Although Village Green Cos. consists of four distinct business entities, its responsibilities can be summed up in a single, straightforward phrase: "We rent apartments." The Farmington Hills, Mich.-based company makes money from the rent paid by tenants of some 26,000 apartments in seven Midwestern states.
Of course, there are a few small steps that come before Village Green can collect those monthly checks, including developing and building new multifamily properties, buying and upgrading existing properties or obtaining management contracts for properties owned by third parties.
In this Village Green is hardly unique. A sizable number of companies do the same thing - companies such as Alexandria, Va.-based AvalonBay Communities; Atlanta-based Post Properties and Trammell Crow Residential; and Foster City, Calif.-based Legacy Partners. But, Village Green is a privately held business, not a REIT. Furthermore, the same family that founded the business 81 years ago continues to own and run it today - a rarity in today's high-stakes real estate industry.
"The company considered joining up with a REIT or becoming a REIT, but we rejected the idea," says Tim Smith, director of communication at Village Green. "We've always been focused exclusively in the Midwest, and most REITs have discovered they can't limit themselves to a single region. Plus, the way we brand our products didn't seem to fit with the REIT philosophy."
Jonathan Holtzman, chairman and CEO, says another reason the company has stayed away from the REIT status is that it builds properties for long-term holding. "We believe we have two sets of clients," he explains. "The first is our equity partners, the second is our tenants."
Both groups favor a long-term strategy - the former directly, the latter indirectly. Most of the equity partners are institutional investors looking for dependable returns vs. immediate performance as reflected in rising stock prices.
Diversity is needed For Village Green, long-term strategy means a great deal. Joseph Holtzman, Holtzman's grandfather, started the business in Detroit as Holtzman Home Building, which focused on construction of single-family houses. Irwin "Toby" Holtzman, Joseph's son, later took over the business and, with partner Nathan Silverman, formed Holtzman & Silverman.
In the 1960s, the company established Village Green Management to manage the apartment properties it had begun building. In the late 1980s, when the third generation began leading the business, the company abandoned its single-family work to concentrate solely on multifamily development. Holtzman credits the growing trend toward specialization in the real estate industry as the reason behind its new focus. "It was becoming clear that if you want to excel, you need to be more of a specialist," he says.
Given the company's history, residential development was an obvious choice. "We saw the apartment industry as being less professional than other parts of real estate," says Holtzman. "We saw more opportunities to make a difference."
He says the apartment industry, similar to the hospitality industry, differs from other commercial real estate because it is consumer-driven. Office and industrial property owners appeal to specialized groups, he notes, and even retail development is driven by retailers, not directly by the consumer. Consequently, Holtzman thinks the apartment industry needs to follow the lead of other consumer industries by providing a more diverse product.
"If you want to buy clothes, you've got all these different price points," says Holtzman. "You can go from basic clothing at Old Navy to an Armani boutique. Everything is targeted to a different group. Apartments have little variation, as if everybody was the same."
The industry, according to Holtzman, tends to recognize only three categories of renters: young people who are just getting started, seniors and people with below-average incomes. "You've got empty-nesters, singles, families, urban people, suburban people and active people," he says. "They all want something different, but for the most part they are all offered pretty much the same thing."
Holtzman believes a negative attitude toward renters holds the apartment industry back from innovation. "The industry is still dealing with the idea that home owners are first-class, while renters are second-class," he says. "I think that's changing, but what's helping make that change is the shift to greater professionalism."
Tiers of properties For Village Green, branding is one mark of professionalism. Putting a company name on a product, says Holtzman, indicates a willingness to take responsibility for quality. And, if a product satisfies the consumer, a loyalty is born.
Holtzman's father began branding some of the company's projects in the 1960s with the introduction of Village Green Apartments. At the time the company was still called Holtzman & Silverman. Changing the company name to Village Green was simultaneous with the decision to focus exclusively on multifamily development. Targeted to an upmarket but not necessarily wealthy clientele, the Village Green properties consisted of complexes of garden apartment buildings with landscaped grounds and recreational amenities.
In 1990, the company introduced a second type of multifamily project called Village Park Apartments. Targeted to a younger and less-established renter, Village Park comprises older properties, mostly from the 1960s and 1970s, that the company buys and then upgrades.
More recently, the company added another line called Regent Park Apartments. These complexes include a greater number of amenities, higher-quality finishes, cabinetry and greater space. They are targeted to high-income tenants.
The company's newest brand, City Apartments by Village Green, reflects the "New Urbanism" movement. It targets young professionals, empty-nesters and other people who prefer a more sophisticated city life. The first City Apartments complex is under construction in Chicago.
The idea behind the tiers, Holtzman explains, is the same as a car company having different models or a hotelier offering different types of hotels: The products bear a recognizable corporate name but have secondary names that become associated with particular lifestyles or income levels.
According to Holtzman, the company owes some of its current success to its nearly 20-year-old practice of forming joint ventures. The company has on-going business relationships with Prudential Insurance Co. in Boston, Allegis Realty Investors LLC in Hartford, Conn., AEW Capital Management Inc. in Boston and several union pension funds.
The company typically does not sell its properties, but a joint venture partner's request for cashout sometimes forces a choice between buying out the partner's interest or disposing of the asset. When a community sells, the new buyer can retain the Village Green name only if it retains the company to manage the property.
Dedicated to the Midwest Village Green produces four to five new or redeveloped communities a year, which total about 2,000 individual apartments. Holtzman says had the company decided to become a REIT, pressure from Wall Street would have pushed for more development - a move that would have been difficult to maintain.
"By being privately held, we can look at things not on a quarterly basis but on more of business-plan basis," says Holtzman. "I think that gives us an advantage over some of our competitors that are public."
Becoming a REIT also would have pushed Village Green beyond its Midwest market - a mistake according to Holtzman. The company strategy is to build nowhere that is more than a one-hour plane ride from Detroit. The geographic focus allows corporate oversight of all properties and enables Village Green to gain a thorough knowledge of the market. "The Midwest is not the same as the West or the South," says Holtzman. "We know what our renters want and need. We don't know what someone in New Mexico needs."
In any event, he adds, given that 25% of the nation's population lives in the Midwest, the market is more than large enough to support company growth. Moreover, he says it is big enough to provide opportunities to become a model for a more professional approach to apartment development and management.
More important than being a model for others, however, is maintaining its position within its own market. "We believe we own and operate more luxury apartments in the Midwest than anybody else," says Holtzman. "And we want to make sure we stay the market leader."