The largest multifamily companies own around 300,000 units. To surpass 500,000 units, companies will need information technology and the development of leadership of operations, says Toomey. Since no one wants to grow for the sake of growth, the 500,000-unit hurdle remains high, says Costa. “We’re not focused on becoming bigger. We want to maintain a solid portfolio.”
Still, bigger companies find one huge benefit: economies of scale. “I think bigger can be better,” says Adler. “Our goal is to leverage our size and scale to provide benefits to our shareholders, employees, and residents.” AIMCO already takes advantage of its size in purchasing, snagging cost savings on a citywide scale for labor and on a nationwide scale for materials.
The company also has harnessed technology to remove certain low-value-added activities – such as renewal letters and customer surveys – from the on-site staff. “Any function performed occasionally can be done more efficiently, which ends up creating customer value,” says Adler. But even with 200,000 units, “economies of scale aren’t fully realized at our size,” he says. “We see additional opportunities.”
Everyone in the industry is looking for new tools to help capture economies of scale and better run their companies. So, what will happen next? “You are going to need to see the cap rates and interest rates rise for many of the players in the REIT sector to start to be net acquirers again,” says Pettinella. And look for institutional investors and foreign money to join in, Goldstein predicts. In the meantime, companies will continue to scour their portfolios, sell undesirable properties, and make sure they’re ready to take advantage of the next big wave.
– Additional reporting conducted by Rachel Z. Azoff