For the apartment industry, 2000 looked much like a “highlights” reel of previous years, featuring moderate new construction, strong occupancy, and solid earnings growth. The NMHC 50 — the annual listing of the nation's largest apartment companies — reflects this enviable stability. Ownership continued to grow more concentrated, albeit at a slower pace, even while the trend toward consolidation in apartment management took a breather. Big merger and acquisition activity moderated further from the pace of the late 1990s. Publicly traded REITs were subject to crosscurrents; some grew, some did not; one abandoned the public markets. But most were rewarded for their steady performance with sharply higher share prices. Finally, there were few newcomers to the rankings, additional testimony to industry stability.
The 50 largest apartment owners increased their holdings by 3%, down from last year's 9% growth (and down from the 10% average of the last three years). As of Jan. 1, 2001, the top 50 owners had an ownership interest in 2.6 million apartments, approximately 16% of the total national stock.1 Portfolio gains were concentrated in the top half of the group, while the bottom half saw a small decline in total holdings. REITs still hold the top two places in the NMHC 50 owner count, but this year's list has only 13 public REITs (down from 16 last year), and they account for 36% (down from 40%) of the total holdings of the NMHC 50.
The NMHC 50 of apartment management, which ranks the 50 largest apartment managers, showed virtually no change in the total number of apartments managed over the year. The NMHC 50 managers manage 2.35 million apartments, close to 15% of the nation's total stock. Among the top 50 firms change was also relatively modest. Although the group consists predominantly of firms who are also among the top apartment owners, property management specialists maintained their standing during the year.
Despite the slowdown in consolidation this year, there appears to be considerable room for further concentration. Unlike many industries, the apartment business remains rather fragmented, with most of the nation's apartments still owned and managed by individuals and smaller firms.
Apartment Investment and Management Company (AIMCO) solidified its position as the biggest apartment owner, increasing its apartment holdings by more than 25,000 units. AIMCO's biggest deal was the acquisition of Oxford Realty Financial Group, the 22nd largest owner in last year's rankings. Even though its size remained constant from its 1999 holdings, Equity Residential Properties Trust easily retained its hold on the No. 2 position. Again as last year, using total capitalization, a measure available only for the publicly traded real estate investment trusts (REITs), instead of number of units owned, the positions for Equity and AIMCO are reversed; Equity Residential is in first place, and AIMCO is the solid No. 2 firm. (See discussion below.) The No. 3 and No. 4 owners are the same as last year: Related Capital Company and Lend Lease Real Estate Investments. Each added more than 12,500 apartments to its portfolio. Moving up one notch into fifth place is Boston Capital.
The rest of the top 10 are also familiar companies. SunAmerica Affordable Housing Partners added 14,000 apartments to its holdings and moved up to No. 6 in the rankings, from No. 8. Whitehall Funds (an affiliate of Goldman Sachs) and United Dominion Realty Trust occupy the next two spots. Casden Properties Inc. — listed last year under the name of its affiliate National Partnership Investments Corp. — moved into the 9th position. Rounding out the top 10 is Lefrak Organization, a return engagement after a year at No. 11.
|NMHC 50 OWNERS||NUMBER MANAGED|
|Portfolio Size Measures|
|Share of National Apartment Stock (%)|
The stability of the apartment industry in 2000 is demonstrated by the small number of firms appearing in the top 50 list for the first time. Only six firms are new additions to the NMHC 50 list of apartment owners. First Union Corporation, an important syndicator in the tax credit housing market that was not included last year, holds the No. 23 spot, with an ownership interest in more than 36,000 apartments.
Private firm Kushner Companies debuts at No. 36, while BH Management Services almost doubled its portfolio holdings to break into the NMHC 50 at No. 45. ConAm Management, among the top 10 in last year's NMHC 50 managers, joins the NMHC 50 owners for the first time at No. 47. Alterra Healthcare, a senior housing specialist, joins the list at No. 48. Westdale Asset Management rounds out the list of newcomers with the No. 50 spot.
The largest increase in apartments owned by any firm in the NMHC 50 in both 2000 and 2001 was posted by the largest firm, AIMCO. It is also the only REIT in the list of the top 5 companies in portfolio growth. Three of the greatest portfolio increases were registered by firms in the top 5 — Related Capital and Lend Lease, in addition to AIMCO. The biggest movers within the rankings were the publicly-traded REIT AMLI Residential Properties Trust, which vaulted from 46th place last year to 35th place this year, and Columbia Housing, moving from No. 37 to No. 27.
REITs in the Rankings
This was an unusual year for publicly traded REITs. Stock prices rebounded sharply following two subpar years. Even so, equity capital remained scarce. Hence, property acquisitions were often funded with cash generated through dispositions. This was a dampening factor in asset growth in 2000. One exception to this trend was AIMCO's acquisition of Oxford Realty, the No. 22 firm on last year's NMHC 50. This helped AIMCO widen its lead over the No. 2 REIT, Equity Residential.
Two REITs — Associated Estates Realty Corporation and Cornerstone Realty Income Trust — had small declines in the number of apartments owned. Each fell just below the cutoff level for this year's top 50. Walden, which is still in the NMHC rankings (at No. 19), shed its REIT status to seek value as a private company. Thus, there are only 13 publicly traded apartment REITs in the NMHC 50 for 2001, down from 16 last year. Even so, the REITs in the NMHC 50 account for just short of the one million apartments they held last year.
There are a few accounting points to keep in mind regarding the REIT figures shown above. In particular, the REIT numbers in the NMHC 50 do not include private REITs that are established within larger business organizations. Neither do the figures include publicly traded companies in the NMHC 50 that have not elected REIT status. Finally, to permit comparisons with the portfolios of non-REIT owners, the NMHC 50 ranks by number of apartments in which the entity has an ownership interest. This gives a different ranking for apartment REITs than would result from alternative size measures, such as the companies' capitalization. The accompanying box discussion compares the rankings by these two alternative measures.
Industry Growth and Concentration
The well-established trend of increased growth and consolidation in the nation's apartment industry advanced further in 2000, although at a more modest pace than in recent years. The number of apartments owned by the NMHC 50 grew by 2.9% last year. This contrasts with the 9 to 11% growth range of the previous three years. Growth was well distributed throughout the top half of the rankings; holdings of the top 10 firms increased by 3.6%, not much below the 4.3% increase in the number of apartments in the portfolios of the top 25 firms. The second tier experienced a slight slippage, as their combined portfolios are 1% smaller than a year ago. Not surprisingly, the threshold for entry into the NMHC 50 is virtually unchanged.
The share of the apartment market owned by the largest apartment companies increased as well. The 10 largest firms have an ownership interest in 8% of the total stock of rental apartments in buildings with at least five units — estimated by NMHC at just over 16 million units. The top 25 firms own 12.2% of the apartment stock, while the NMHC 50 combined hold 16.2% of all apartments, up slightly from 15.9% last year. All these figures are record highs, and are indicative of the further concentration within the apartment industry.
The list of top apartment managers includes many of the nation's largest apartment owners, who self-manage their own properties; hence their appearance on the both the NMHC 50 owners and NMHC 50 managers. Other firms specialize in property management and provide this service to apartment owners, including some of those in the NMHC 50 owners list.
AIMCO remains at the top of the NMHC 50 ranking of the nation's largest apartment managers, despite a reduction in the number of apartments it manages. AIMCO traditionally manages many apartments for other owners, over and above managing most of its owned portfolio. As a result, its management portfolio exceeds its ownership portfolio by almost 60,000 units. Equity Residential Properties Trust, which does little “third party” management, easily retained its No. 2 position. By adding almost 10,000 apartments to the total it manages, Pinnacle Realty Management Company leapfrogged over Lincoln Property Company this year into third place. Of the remaining companies in the top 10, the only newcomer in 2001 is Home Properties, which added just over 5,000 apartments to move into 10th place.
Five companies are new to this year's NMHC 50 of apartment managers. Three — Westdale Asset Management (No. 23), Kushner Companies (No. 45), and Alterra Healthcare (No. 46) — also are new members of the ownership NMHC 50. FPI Management Inc. added 4,630 units to its total to place it 42nd in the rankings. Finally, Grenadier Realty Corp. increased its management portfolio by almost 3,800 apartments to debut at the No. 44 position.
Rising Stars of Management
Only two firms that moved up strongly in the ownership rankings also made big moves on the management NMHC 50: Alliance Holdings, which jumped 10 places, and AMLI Residential Properties Trust, which moved up eight places. Whitehall Funds was the biggest gainer, adding 19,000 apartments to its management portfolio and skyrocketing into the No. 15 position, from No. 36 last year.
Apartment Management Growth and Concentration
The companies of the NMHC 50 manage 2,352,560 apartments, virtually the same number as last year. Within the group, the number of apartments managed by the top 25 edged up by 0.4 percent, while units managed by the second 25 slipped by 1.2%. The median portfolio declined by more than 1,000 from last year's figure, while the mean portfolio rose by a mere six apartments.
The steady increase in management concentration — and the further concentration among ownership this year — suggests that this year's result is more likely a pause in, rather than an end to, the trend. The 10 largest companies now manage 7% of the nation's rental apartments (in buildings with at least five units), down from 7.3% last year, while the top 25 manage 10.8%. The full NMHC 50 manage 14.6% of the apartment stock, also down slightly from 14.8% a year ago.
Thirty-six companies are both NMHC 50 owners and NMHC 50 managers. On each list, therefore, there are 14 firms that appear on that list only. Many of these firms on just one list are actually involved in both ownership and management, but tend to specialize in one of these activities, hence do not reach the threshold needed to rank on both lists. The specialists include some of the biggest companies on the two lists. On the owners list, Related Capital and Boston Capital — veterans of the owners' NMHC 50 — are both among the top 5 owners, but they do not appear on the management rankings. In the managers' NMHC 50, Pinnacle Realty Management moved up to No. 3 this year, managing more than 108,000 apartments. Although Pinnacle is also involved in ownership, the number of apartments in which it has an ownership interest is only a little over one-tenth as large as the number of units it manages.
|NMHC 50 MANAGERS||NUMBER MANAGED|
|Portfolio Size Measures|
|Share of National Apartment Stock (%)|
|Note: Beginning in 1999, management totals exclude management of condominium and cooperative housing communities.|
Additionally, 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 portfolios exceed their management portfolios by more than 25,000 apartments are Lend Lease, Casden, Whitehall, and Lefrak Organization. Firms with management portfolios which exceed their apartment holdings by more than 25,000 units are AIMCO, Lincoln Property, Trammell Crow Residential, and ConAm.