more. With banks increasingly nervous about financing new construction, experienced builders will continue to see the bulk of the industry’s development business through 2009. “It will be best-in-class developers getting deals done,” says Brian Dinerstein, principal for Houston-based builder The Dinerstein Cos.