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It's good to be an apartment developer again. Rental builders across the country breathed a collective sigh of relief last year as the once red-hot condo market began to cool. They took advantage of the long-awaited marketplace shift and broke ground on a large number of rental units in 2006. One such trailblazer: United Dominion Realty Trust, which jumped from the No. 38 spot on the multifamily builders ranking in 2005 to the No. 5 spot in 2006 and expanded its development/redevelopment pipeline to more than 15,000 homes with a budgeted cost of more than $2.2 billion.

The Richmond, Va.–based REIT attributes its significant building boom to a well-planned growth strategy. “In late 2004, the fundamentals of the apartment industry in the long range looked very good to us, so in early 2005 we started philosophically looking to ramp up our development pipeline,” says Mark Wallis, a senior executive vice president. The tactic certainly worked: The company broke ground on approximately 4,300 units last year (interestingly, a mix of for-sale and rental units) compared to 1,335 in 2005. Following similar strategies, fellow REITs Camden Property Trust and Equity Residential upped their standings with Camden moving from No. 49 to No. 21 and Equity landing a spot on the list.

Several condo developers, on the other hand, fell a few notches. Most noticeably, The Related Group lost its No. 1 spot, plummeting to No. 20. The company attributes its nearly 57 percent revenue decrease not to the condo slowdown but to less available inventory in 2006 compared to 2005. “In 2005 almost every project we launched sold out,” says Jorge Perez, chairman and CEO of The Related Group. The company did protect itself against market conditions by expanding its marketing efforts outside the U.S. and launching an overseas subsidiary called Related International with its first project planned for Puerto Vallarta, Mexico. The developer plans to invest more than $1 billion in Mexican real estate over the next two years.

Despite reduced competition in the U.S. from big condo players such as The Related Group, getting the shovel in the ground still proved challenging for apartment developers last year. Building costs decreased only slightly from 2005, and land prices continued to soar even as competition for land lessened. “Finding the appropriate land to build on at the right cost is our biggest obstacle,” says Mike Godwin, president and CEO of Valdosta, Ga.–based Ambling Cos., which jumped 20 spots on the top 50 multifamily builders ranking. “Landowners haven't shown the willingness to negotiate and to bring the prices down thus far,” he adds.

But companies found creative ways to get deals done, such as tackling public/private joint ventures, which have proved successful in recent years, and expanding into new niches, particularly affordable housing, which a growing number of locales require as a component of market-rate communities. About 700 of Ambling's 2,789 rental starts were for workforce housing, thanks in part to a relatively new Georgia state tax credit that helps finance these deals. Godwin anticipates that many of these units will be filled by homeowners faced with foreclose on their current homes because they can't keep up with their monthly payments. “As long as interest rates and construction costs stay within reason, there will absolutely be more workforce housing done going forward,” says Godwin.

Executives anticipate apartment development in general to stay strong in 2007. “There's no doubt that 2007 is not the year to be a condo developer,” says Greg Mutz, CEO of Chicago-based AMLI Residential, which builds market-rate units. And developers do expect land prices to eventually stabilize. Ultimately as sellers realize that the bid for condos is gone and there are fewer people in the marketplace, land prices may not go down but they won't go up as much as they have been, says Ric Campo, CEO and chairman of Houston-based Camden Property Trust, which also builds market-rate housing.

Talk about a long-awaited development.

Rachel Z. Azoff is associate editor for Multifamily Executive, a sister publication to Builder.

Learn more about markets featured in this article: Atlanta, GA.