T he always close race between Seattle-based Pinnacle, an American Management Services Co., and Dallas-based Riverstone Residential Group for the title of the country’s largest multifamily manager continued in 2009. The third-party management titans again finished one, two on the MFE Top 50 Managers list.

Pinnacle claimed the top spot with 185,219 units under management in 2009, the same number of units it managed in 2008. Riverstone Residential held onto the No. 2 spot, despite shedding more than 1,000 units and dropping to 180,000 units. Meanwhile, Charleston, S.C.-based Greystar Real Estate Partners, also primarily a third-party manager, jumped past REITS Denver-based AIMCO and Chicago-based Equity Residential to claim the third spot on this year’s managers list with 151,319 units.

Greystar’s move is indicative of a notable trend in the management sector—third-party managers generally collected more units in 2009 than traditional owner/operators, mainly because REITS continued to shed units in undesirable markets. Look at Folsom, Calif.-based FPI Management, whose third-party unit count increased from 51,790 in 2008 to 55,000 in 2009 (though the unit spike only pushed the firm from 14th to 13th on the list). Or The Lynd Co. in San Antonio, which jumped from 30,530 units in 2008 to 33,471 units in 2009, pushing the firm from No. 38 to No. 34 on the list.

“Last year was the biggest year of net growth since I’ve been here,” says Dennis Treadaway, president of FPI Management. “But it wasn’t as much a function of the economy as the inefficiencies of a competitor.”

Christy Freeland, chairman of River-stone, agrees. She says discontented owners were a big reason why properties changed management hands. “The number of properties that turned last year had much more to do with the property than anything else,” she says. “It certainly wasn’t due to acquisition or new development. For the most part, you’ll find an owner who is extremely unhappy.”

But there were other reasons for fee-management growth. Memphis-based LEDIC Management Group (No. 46) pushed into the distressed markets last year, adding more than 4,000 lender-controlled units to its management portfolio, which increased by 8 percent from 2008.

“Banks are taking over assets and those [properties] are going to need fee- management companies,” says Pierce Ledbetter, CEO of LEDIC. The extra boost from distressed properties pushed the firm from 26,132 units managed in 2008 to 28,348 units in 2009.

Last year, however, wasn’t without its challenges for the management sector. Managers faced competition from a number of builders who are adding property management platforms to stay afloat while development opportunities remain scarce. Furthermore, some owners are deciding to manage their assets in-house to preserve their income stream.

“The institutional guys are all looking for a way to cut expenses,” Treadaway says. “Every single one I know wants to cut their expenses, and more institutional guys could cut their property managers.”

Freeland, though, sees another scenario as more likely. “I think there’s a possibility that you could see some owners buy a management company,” she says. “That’s more of a possibility than to start from scratch. They have the market knowledge and staff they need, not to mention the back office.”

Ultimately, Ledbetter thinks the trends of banks taking over assets and owners preferring to manage themselves will end up evening out, which could explain why a few third-party managers lost units in 2009. “The net units to fee management might be the same, but the mix of players may shift a bit,” he says.

In 2010, property managers expect the number of units in fee management to stay about the same, unless a flood of distress hits the market and banks and special servicers give managers additional business. There’s also the chance that managers may decide to add units through another method—acquisition.

“I think you will see managers buying if they have strong partners with money that has been sitting on the sidelines,” says Freeland, who hints that acquisitions may be in store for Riverstone. [M]