New Opportunities For the largest owners of multifamily units, growth traditionally takes place through acquisitions. Now, however, some owners are turning to development opportunities, either with joint-venture partners or on their own, as a way to increase their portfolios.
“We have been doing more investment in new construction than acquisition of existing apartments,” says Jeffrey Goldstein, COO of Boston Capital, a real estate financing and investment firm with multifamily housing and commercial holdings in 48 states. The firm’s affordable housing group has increased the most, but the market-rate group also is growing.
Development has always been part of the game plan at AvalonBay Com-munities, a REIT based in Alexandria, Va. “Most of what we own we build,” explains Tim Naughton, COO of AvalonBay, which ranked 18th. Like its counterparts, AvalonBay exited non-core markets, although for different reasons. “Certain markets just don’t lend themselves to new development in terms of returns. We decided if we couldn’t have a fully staffed office within a particular region where we are building, buying, and operating, that wasn’t a market we wanted to be in.”
Why Bigger Rules Despite decreases in ownership, Multifamily 50 members still emphasize having a substantial number of units. “With 130,000 apartment units in 48 states, there are very few markets that I can’t look at and ascertain what the appropriate rents should be or could be,” says Goldstein, whose company ranked fifth.
The bigger a company gets, though, the more management-intensive it becomes. “Getting data on 130,000 apartment units is wonderful – if you have the ability to collect it, analyze it, and disseminate it,” he says.
But large-scale growth will inevitably happen, Toomey predicts. Currently, the multifamily industry is fragmented, with the 50 largest owners controlling about 16 percent of properties. Many other fragmented industries have consolidated, he says. For example, from 1920 to 1960 there were hundreds of American car manufacturers. Today, there are only four. In the 1960s, there were thousands of small hotel chains. Today, there are basically eight chains with 30 brands.