This special section of National Real Estate Investor features the National Multi Housing Council's (NMHC's) ninth annual compilation of the nation's 50 largest multifamily owners and 50 largest multifamily managers.
To ensure the NMHC 50 for 1998 is as complete and accurate as possible, NMHC officials gathered names of apartment owners and managers from a wide range of sources. A senior officer from each firm was contacted for the information included in the rankings, which are for properties owned or managed on January 1, 1998. Rental apartments comprise the vast majority of dwellings in both lists, although the definition of multifamily housing also includes condominiums, cooperatives and seniors housing. Hotel rooms, nursing home and hospital rooms, and mobile homes are not included. Pension fund advisory firms are listed only if they have direct ownership interests (as opposed to interests as fiduciaries) or serve directly as property managers.
The NMHC 50 was compiled and analyzed by Jonathan Kempner, Doris Collins, and Jack Goodman of the NMHC staff, who express their appreciation to the industry leaders for their participation in this effort.
In addition to the NMHC 50 rankings and an analysis of the results, this section includes a listing of the leadership and members of the National Multi Housing Council, whose commitment and involvement are crucial to the strength of the organization. NMHC staff biographies round out the section.
Based in Washington, D.C., the National Multi Housing Council represents the interests of the larger and more prominent firms in the nation's multifamily rental housing industry. NMHC's members are engaged in all aspects of the development and operation of multifamily housing, including the ownership, construction, finance, and management of rental properties.
For those readers interested in joining the multifamily industry's leadership, NMHC welcomes inquiries to its Washington offices at 202/974-2300, or you can visit NMHC's Web site at "http://www.nmhc.org".
APARTMENT OWNERS The Leaders Equity Residential Properties Trust is the nation's largest owner of apartments as of January 1, 1998. Moving up from #6 a year earlier, Equity Residential (EQR) nearly doubled its portfolio during 1997 through acquisitions of other REITs and many smaller portfolios. In the #2 position, Insignia Financial also added to its portfolio, but EQR's huge gain nudged Insignia out of the top spot in the ownership ranks after two years as #1. Related Capital Company held on to the #3 slot. The Related organization has been the third or fourth largest owner of apartments in each of nine years of the NMHC 50. Apartment Investment and Management Company (AIMCO) rocketed to #4 among the nation's apartment owners from its position of #29 only one year ago. AIMCO was propelled by its blockbuster acquisition of approximately 86,000 apartments through the purchase of NHP's partnership interests. Rounding out the top 10 are many familiar names to the top ranks of the NMHC 50, and most of these longstanding industry stalwarts also added to their holdings, although less dramatically than Equity Residential and AIMCO. Two firms make their first appearance in the top 10 this year: Sentinel Real Estate Corporation and SunAmerica Affordable Housing Partners.
The Newcomers Six firms are newcomers to the NMHC 50 list of apartment owners. FowlerShore & Flanagan achieved the highest position of the newcomers, at #30. Significant portfolio growth moved five other firms - including some long established companies - across the 18,773 unit threshold for inclusion in the NMHC 50 for owners: Northwestern Mutual Life, Avalon Properties, Charles E. Smith Residential, WNC & Associates, and Home Properties of New York. In addition to the newcomers, one NMHC 50 veteran took on a new name during 1997. Cardinal Realty Services, which a year earlier had acquired Lexford Properties, has now assumed the Lexford name.
REITs in the Rankings Publicly-traded real estate investment trusts in the 1998 NMHC 50 own 632,051 apartments, nearly doubling the count from a year earlier. REITs' share of the NMHC 50 total holdings now stands at 30 percent, and these 14 REITs alone now own approximately 4 percent of the nation's entire stock of rental apartments.
Although part of the growth in apartment REITs has come from acquisitions of other REITs, Wellsford Residential Property Trust (acquired by Equity Residential) is the only REIT lost from last year's listing. In fact, the number of public REITs in the NMHC 50 ownership ranks actually increased from 12 to 14 in the past year. Three of the six newcomers to this year's NMHC 50 - Avalon Properties, Charles E. Smith Residential, and Home Properties of New York - are public REITs. Several other REITs are clustered in the 15,000 to 20,000 unit range that falls just below the entry requirement for the NMHC 50.
REITs' acquisitions also included two non-REIT businesses from last year's NMHC 50. In addition to NHP's absorption by AIMCO, the purchase of the Drever Partners/Concierge interests fueled Walden's jump in the NMHC 50 ranks.
A few accounting points are relevant in discussing the REITs in the NMHC 50. First, REITs' apartment holdings are especially potent, because the typical REIT is full owner of the properties, whereas other formats often involve divvying up ownership interests among multiple investors. Second, 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 the several publicly-traded companies in the NMHC 50 that are not formally structured as a REIT. Third, to allow comparisons with the portfolios of non-REIT owners, the NMHC 50 ranks by number of apartments, which gives a different ranking for the apartment REITs than would the market capitalization of those firms. Finally, the REIT numbers, as well as those for other companies, are inclusive only of deals that closed by January 1, 1998.
Rising Stars REITs dominate this year's listing of the rising stars of the NMHC 50 of apartment ownership. Goldman Sachs' Whitehall Street Real Estate Funds was the only non-REIT to break into the top five of portfolio growth, and REITs took all five top positions of moves up in the rankings. The non-REIT members of the NMHC 50 were not sitting on their hands, however. The majority of the non-REITs on last year's list also increased their holdings, but by less than the REITs.
Industry Growth Profile The total ownership portfolio of the NMHC 50 grew 9 percent in 1997, well above the increases of the past several years. The gains were substantial in all segments of the NMHC 50. Not only did it take more this year to be #1, but the hurdle to make it into the NMHC 50 rose as well.
The growth brought with it considerable jostling within the NMHC 50. Of the 49 firms for which holdings are available for both 1997 and 1998, 21 scored double (or triple!) digit percentage increases in the number of apartments owned, and 11 companies decreased their holdings while remaining in the top 50.
Apartment Ownership Concentration The double-digit growth in the NMHC 50, combined with only slight growth in the total national stock of apartments, resulted in an increase in ownership concentration. The top 10 firms have an ownership interest in 5.7 percent of the national stock of rental apartments in structures with at least five apartments, which NMHC estimates total 16.2 million apartments as of January 1, 1998. The top 25 firms hold 9.4 percent of the stock, and the full NMHC 50 account for 12.8 percent of the nation's rental apartments. All three percentages are up significantly from a year earlier.
Over the longer term, consolidation in apartment ownership has been proceeding apace since at least 1993, but the push from large REITs brought a clear acceleration during 1997. Nonetheless, apartment ownership remains highly fragmented relative to most major industries.
APARTMENT MANAGEMENT COMPANIES The Leaders The gains by the REITs did not topple Insignia from the #1 position, the sixth consecutive year the firm has lead the NMHC 50 rankings of top apartment management firms. Insignia now manages a whopping quarter million apartments (enough to house the entire population of a city as large as Cleveland at a typical occupancy of 2 persons per apartment). Insignia manages many apartments for other owners, and these "third party" arrangements boosted the number of apartments managed well above the number in which Insignia has an ownership interest. Next in line, Apartment Investment and Management Company (AIMCO) moved into the #2 slot formerly held by its acquisition, NHP. Like Insignia, both AIMCO and #3 Equity Residential manage more apartments than they own, but the margin is not as substantial as with Insignia. Other changes in the top 10 were less dramatic. Trammell Crow Residential's sales of some of its regional portfolios, many to REITs that also took over property management, reduced its management portfolio significantly, although Trammell Crow remained one of the nation's top 10 apartment managers.
The Newcomers Eight firms are new to this year's NMHC 50 for apartment management. Two REITs, Camden Property Trust (#18) and Post Properties (#19) found their way into the top half of the rankings. Another REIT, BRE Properties (#29), nearly tripled its management portfolio through both apartment acquisitions and additional third-party management agreements. And two more REITs - Avalon (#46) and Home Properties (#50) - just made it over the threshold. Also new to the NMHC 50 for apartment management were FowlerShore & Flanagan (#42), PM One (#45) which manages apartments as well as condos in the upper Midwest, and Southern Management (#48) with a predominantly Washington/Baltimore portfolio.
Rising Stars of Management Among the companies on the NMHC 50 management list in 1998, the five biggest gains in management portfolios were recorded by REITs. Other firms also made significant moves. Among firms in the NMHC 50 in both 1997 and 1998, as measured by change in rank, two of the five biggest jumps were by non-REITs - the Wentworth Group and Lane Realty Advisors.
Management Growth Profile Gains in the total apartments managed by the NMHC 50 almost matched the big increase in the ownership listing. The total managed portfolio increased 9 percent during 1997 to 2.3 million apartments. Growth was substantial both among the top 25 firms and in the group ranked 26 through 50. As in previous years, firms on the NMHC 50 for apartment management had, on average, slightly larger portfolios than did their counterparts in the ownership NMHC 50 - 45,962 compared to 41,638.
The movement of individual firms was pronounced and, as in the ownership list, the changes in the 1998 holdings were greater than they had been a year earlier. Of the 47 managers on the NMHC 50 list for 1998 with information available for 1997, 20 increased their managed portfolios by 10 percent or more.
Apartment Management Concentration Management of apartments continues its gradual consolidation. NMHC estimates that the top 10 management companies have 6.5 percent of the market, the top 25 have 10.1 percent, and the full NMHC 50 manage 14.2 percent of the nation's apartments. (Note: Because some of the firms manage multifamily condominiums and cooperatives, these percentages somewhat overstate the concentration in rental apartment management.)
SPECIALISTS Twenty-nine businesses are both NMHC 50 owners and NMHC 50 managers. But 21 firms specialize in either apartment ownership or management. Among these specialists are some of the top companies on each list. Among the top five owners, Related Capital and Boston Capital continue to use other firms to manage most of their properties. On the management list, #5 Pinnacle Realty Management has long focused on property management. The apartment industry may be moving slowly toward joint ownership and management, because last year there were 25 "specialists" in the NMHC 50, four more than this year.
In the top ranks of America's apartment industry, 1997 was the year of the REIT. For the first time in the nine-year history of the NMHC 50, a real estate investment trust leads the list of the nation's 50 largest owners of apartments. In fact, REITs have taken over two of the top four spots. The power shift is especially striking because before this year no REIT was even among the top five owners. All told, this is the biggest shake-up ever at the top of the NMHC 50.
REITs have not, however, cornered the apartment market. Only 14 of the top 50 ownership slots are held by publicly traded REITs. Many other companies, both public and private, grew their portfolios during 1997.
Top apartment management firms - the NMHC 50 of management - matched many of the changes in the ownership rankings. REITs were big gainers in the management rankings because they typically manage properties they own. Overall growth during 1997 in apartments managed by the 50 largest firms totaled 9 percent, equaling the increase in the NMHC 50 for owners. While many firms are in the NMHC 50 rankings for both ownership and management, some of the leaders in the apartment industry are specialists who focus on just one of these businesses.
Consolidation in the apartment industry is apparent in the 1998 NMHC 50. The share of the nation's total apartment stock that is owned and managed by the 50 largest firms moved up appreciably during 1997. Nonetheless, the apartment business remains highly fragmented by the standards of many American industries, and there is substantial room for further consolidation.