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Post Properties Makes Move into Condo Market

Seeing more and more of its tenants grow up, move out and buy their own homes, Post Properties is getting into the for-sale multifamily business for the first time in its 33-year history.

Having seen low interest rates and demographic shifts empty many of its rental units, the Atlanta-based REIT that made a name for itself leasing garden apartments is going condo. (The average occupancy at its existing apartment complexes was 93.1% in the fourth quarter of 2004, up from 92.9% a year earlier.)

Last fall, Post started its first-ever condominium project, known as the Condominiums at Carlyle Square, a $95 million complex of both apartments and for-sale units, in suburban Washington, D.C. In December, the company followed with plans to buy an undeveloped corner of Atlanta's upscale Buckhead submarket for a 500-unit condo and apartment project due in 2007.

In February, Post converted the first of its existing units to condos at complexes in Tampa and Dallas and told investors that it plans more conversions in Atlanta and elsewhere. The company is scouting more sites for new for-sale projects, and at the same time has launched a new for-sale brand, “Post Preferred Homes.”

CEO David Stockert says that greater demand for condominiums, which has hurt Post's apartment occupancy, is coming from strong demographic shifts and changes in consumer tastes — not simply recent low interest rates that have made it easier for renters to buy. Increasingly, the U.S. is becoming an ownership society, Stockert believes.

“Seventy percent of consumers nationally own their own home vs. 30% who rent, and that percentage has increased over the last five to six years,” Stockert says. “That's being helped by interest rates, there's no denying that, but it's also driven by demographic changes.”

As the graying of America continues, more people are looking to downsize from single-family homes, but they'll still want to own, insists Ellen Burnstein, an analyst with Atlanta-based condo research firm Dale Henson Associates. “The active elderly are beginning to give up their homes everywhere, and moving into condominiums that require less maintenance,” Burnstein says.

In many urban areas, owned multifamily units will eventually be the predominant type of housing, Stockert says. “Two-thirds of our potential customer base would rather have a different living experience. We would be unwise to not pursue that business.”

But Post, which spent most of last year waging a proxy fight with its founder John Williams, may be late to the condo game.

Several developers, including Atlanta's Novare Group and its frequent partner, Wood Partners, already have ongoing projects in metro Atlanta, Orlando, Tampa and Nashville. Even Cousins Properties, another REIT, has jumped into condo projects with a modest, 117-unit project in Atlanta and 50 Biscayne, a 523-unit luxury high-rise in downtown Miami.

Post's decision underscores the challenges of the apartment business, where slow job growth and tenant defections to condos are emptying complexes in most markets. “It's still a renter's market with many rent concessions still there,” Burnstein says. “It's harder to make money renting apartments.”

Still, Post will continue to develop rental properties. “We're not going to abandon the rental business by any means. It's still the meat, and the biggest part of our business,” Stockert says. “We want the for-sale option to meet multiple channels of resident demand.”

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