Click here to download the 2010 Multifamily Top 50 list. (PDF)
A year can make a big difference, especially in the boom and bust of multifamily building cycles. Consider that on our 2009 list (data from 2008), Atlanta-based Wood Partners finished fifth of the 50 largest multifamily builders. Or that Phoenix-based Alliance Residential held the twelfth spot that year. Yet in 2010 neither of these seemingly perennial development powerhouses even made the list of the top 50 multifamily builders.
They weren’t alone. Several other major builders reappeared on our list, including one-time condo king The Related Group of Florida (44), Birmingham, Ala.–based REIT Colonial Properties Trust (48), Atlanta-based REIT Post Properties (35), Denver-based REIT UDR (25), Denver-based Archstone (19), and Phoenix-based Picerne Real Estate Group (17). They all made this year’s top 50 after not starting a single unit in 2009.
Though multifamily development was clearly back in vogue last year, not all of the highfliers from the mid-2000s have returned. Even so, the reemergence of these private builders and the REITs meant that it took a lot more units to make the top 50 multifamily builders list. Last year, the 50th-largest builder, Indianapolis-based Flaherty & Collins Properties, needed 254 new starts to make the list. This year, it took 480 units.
Developers were drawn to the market by improving metrics. Nationally, rents rose 2.3 percent, according to New York–based Reis, a commercial real estate research firm. That meant developers could justify construction starts by underwriting rental increases. The REITs struck first. Arlington, Va.–based AvalonBay Communities (2,446 starts, ranking No. 3), had stockpiled cash and was waiting for signs to develop (AvalonBay actually started building again in late 2009).
Private builders had a much bigger challenge. They may have had the land for new buildings, but debt markets remained frozen for most of the year. As financing began to thaw as 2010 progressed, several private companies began to slowly move back in as well.
“The private builders had sites they owned or controlled that needed to be monetized,” says Scot Sellers, CEO of Denver-based Archstone, which placed 19 on this year’s list with 1,163 starts. “The focus on doing this created more new-development activity.”
Though multifamily construction began a renaissance in 2010, companies didn’t build everywhere. The Washington, D.C., area, with its strong government job base, topped the list of preferable places to develop. Arlington, Va.–based builder Clark Builders Group rode that wave (along with its military housing business) to 2,736 starts, which was good for No. 2 on the builder list.
“Nobody on a national basis lost interest in the D.C. market,” says Keith Anderson, president of Clark Builders Group. “We always felt like someone would find a way to make deals work [in Washington], and it would recover more quickly than other markets. That turned out to be true.”
Other coastal areas, such as Boston, New York, and certain California cities also saw apartment construction begin to return as 2010 progressed. On the other hand, markets with high vacancies, such as Memphis, Tenn., and Jacksonville, Fla., still have inventory that needs to be worked through.
“There are a lot of markets that are not ready for new development,” says Jim Butz of McLean, Va.–based Jefferson Apartment Group (which debuted on the list at No. 33 with 686 units after it spun off from Dallas-based JPI, a top builder before the downturn). “We have to keep in mind that a lot of people are still suffering from overbuilding.”
A Look Ahead
Despite strong rent increases in 2010 and the slow return of construction debt, not every multifamily company elected to turn a shovel in 2010. The leadership at Atlanta-based Trammell Crow Residential, burdened by debt issues on its existing portfolio, had to spin out a new company, Dallas-based Mill Creek Residential. Mill Creek didn’t start any units in 2010. But it is planning 3,000 starts in 2011.
Making next year’s list is shaping up to be quite a competition. Buoyed by what analysts expect to be historically strong demand over the next few years, low supply, and improving debt markets, optimism in the multifamily development world is reaching highs not palpable since the mid-2000s.
“We’re expecting a significant increase relative to 2010, but still not approaching historic levels and normal levels,” says Joe Keough, CFO at Wood Partners. “We’re looking to more than double our volume in 2011.”
For other builders who have land and can get their hands on debt, 2011 promises to be even better than 2010.