The Midas 10

Introducing Multihousing Professional's Midas Ten-the most elite ranking in the industry.

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Presenting, the nation’s top multihousing REITs. Herein lie the proven strategies to watch and the operational techniques to ponder. Of all the companies, deals, leveraging and methodologies across the nation, here are the ones who got it right.

Wall Street has long held the deed on the country’s significant businesses. It’s been a little slower to get its grip on multifamily, until REITs pointed their gaze east.

While it’s common to consider the number of units or even equity capitalization in establishing the appraisal of a multifamily REIT, neither tells how well or poorly it’s performing. Today, shareholders’ earnings report the winners. In fact, multihousing REITs are some of the best performers, short and long range, across all industries.

AvalonBay Communities tops the list (read all about it on page 44).

TOWN & COUNTRY TRUST
Of the top ten, one story is more a reflection of how to sell a REIT than how to run one. That’s second on the list, Town & Country Trust.

In the last months, Town & Country was at the center of a heated bidding war. But the story really started in 1965 when Alfred Lerner and a friend started the Town & Country portfolio with three buildings. Over the course of the next decades, Lerner built his empire: the Trust grew to 11,000 units, Lerner became a significant shareholder in the nation’s largest issuer of affinity credit cards, MBNA, and owner of the Cleveland Browns.

In October 2002, Lerner lost his fight with brain cancer. At the time of his death he was worth a purported $4.3 billion. Born in Brooklyn, N.Y., Lerner was the only son of Russian immigrants and grew up in the back of his family’s candy store. He became one of the richest people in America and one of its greatest philanthropists.

In the years after his death, his heirs sold off his interest in MBNA to Bank of America, and in the last months, Town & Country. They will hold the prized Cleveland Browns asset.

Town & Country was sold to a joint venture group consisting of Morgan Stanley Real Estate, Onex Real Estate and Sawyer Realty Holdings. Sawyer, headquartered in Needham, Mass., will manage the portfolio. The agreement has delisted the portfolio from the New York Stock Exchange as it will operate as a private venture.

CAMDEN PROPERTY TRUST
If “a little change is gonna do you good,” then it’s all good with our number three REIT, Camden Property. Over the last decade, Camden has rocketed to its third rank position by virtue of three significant mergers and acquisitions valued at more than $4 billion.

Such inherent changes in a corporation naturally keep it busy. As such, Ric Campo, CEO, has rallied the re-tooling of its perception on Wall Street and the spin control necessary to calm a newly-blended workforce. He’s begun carving out a new organization from existing and inherited assets; people and property.

CEO since 1993, Campo is on the Executive Board as Treasurer for the National Multi-Housing Council (NMHC), member of the Executive Board for the Urban Land Institute (ULI) and Board of Directors for the National Association of Real Estate Investment Trusts (NAREIT).

Campo began his real estate career after graduating from Oregon State University. He’s grown the Texas-based firm with assets of $200 million to just under $4 billion and the top three position in the nation.

ESSEX PROPERTY TRUST
In a geographically unconventional maneuver, Essex found itself on the unsuccessful side of the recent ownership jostle for the Town & Country portfolio. Who knows what the primarily East Coast portfolio might have meant for the primarily West Coast company, but it’s all water under the bridge now.

In 1971, George M. Marcus founded Essex Property Corporation (predecessor to Essex Property Trust, Inc.) and The Marcus & Millichap Company; he remains chairman of both. Marcus was one of the original founders of Greater Bay Bancorp, a publicly held financial institution and continues to serve on its board of directors, as well.

While change is often part of the success of many of the real estate REITs, Essex has stayed the course, adhering to its core competency and focusing on West Coast, supply-constrained markets.

In a market characterized by dynamic change, Essex Property Trust, Inc. stands out for its unwavering march. The company’s fixed operating strategy since going public in 1994 continues to be executed by the same management team focused on the same, distinct market segment: supply-protected multifamily housing on the Pacific Rim.

The company’s fixed marketing approach has yielded strong results in the form of a steadily-growing, low-risk and centralized portfolio. The key question is whether the company that has staked its performance on the conservative path has had a change of heart by virtue of the T&C deal, or was this simply a quirky power play.

Marcus’ professional memberships include the Board of Regents of the University of California, the Real Estate Roundtable, the Policy Advisory Board of the University of California at Berkeley- Center for Real Estate and Urban Economics. He graduated with a Bachelor of Science degree in Economics from San Francisco State University; he was honored as Alumnus of the Millennium in 1999. Marcus is also a graduate of the Harvard Business School of Owners/Presidents Management Program and the Georgetown University Leadership Program.

ARCHSTONE-SMITH TRUST
During the 1990s, Archstone changed its name a number of times and was involved in a wide sweep of mergers. By 1998, the company had become Archstone Communities Trust with 200+ garden-style apartments in major metropolitan areas.

Conversely, for over 50 years Charles E. Smith Residential created luxury high-rise communities throughout the District of Columbia, Chicago, Boston and Southeast Florida.

In 2001, Archstone purchased Charles E. Smith for $3.6 billion and made it ASN’s urban high-rise division. The merger boosted the company’s portfolio by 62 percent in number of units and created the Archstone-Smith name.

R. Scot Sellers, Archstone-Smith’s CEO always had a personal vision for the company. When he joined in 1993 after 10 years with Lincoln Mortgage, he immediately began carving out the portfolio. Three years later, he had unloaded less-desirable properties and redeployed capital from the sales to acquire assets in target markets.

An aggressive effort to build a national brand, service programs and boosted amenities to strengthen customer loyalty was also in the Sellers’ vision. The Archstone-Smith organization now encompasses five affiliated real estate companies: Archstone Communities, Charles E. Smith Residential, Ameriton Properties Inc., Archstone Management Services and Smith Corporate Living.

Partnering to develop the first industry specific yield management system (Lease Rent Optimizer, LRO) Sellers caught the idea from the airline and hospitality industries that used sophisticated algorithms to set prices that maximize profits.

Sellers is a member of the Executive Committee of the Board of Governors and current Chairman of NAREIT; member of the Executive Committee of the Board of Directors of the National Multi Housing Council; Director of the Christian International Scholarship Foundation; Director of CEO Forum; and Director of the Alliance for Choice in Education.

The company has historically concentrated on ownership of apartments in areas where further development is limited making the assets more valuable.

MID-AMERICAN APARTMENT COMMUNITIES, INC.
First quarter news is that Mid-America’s revenue is beating all expectations thanks to improved collections, resident utility reimbursements and higher occupancy.

The company with the counter-intuitive name, (its portfolio spans the Sun Belt, not the Mid-West) most notably values spirituality, life balance and respect in the workplace, as well as for residents and shareholders. The firm holds company-wide mediation and offers prayer before meetings as a way of creating a belonging for those who work there.

Joining Mid-America in 1994, H. Eric Bolton was named CEO in 2001 and continues to drive the company’s aggressive growth. Previous to Mid-America, he spent seven years with Trammell Crow in Dallas, and another seven in commercial banking prior to that. Bolton has a BBA in Accounting, a MBA in Finance and Real Estate, and is a CPA (inactive status) and an Associate of Risk Management.

The company vision is lies in the human connection between the company and its residents. This connection streams into programs like Mid-America’s Open Arms Foundation. The charity provides free, fully-furnished apartments, stocked pantries included, to families in medical crisis who are far from home.

Bolton is on the Board of Directors of the National Multi-Family Housing Council, the Board of Directors of Youth Villages and the Board of Visitors for the University of Memphis.

BRE PROPERTIES, INC.
CEO Constance B. Moore holds the reigns on one of the nation’s largest and most lucrative real estate markets: California.

In fact, Moore has overseen BRE’s construction of more than $200 million in new development and the acquisition of close to $70 million in properties in Southern California, the country’s hottest market. BRE, one of the oldest apartment REITs in the nation, seeks to concentrate its holdings even further in California — from 72 percent to upwards of 85 percent of its total portfolio. The company plans to build $250 million in new apartments and make $100 million in acquisitions annually.

As well as growing the portfolio, Moore also highlights the importance of customer service. Recently, BRE launched its re-designed Web site for residents in an effort to create a more seamless interaction.

Founded in 1970, the company generates more than a third of its rental income from apartments in Los Angeles, Orange County and the “Inland Empire” east of Los Angeles. BRE is in the process of selling off its properties in Denver and Phoenix.

BRE works to set itself apart by working from its residents’ vantage point, and placing that perspective first in all they do. It’s a vision they believe is good for residents, and BRE.

EQUITY RESIDENTIAL
Equity goes back to 1969, when Sam Zell and his late partner, Robert Lurie, first started managing apartments while attending the University of Michigan. After graduating, they parted ways, but eventually came back together to form First Property Management and then the Equity Group, eventually becoming Equity Group Investments which bought and sold apartments, office buildings, shopping centers, and other property.

In 1992, Equity went public. At the time, Equity’s portfolio consisted of nearly 22,000 units valued at around $750 million.

Today, Equity Residential is that largest publicly traded REIT in the country. Equity recently made news by purchasing Trump Place in New York and more recently, announcing its desire to sell its Lexford Housing division. The division is comprised of 299 properties in 10 states consisting of 27,390 units, as well as a property management business in Columbus, Ohio.

AMLI RESIDENTIAL PROPERTIES
ARC was formed in 1980 by John E. Allen and Gregory T. Mutz, and Life Investors, a Cedar Rapids, Iowa-based insurance company; hence the name AMLI. The company got its start in the acquisition, development, construction, leasing and management of multifamily residential, suburban office and industrial properties for its own account and functioned as a general partner and advisor to third party capital.

In 1994 AMLI went public, and in the last months went private again with its $2.1 billion purchase by Morgan Stanley.

Morgan Stanley Real Estate’s Prime Property Fund, or PRIME, bought all of AMLI’s common shares and limited partnership units for $37.75 each in cash.
AMLI’s management team will remain in place, Morgan Stanley says.

Nationwide, AMLI’s portfolio spans 75 apartment communities including more than 28,000 units. More than 800 units are being developed at three locations.

Gregory Mutz, AMLI’s chairman and CEO, says: “We are pleased that the value of AMLI’s franchise has been recognized in this sale. The employees and senior management of AMLI are excited to have the opportunity to create value in the future for the investors in PRIME.”

Morgan Stanley (NYSE: MS) is a financial services giant based in New York City. PRIME’s assets include office, retail, multifamily, industrial, self-storage and hotel properties throughout the country. Morgan Stanley manages about $40 billion worth of real estate on behalf of its clients.

POST PROPERTIES, INC.
In 1971, John Williams founded Post Properties. As the first builder to introduce branding to multifamily, he built suburban apartments known for their dazzling landscaping, big rooms and posh pools. The company went public and in 2003, Williams stepped down as chairman, after losing a bitter public fight to regain control of Post. He sued the company, waged a proxy fight to load the board with allies and attempted to mandate that director’s pay obtain shareholders’ approval.

Just months ago, it was revealed that Post reached a settlement with Williams that included more than $3 million in cash payments. In exchange, Williams promised to give up his seat on Post’s board of directors and not to sue or disparage the company.

Post will provide Williams with continued health benefits, use of a private aircraft service and $400,000 a year in cash until 2013. Other various disputes were resolved by a one-time payment of $285,000 to Williams. The parties also agreed to non-disparagement and no litigation covenants. The truce gives closure to both Williams and his former company — as well Post’s shareholders.

Post Properties owns 23,740 apartments spanning 60 communities and 205 apartment under development. It’s also developing 145 for-sale condominiums and is converting 382 apartment units in three communities into for-sale condominium homes through a taxable REIT subsidiary.