APARTMENT OWNERS The Leaders The two giant REITs at the top of the listing, Apartment Investment & Management Co. (AIMCO) and Equity Residential Properties Trust, strengthened their hold on the top two positions as the biggest apartment owners in the nation. These two companies alone account for nearly a half million apartments. Equity Residential grew its portfolio 16%, adding 35,946 apartments and narrowing the gap between itself and AIMCO. While AIMCO retained its position as No. 1, which it had assumed a year ago following several huge acquisitions, Equity Residential is nearly twice the size of AIMCO by an alternative measure - total capitalization - that is available only for the publicly traded REITs in the NMHC 50 and is discussed below.
The rest of the top 10 offers a mix of old and new names. In the third spot among the nation's apartment owners is Related Capital, marking the 11th consecutive year that Related has been the nation's third or fourth largest owner of apartments. Lend Lease Real Estate Investments, a subsidiary of the Australia-based Lend Lease Corp., premiers in the rankings in the lofty No. 4 position with a portfolio of more than 113,000 apartments, rocketed by its acquisition of Boston Financial, a charter member of the NMHC 50.
Moving up four places to the No. 5 position is Goldman Sach's affiliate Whitehall Street Real Estate Funds, boosted in part by its acquisition of an ownership interest in the portfolio of Berkshire Realty Co., a REIT taken private during the year. Nos. 6 through 9 are established veterans making a return appearance among the top 10: Boston Capital, United Dominion Realty Trust, SunAmerica Affordable Housing Partners and Archstone Communities. Rounding out the leaders list at No. 10 is National Partnership Investments Corp. (NAPICO), whose totals include the holdings of its affiliate Casden Properties.
The Newcomers One indication of the stability of the apartment industry over the past year is the relatively small change in the firms appearing in the top 50 list. Only six firms are newcomers to this year's NMHC 50 list of apartment owners, down from 10 newcomers last year. In addition to Lend Lease, GE Capital more than doubled the number of apartments in which it has an ownership interest to assume the No. 17 position. JPI Cos., a privately held specialist in upscale and student apartments, stepped up its activity in a number of markets and takes the No. 26 spot in the ownership rankings. The other newcomers - Northwestern Mutual, Trammell Crow Residential and Cornerstone Realty Income Trust - are established players in the apartment market that this year moved above the entry threshold and acquired an NMHC 50 ranking.
Rising Stars Of companies on the NMHC 50 list in both 1999 and 2000, Whitehall Street Real Estate Funds posted the biggest increase in apartments owned. In a break from the past couple of years, REITs do not dominate the listing of the biggest gainers in the NMHC 50 listing of apartment owners. Equity Residential and Home Properties are the only REITs ranked among the top five companies in terms of portfolio growth.
REITs in the Rankings By recent standards, 1999 was a year of reduced growth for apartment REITs, as their generally subdued stock prices reduced the potential for mergers and acquisitions. Nonetheless, the 16 publicly traded REITs in this year's listing had an ownership interest in 1 million apartments, up 2% from the combined holdings of the 17 REITs on the list last year. Most of the nation's apartment REITs appear in the NMHC 50.
Among the REITs, Equity Residential's (EQR) acquisition of Lexford Residential Trust (No. 25 last year) boosted EQR's portfolio by about 37,000 and accounted for most of EQR's growth during the year. Walden Residential Properties holds the No. 18 spot in the ownership rankings. Although Walden's acquisition by privately held Olympus Real Estate Corp. was announced last September, the deal was scheduled to close after January 1, 2000, the date to which the NMHC 50 rankings apply. Berkshire Realty Co., No. 35 from last year's list, was taken private and now appears as Berkshire Realty Holdings, L.P. The NMHC 50 welcomes Cornerstone Realty Income Trust in the No. 50 position, the only REIT among this year's newcomers.
A few accounting points are relevant in discussing the REITs in the NMHC 50. 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 publicly traded companies in the NMHC 50 that have not elected the REIT tax status. Finally, to allow comparisons with the portfolios of non-REIT owners, the NMHC 50 ranks by number of apartments in which the entity has an ownership interest, which gives a different ranking for apartment REITs than would the size as measured by the company's capitalization. The accompanying box discussion compares the rankings by these two alternative measures.
Industry Growth and Concentration This year's NMHC 50 documents the continued growth and gradual consolidation of the nation's apartment industry. The number of apartments owned by the NMHC 50 increased 9% during 1999, off slightly from last year's record 11% growth. As was the case in previous years, the growth was most rapid among the industry's giants, as the combined apartment holdings of companies in the top 10 positions jumped 13%. The threshold required for entry in the NMHC 50 owners list rose 6% from 19,697 apartments to a new high of 20,965 apartments.
The largest apartment companies continued to increase their share of the entire apartment market. The top 10 firms have an ownership interest in 7.2% of the national stock of rental apartments in structures with at least five apartments, which NMHC estimates totaled 17.3 million apartments as of January 1, 2000. Last year the ownership share had been 6.6%. The top 25 firms hold 10.9% of that stock, and the full NMHC 50 accounts for 14.6% of the nation's rental apartments. All of these are new highs for the 11-year history of the NMHC 50.
APARTMENT MANAGERS Many of the nation's largest apartment owners self-manage their properties and therefore also appear on the NMHC 50 of apartment managers. But other firms specialize in property management and provide this service to apartment owners, including some of those in the NMHC 50 owners list.
The Leaders AIMCO maintains its dominance in this year's ranking of the nation's largest apartment managers. In addition to managing most of its owned portfolio, AIMCO manages many apartments for other owners, and these "third party" arrangements boosted the number of apartments managed by more than 100,000 above its ownership count. Solidly in the No. 2 position is Equity Residential Properties Trust, which does less third-party management but manages almost all of the apartments it owns. Lincoln Property Co. and Pinnacle Realty Management Co., each with approximately 100,000 apartments managed, retained their No. 3 and No. 4 rankings. The remaining companies in the top 10 are all returnees with the exception of No. 9, Trammell Crow Residential, which moved up from No. 15 by adding approximately 7,000 units to its management portfolio during 1999.
The Newcomers Six companies are new to this year's NMHC 50 of apartment managers. Three - Lend Lease, JPI and Cornerstone - also are new to the ownership NMHC 50. In addition, Legacy Partners nearly doubled its management portfolio to premier in the No. 26 position among the nation's largest apartment managers, as did No. 38, National Partnership Investments Corp. BH Management Services moved into No. 47 on the strength of its 10-state management portfolio totaling 20,000 apartments.
In addition to the newcomers, two returnees are listed under new names this year. Whitehall Street Real Estate Funds reports the management operations listed last year for its affiliate Archon Management Services. A similar substitution occurs with FowlerShore & Flanagan, represented last year by Trust Property Management.
Rising Stars of Management In addition to the companies that also made big moves up in the ownership NMHC 50, firms making notable gains on the NMHC 50 management list are AIMCO and Greystar Management Services.
Apartment Management Growth and Concentration The total number of apartments managed by the nation's 50 largest apartment managers increased 4% during 1999. The growth was broad based and nearly equal in the top and bottom parts of the NMHC 50 ranks. The threshold for entry into the management NMHC 50 rose 5% from 18,544 apartments in 1999 to 19,465 apartments in 2000.
As with the owners' NMHC 50, the management listings suggest continued gradual consolidation in apartment management. The top 10 companies now manage 6.7% of the nation's apartments (that is, rental units in structures with at least five units), up from 6.6% last year. The full NMHC 50 manage 13.6% of the nation's apartments, matching last year's percentage.
SPECIALISTS Thirty-five companies appear on both the owners' NMHC 50 and the managers' NMHC 50. Consequently, on each list there are 15 companies that appear on that list only. Many of the firms appearing on just one of the lists both own and manage apartment properties, but they specialize in either one or the other. The specialists include some of the biggest companies on the two lists. Among apartment owners, Related Capital and Boston Capital have long been near the top of the NMHC 50, even though Related uses other companies to manage many of its properties and Boston Capital contracts out all of its property management. Similarly, on the managers' NMHC 50, Pinnacle Realty Management is No. 4 again this year, managing nearly 100,000 apartments, while Pinnacle's ownership interests fall just below the threshold for the ownership NMHC 50.
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 and management portfolios differ by more than 25,000 apartments are Lend Lease, Whitehall Street Real Estate Funds, LeFrak Organization, Lincoln Property Co. and Trammell Crow Residential. And AIMCO, while No. 1 in both lists, manages 121,928 more apartments than it owns and truly dominates the management rankings.