Related Capital adds huge block of properties with PW Funding acquisition.

By Stephen Ursery

No company enjoyed a more dynamic year in 2001 than New York-based Related Capital Co., according to the National Multi Housing Council's (NMHC) annual ranking of the largest apartment owners. At the beginning of this year, the company and its affiliates held an ownership interest in 246,918 apartment units, a whopping increase of more than 53% from the same period one year earlier. No other apartment owner's portfolio grew by more units. Related placed second overall on the NMHC's 2002 ranking of the largest apartment owners.

According to statistics provided by the company, the overwhelming portion of that growth -- just more than 85% of the apartment units -- stems from the purchase of New York-based PW Funding by CharterMac (AMEX: CHC), a publicly traded, direct mortgage lender that Related Capital manages.

There is more growth to come. Stuart Boesky, senior managing director of Related Capital, estimates that the company will add approximately 30,000 units in calendar year 2002.

Founded in 1972, Related Capital focuses on the production of affordable housing units by providing equity and debt financing to multifamily developers. According to the company, it has financed the construction and rehabilitation of more than 90,000 affordable housing apartment units in 44 states and Puerto Rico. In 2001, the company raised $490 million in equity and originated $317 million in debt.

In the company's complex corporate structure, Related also manages CharterMac and American Mortgage Acceptance Co. (AMEX: AMC), a REIT. CharterMac, which has a market capitalization of $737 million, focuses on investing in tax-exempt bonds for the development and acquisition of affordable multifamily properties, while American Mortgage, which has a market capitalization of $53 million, concentrates on taxable financings for market-rate apartment units.

On June 19, CharterMac's stock price closed at $17.70, down from a 52-week high of $17.91. The stock's 52-week low was $14.60. As for American Mortgage, the company's stock price closed at $13.97 on June 19, down from a 52-week high of $15.50. The stock's 52-week low was $10.93.

Approximately 70% of the units in which Related Capital and its affiliates have an ownership interest are affordable units, defined as apartments reserved for households making no more than 80% of the area median income, according to Alan Hirmes, senior managing director of Related Capital, who adds that the majority of the units acquired through the PW Funding transaction were market-rate.

One of the appeals of investing in affordable apartments is the supply and demand situation, Boesky says. A recent Congress-mandated report by the Millennial Housing Commission stated that 13.4 million renter households are spending more than 30% of their income on housing, the federal government's definition of unaffordable housing.

By contrast, only about 100,000 new affordable units are produced each year through various federal and state initiatives, according to Boesky. Couple that with the fact that almost as many older affordable apartments are being converted to market-rate properties each year or are deemed functionally obsolete, and there is a healthy demand for affordable properties, he adds.

"What you really have in this country right now is large demand, an undersupply and no positive momentum toward satisfying that demand because as fast as new affordable units are being built, older affordable units are being taken off the rent roll," Boesky says.

In one of its more recent noteworthy affordable deals, Related Capital and its affiliates provided $29 million in debt and equity financing to Dallas-based Southwest Housing Development Co. for the construction of three affordable housing complexes in Texas and Colorado. The communities will total 464 units.

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