|Author: Jack Goodman|
|Date: March 1, 2000|
In 1999 the apartment industry polished its reputation as one of the steadiest performers of all segments of the real estate industry. This is reflected in the NMHC 50, which shows continued growth among the nation's 50 largest apartment companies, as measured both by absolute holdings and by market share. The growth continued even as the number of big mergers and acquisitions moderated from the vigorous pace of the previous few years. Most of the notable gains during 1999 were by private entities and the publicly traded Lend Lease. Growth among publicly traded apartment REITs, which had been the story for several years, slowed during 1999. Another indication of the industry's stability is the relatively low number of newcomers to this year's ranks of top apartment firms.
The 50 largest apartment owners increased their holdings by 9%, off slightly from last year's record growth of 11% but still well above the average growth of recent years. The portfolio gains were greatest among the giant firms in the top 10 spots in the rankings. Despite an off year for REITs, they easily retained the top two positions in the NMHC 50, and the 16 public REITs in this year's rankings account for 40% of the total holdings of the NMHC 50.
The NMHC 50 of apartment management, which ranks the 50 largest apartment managers, posted a 4% gain in the total number of apartments managed over the year. As with the ownership listing, the number of new names and big changes in management portfolios were lower than usual during 1999. Specialists who manage apartments owned by others - known in the business as "third party" managers - maintained their position in the management NMHC 50 during the year. The nation's 50 largest apartment owners and managers once again increased their share of the nation's apartment market in 1999. As of January 1, 2000, the top 50 owners had an ownership interest in 2.5 million apartments, approximately 15% of the total national stock. Yet even as consolidation continues, the apartment business remains highly fragmented by the standards of many American industries. Most of the nation's apartments are still owned and managed by individuals and smaller firms, indicating that the industry continues to provide business opportunities for a wide variety of players.
|NMHC 50 Profile 2000|
|# of Apartments Owned||2.53 million|
|# of Apartments Managed||2.35 million|
|Minimum Entry Threshold|
|# of Apartments Owned||20,965|
|# of Apartments Managed||19,465|
The two giant REITs at the top of the listing, Apartment Investment & Management Co. (AIMCO) and Equity Residential Properties Trust, strengthened their hold on the top two positions as the biggest apartment owners in the nation. These two companies alone account for nearly a half million apartments. Equity Residential grew its portfolio 16%, adding 35,946 apartments and narrowing the gap between itself and AIMCO. While AIMCO retained its position as No. 1, which it had assumed a year ago following several huge acquisitions, Equity Residential is nearly twice the size of AIMCO by an alternative measure - total capitalization - that is available only for the publicly traded REITs in the NMHC 50 and is discussed below.
The rest of the top 10 offers a mix of old and new names. In the third spot among the nation's apartment owners is Related Capital, marking the 11th consecutive year that Related has been the nation's third or fourth largest owner of apartments. Lend Lease Real Estate Investments, a subsidiary of the Australia-based Lend Lease Corp., premiers in the rankings in the lofty No. 4 position with a portfolio of more than 113,000 apartments, rocketed by its acquisition of Boston Financial, a charter member of the NMHC 50. Moving up four places to the No. 5 position is Goldman Sach's affiliate Whitehall Street Real Estate Funds, boosted in part by its acquisition of an ownership interest in the portfolio of Berkshire Realty Co., a REIT taken private during the year. Nos. 6 through 9 are established veterans making a return appearance among the top 10: Boston Capital, United Dominion Realty Trust, SunAmerica Affordable Housing Partners and Archstone Communities. Rounding out the leaders list at No. 10 is National Partnership Investments Corp. (NAPICO), whose totals include the holdings of its affiliate Casden Properties.
Top Ten Apartment Owner Firms
|Rank/Company||# of Apartments with Ownership Interest|
|1.||Apartment Investment and Management Company (AIMCO)||240,540|
|2.||Equity Residential Properties Trust||228,504|
|3.||Related Capital Company||148,080|
|4.||Lend Lease Real Estate Investments||113,744|
|5.||Whitehall Street Real Estate Funds||105,000|
|6.||Boston Capital Corporation||102,564|
|7.||United Dominion Realty Trust, Inc||81,180|
|8.||SunAmerica Affordable Housing Partners, Inc.||81,000|
|10.||National Partnership Investments Corp.||66,991|
One indication of the stability of the apartment industry over the past year is the relatively small change in the firms appearing in the top 50 list. Only six firms are newcomers to this year's NMHC 50 list of apartment owners, down from 10 newcomers last year. In addition to Lend Lease, GE Capital more than doubled the number of apartments in which it has an ownership interest to assume the No. 17 position. JPI Cos., a privately held specialist in upscale and student apartments, stepped up its activity in a number of markets and takes the No. 26 spot in the ownership rankings. The other newcomers - Northwestern Mutual, Trammell Crow Residential and Cornerstone Realty Income Trust - are established players in the apartment market that this year moved above the entry threshold and acquired an NMHC 50 ranking.
Of companies on the NMHC 50 list in both 1999 and 2000, Whitehall Street Real Estate Funds posted the biggest increase in apartments owned. In a break from the past couple of years, REITs do not dominate the listing of the biggest gainers in the NMHC 50 listing of apartment owners. Equity Residential and Home Properties are the only REITs ranked among the top five companies in terms of portfolio growth.
|Largest Portfolio Growth|
|Whitehall Street Real Estate Funds||38,703 apartments|
|Equity Residential Properties Trust||35,946 apartments|
|SunAmerica Affordable Housing Partners||14,000 apartments|
|Alliance Holdings||10,629 apartments|
|Home Properties||10,102 apartments|
|Moving Up in Rank|
|Charles E. Smith||+14|
|Alliance Holdings, LLC||+10|
|TVO Realty Partners||+ 9|
|Whitehall Street Real Estate Funds||+4|
REITs in the Rankings
By recent standards, 1999 was a year of reduced growth for apartment REITs, as their generally subdued stock prices reduced the potential for mergers and acquisitions. Nonetheless, the 16 publicly traded REITs in this year's listing had an ownership interest in 1 million apartments, up 2% from the combined holdings of the 17 REITs on the list last year. Most of the nation's apartment REITs appear in the NMHC 50.
Among the REITs, Equity Residential's (EQR) acquisition of Lexford Residential Trust (No. 25 last year) boosted EQR's portfolio by about 37,000 and accounted for most of EQR's growth during the year. Walden Residential Properties holds the No. 18 spot in the ownership rankings. Although Walden's acquisition by privately held Olympus Real Estate Corp. was announced last September, the deal was scheduled to close after January 1, 2000, the date to which the NMHC 50 rankings apply. Berkshire Realty Co., No. 35 from last year's list, was taken private and now appears as Berkshire Realty Holdings, L.P. The NMHC 50 welcomes Cornerstone Realty Income Trust in the No. 50 position, the only REIT among this year's newcomers.
A few accounting points are relevant in discussing the REITs in the NMHC 50. The REIT numbers in the NMHC 50 do not include private REITs that are established within larger business entities, nor do the REIT counts include publicly traded companies in the NMHC 50 that have not elected the REIT tax status. Finally, to allow comparisons with the portfolios of non-REIT owners, the NMHC 50 ranks by number of apartments in which the entity has an ownership interest, which gives a different ranking for apartment REITs than would the size as measured by the company's capitalization. The accompanying box discussion compares the rankings by these two alternative measures.
Publicly Traded REITs
Among Top Property Owners
# of Apartments with Ownership Interest
|# 1.||Apartment Investment and Management Company (AIMCO)||240,540|
|# 2.||Equity Residential Properties Trust||228,504|
|# 7.||United Dominion Reality Trust||81,180|
|# 9.||Archstone Communities||70,697|
|#13.||Camden Property Trust||55,260|
|#18.||Walden Residential Properties, Inc.||39,024|
|#19.||AvalonBay Communities, Inc.||37,885|
|#25.||Mid-America Apartment Communities, Inc.||34,540|
|#30.||Post Properties Inc||30,646|
|#33.||Charles E. Smith Residential Realty||27,634|
|#35.||Gables Residential Trust||27,352|
|#38.||BRE Properties, Inc.||24,800|
|#46.||AMLI Residential Properties Trust||22,315|
|#49.||Associated Estates Realty Corporation||21,280|
|#50.||Conrnerstone Realty Income Trust||20,965|
Industry Growth and Concentration
This year's NMHC 50 documents the continued growth and gradual consolidation of the nation's apartment industry. The number of apartments owned by the NMHC 50 increased 9% during 1999, off slightly from last year's record 11% growth. As was the case in previous years, the growth was most rapid among the industry's giants, as the combined apartment holdings of companies in the top 10 positions jumped 13%. The threshold required for entry in the NMHC 50 owners list rose 6% from 19,697 apartments to a new high of 20,965 apartments. The largest apartment companies continued to increase their share of the entire apartment market. The top 10 firms have an ownership interest in 7.2% of the national stock of rental apartments in structures with at least five apartments, which NMHC estimates totaled 17.3 million apartments as of January 1, 2000. Last year the ownership share had been 6.6%. The top 25 firms hold 10.9% of that stock, and the full NMHC 50 accounts for 14.6% of the nation's rental apartments. All of these are new highs for the 11-year history of the NMHC 50.
|NMHC 50 OWNERS||2000||1999||1998||1997||1996||1995||1994||1993|
|Share of National Apartment Stock (%)|
Many of the nation's largest apartment owners self-manage their properties and therefore also appear on the NMHC 50 of apartment managers. But other firms specialize in property management and provide this service to apartment owners, including some of those in the NMHC 50 owners list.
AIMCO maintains its dominance in this year's ranking of the nation's largest apartment managers. In addition to managing most of its owned portfolio, AIMCO manages many apartments for other owners, and these "third party" arrangements boosted the number of apartments managed by more than 100,000 above its ownership count. Solidly in the No. 2 position is Equity Residential Properties Trust, which does less third-party management but manages almost all of the apartments it owns. Lincoln Property Co. and Pinnacle Realty Management Co., each with approximately 100,000 apartments managed, retained their No. 3 and No. 4 rankings. The remaining companies in the top 10 are all returnees with the exception of No. 9, Trammell Crow Residential, which moved up from No. 15 by adding approximately 7,000 units to its management portfolio during 1999.
Top Ten Apartment
|1.||Apartment Investment and Management Company (AIMCO)||362,968|
|2.||Equity Residential Properties Trust||234,756|
|3.||Lincoln Property Company||100,946|
|4.||Pinnacle Realty Management Company||98,656|
|5.||United Dominion Realty Trust, Inc.||81,180|
|7.||Sentinel Real Estate Corporation||59,000|
|8.||Camden Property Trust||56,060|
|9.||Trammell Crow Residential||48,799|
|10.||ConAm Management Corporation||46,500|
Six companies are new to this year's NMHC 50 of apartment managers. Three -- Lend Lease, JPI and Cornerstone -- also are new to the ownership NMHC 50. In addition, Legacy Partners nearly doubled its management portfolio to premier in the No. 26 position among the nation's largest apartment managers, as did No. 38, National Partnership Investments Corp. BH Management Services moved into No. 47 on the strength of its 10-state management portfolio totaling 20,000 apartments.
In addition to the newcomers, two returnees are listed under new names this year. Whitehall Street Real Estate Funds reports the management operations listed last year for its affiliate Archon Management Services. A similar substitution occurs with FowlerShore & Flanagan, represented last year by Trust Property Management.
Rising Stars of Management
In addition to the companies that also made big moves up in the ownership NMHC 50, firms making notable gains on the NMHC 50 management list are AIMCO and Greystar Management Services.
|Largest Portfolio Growth|
|Equity Residential||+ 33,101 apartments|
|AIMCO||+ 14,776 apartments|
|Home Properties||+ 11,228 apartments|
|Alliance Holdings, LLC||+ 10,629 apartments|
|Greystar Management Services, LP||+ 9,764 apartments|
|Managers Moving Up in Rank|
|Alliance Holdings, LLC||+12|
|Greystar Management Services, LP||+9|
|EPT Management Co||+9|
Apartment Management Growth and Concentration
The total number of apartments managed by the nation's 50 largest apartment managers increased 4% during 1999. The growth was broad based and nearly equal in the top and bottom parts of the NMHC 50 ranks. The threshold for entry into the management NMHC 50 rose 5% from 18,544 apartments in 1999 to 19,465 apartments in 2000. As with the owners' NMHC 50, the management listings suggest continued gradual consolidation in apartment management. The top 10 companies now manage 6.7% of the nation's apartments (that is, rental units in structures with at least five units), up from 6.6% last year. The full NMHC 50 manage 13.6% of the nation's apartments, matching last year's percentage.
|NMHC 50 Managers||2000||1999||1998||1997||1996||1995||1994||1993|
|Portfolio Size Measures|
|Share of National Apartment Stock|
Note: Beginning in 1999, management totals exclude management of condominiums and cooperative housing communities.
Thirty-five companies appear on both the owners' NMHC 50 and the managers' NMHC 50. Consequently, on each list there are 15 companies that appear on that list only. Many of the firms appearing on just one of the lists both own and manage apartment properties, but they specialize in either one or the other. The specialists include some of the biggest companies on the two lists. Among apartment owners, Related Capital and Boston Capital have long been near the top of the NMHC 50, even though Related uses other companies to manage many of its properties and Boston Capital contracts out all of its property management. Similarly, on the managers' NMHC 50, Pinnacle Realty Management is No. 4 again this year, managing nearly 100,000 apartments, while Pinnacle's ownership interests fall just below the threshold for the ownership NMHC 50.
Some firms that appear on both the ownership and management NMHC 50 lists are more prominent in one ranking than the other. Companies whose ownership and management portfolios differ by more than 25,000 apartments are Lend Lease, Whitehall Street Real Estate Funds, LeFrak Organization, Lincoln Property Co. and Trammell Crow Residential. And AIMCO, while No. 1 in both lists, manages 121,928 more apartments than it owns and truly dominates the management rankings.
The Largest Firms
The Largest Firms
SIZING THE APARTMENT REITs
The NMHC 50 ranks apartment owners by the number of apartments in which they hold an ownership interest. For the majority of companies in the listing, this is the only consistent and generally available measure of size.
For publicly traded REITs, however, another metric is available: total capitalization. The size of REITS, like other publicly traded companies, can be approximated by adding the market valuation of the company's equity and the book value of its debt. Because all of the REITs in the NMHC 50 are apartment specialists, the majority of their assets are apartments owned by the company.
The table below lists the publicly traded REITs in the NMHC 50 in order of size by the units measure. Also shown is the rank by total capitalization. There are some notable differences in the rankings. At the top, although AIMCO has an ownership interest in 5% more apartments than does Equity Residential, by the total capitalization measure EQR is nearly twice the size of AIMCO. Other REITs that rank considerably higher by market valuation than by number of units include AvalonBay, Post Properties, Charles E. Smith Residential and BRE Properties. The differences between the two rankings have several explanations. Perhaps the most important is partial ownership of apartments. In addition to being the sole owner of thousands of apartments, some REITs have partial ownership interest in others, typically through involvement in a partnership as either the general partner or a limited partner. While this ownership interest may be as small as 1%, the apartments enter the count as if they were owned exclusively by the REIT. The valuation measure, by contrast, effectively adjusts for the extent of ownership. Notably, AIMCO has full ownership of only approximately 25% of its apartments and an ownership interest of less than half for approximately 60% of its holdings. Other reasons for differences between the rankings include: (1) differences in the average value of apartments owned by the company due to geography or apartment quality; (2) differences in the holdings of non-apartment assets, both "hard" assets and the valuation of contracts for "third party management" of apartments owned by others; and (3) differences in the equity market's assessment of the current income and growth prospects for the company.
|Apartment Investment & Management Co.||240,540||1||6,663||2|
|Equity Residential Properties Trust||228,504||2||12,648||1|
|United Dominion Realty trust||81,180||3||3,578||5|
|Camden Property Trust||55,260||5||2,554||7|
|Walden Residential Properties||39,024||7||1,612||12|
|Mid-America Apartment Communities||34,540||9||1,400||13|
|Charles E. Smith Residential Realty||27,634||11||2,503||8|
|Gables Residential Trust||27,352||12||1,667||11|
|AMLI Residential Properties Trust||22,315||14||964||14|
|Associated Estates Realty Corporation||21,280||15||821||16|
|Cornerstone Realty Income Trust||
outstanding, including operating partnership units; (2) the value of
perpetual preferred stock; and (3) the book value of total debt
outstanding. Capitalization is estimated as of December 31, 1999
(except for Walden, for which the estimates are as of September 30,
1999), and is provided courtesy of Legg Mason Wood Walker,
MANAGING CONDOS AND COOPS
The NMHC 50 rankings are restricted to rental apartments. But the expertise required to manage condominium and cooperative housing communities is similar in many respects to that needed for apartment management. In fact, some companies that manage apartments also provide management services to multifamily condos and coops, as well as to homeowner associations in townhouse and single-family developments. Several of these condo and coop specialists are big enough that, if included in the NMHC 50 management rankings, would appear near the top. The seven largest as of January 1, 2000, based on number of condo, coop and homeowner units managed, as reported to NMHC, are Wentworth Group (94,000 units), Sentry Management (86,031 units), Continental Group Ltd. (75,000 units), Insignia Financial Group (59,852 units), Legum & Norman (47,812 units), Professional Community Management (44,355 units), and Hawaiiana Management Co. (43,556 units).