The More Things Change, The More They Stay the Same

WASHINGTON, DC—As GlobeSt.com reported yesterday, the National Multi Housing Council has released its 2013 NMHC 50 rankings and while some findings may seem like déjà vu, other things have changed significantly over the past year.

It's well known that apartments are at the top of investors' shopping lists, and the past year has proved that; transaction volume rose 50% over the course of 2012 to end the year at $85 billion, the highest level outside of the halcyon says of 2005-2007. Sales of mid- and high-rise properties together hit the $32.1-billion mark, almost as high as the 2007 volume of $33.7 billion. Bargains were harder to find, with average cap rates at 6.1%—the same as in 2006.

“Overall, the same dynamic that characterized the previous two years again drove the apartment industry in 2012: The increase in demand for apartment residences outpaced the increase in supply of new apartments,” says Mark Obrinsky, chief economist and SVP of research at locally based NMHC. “Following the virtual shutdown in apartment development in 2009, deliveries of newly completed apartments fell to some of the lowest levels on record in 2010 and 2011.”

Even though completions rose by 22% last year, the 158,100 units delivered to the market was “about half the level needed to meet both pent-up and ongoing demand,” says Obrinsky. “If the year-end pickup in starts is sustained throughout 2013, the supply-demand mismatch may finally recede in 2014 and 2015.” Whether this happens, he adds, depends heavily on “overcoming some continuing lending constraints, outdated regulations and social and political attitudes” that favor single-family development over multifamily.

Source: National Multi Housing Council

Although public policy may favor for-sale homes, renting became more popular among the general public. The rentership rate hit its highest level in 17 years, at 34.7% in the fourth quarter of 2012, as the renter pool expanded by more than one million for the third year running. That, notes Obrinsky, is the first time that's occurred since 1965. While the lack of supply reduced absorption by half, the national average occupancy rose 70 basis points to just over 95% in 2012 and average rents for investment-grade apartments rose 3.7%, 170 basis points more than the overall inflation rate and the strongest “real” rent increase since 2000. Yet adjusted for inflation, rents remain around 4% below the pre-recession peak.

The results of the NMHC study reflect the stability “that characterizes mature industries,” says Obrinsky. As it has been for 14 of the past 15 years, apartment managers have more multifamily units in their portfolios than owners, accounting for a margin of 121,809 units, or a 4.4% difference. And, the economist points out, “For the fourth straight year, both the median and mean owner portfolios are greater than their management counterparts, yet the management portfolios of the No. 1 and No. 50 firms top those on the ownership side.” On both the owner and manager lists, more than half of all firms hold portfolios ranging from 30,000 to 50,000 apartments units.

Source: NMHC

The top 50 owners on NMHC's list collectively held a 15.7% share of the US multifamily industry. Their average holding of 58,091 units was the fourth-highest on record even though the overall number declined 3.3% over the year. The median holding rose to an all-time high of 47,330 units.

While Boston Capital remained the biggest owner for the fourth consecutive year, other players were shuffled. The greatest leap was Hunt Cos. Inc., which climbed up five spots to land in the No. 2 position. Led by CEO Woody Hunt, the El Paso, TX-based firm's portfolio rose by 28,385 units from Jan. 1, 2012 to 143,097 units at the beginning of this year. That bumped Centerline Capital Group down one spot to No. 3 and Boston Financial Investment Management down two spots to the No. 5 position. SunAmerica Affordable Housing Partners Inc. held onto fourth place.

Hunt Cos. may have seen the biggest jump, but 29 other firms also increased the portfolios. (The others shed more holdings than they bought during the year. The average reduction of 3,626 units was just a little larger than the average increase of 3,218 units.) Among those who added units are Harbor Group International, UBS Realty Investors LLC, the Richman Group Affordable Housing Corp. and Weidner Apartment Homes. On the disposition side, Aimco reported the greatest decrease of 22,574 units to 71,056, its smallest total since 1997.

Source: NMHC

There was less shuffling around when it came to managers, with only two new names on the top 50 list and the top five firms holding tight to their ranks over the year. Greystar Real Estate Partners was the nation's No. 1 manager for the third year in a row. The firm was followed by Riverstone Residential Group, Lincoln Property Co., Pinnacle Family of Cos. and Equity Residential. With a significant increase in its portfolio of management units, Alliance Residential Co. moved into the top 10 for the first time.

Source: NMHC

In all, 32 firms increased the number of apartments they managed and just 18 reduced the number. The average increase of 2,616 was slightly less than the average decrease of 3,401 units. The aggregate number of units managed by all the companies, grew by just 20 basis points, though that was enough to bring the total to an all-time high. Still, NMHC 50 firms manage just 15% of all apartments in the US.

When looking at the top 50 managers, some trends are notable. For the fourth straight year, the number of apartments managed by the 10 largest firms declined. The gains seen by the six firms who expanded were outweighed by the dispositions done by the other four firms. The majority of the firms on the list—33 to be exact—have management portfolios of between 30,000 and 50,000 units.

The full results of the survey, which NMHC conducted with Kingsley Associates, are available on the NMHC website.

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Aygoren oversees the editorial direction and content for ALM’s Real Estate Media Group, including Real Estate Forum and GlobeSt.com. In her tenure with ALM, she’s held roles of increasing responsibility, including Managing Editor. Aygoren has received several awards for her coverage including Best Trade Magazine Report from the National Association of Real Estate Editors and the James D. Carper Award for Young Journalists. Under her direction, Forum has received four national NAREE awards for Best Commercial Real Estate Trade Magazine.