Insider September 2020
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The Apartment Insider

Apartment Deals, Values Plummet in Q2

 

  • During the past five years, TruAmerica Multifamily had been one of the most prolific buyers of apartments in the country. Since its founding in 2013, it has accumulated $10 billion of assets under management totaling approximately 43,000 units.
  • As of March, it was well on its way to another banner year. Then came the COVID-19 shutdowns, and the company took a step back.
  • “We sat out for a period of months—from mid-March to probably late June,” says Robert Hart, President and CEO of TruAmerica. “We had a bunch of deals going into COVID that we let go of because things changed so suddenly, and no one knew what the pricing disconnect was.”
  • Hart wasn’t alone. With $13.9 billion in trades, 2020’s second quarter posted the lowest apartment sales volume in more than a decade, according to Real Capital Analytics’ (RCA). “In addition to the current economic and health crisis, the lasting impacts of COVID-19 remain unclear, and that uncertainty has sidelined investors,” RCA wrote in the report. 
  • Transaction volume dropped across the board during Q2. Portfolio and entity-level deals plummeted 81 percent year-over-year (YOY), while sales of single assets fell 67 percent. Mid- and high-rise volume declined 70-percent, while deal volume for garden apartment assets fell 71-percent YOY.
  • When apartments did sell, the properties were smaller than usual. In Q2, the average community changing hands was just 109 units versus the long-term average of 171 units. According to the RCA CPPI, which measures the value of commercial real estate, prices for mid- and high-rise assets declined YOY.
  • Refinancing volume didn’t drop as far as apartment volume, only falling 35 percent. Distress isn’t as an issue in the sector yet, with the inflow of problem loans only totaling 7 percent of what the average quarter produced in 2009. Still, there was reportedly $20 billion of distressed apartments, according to RCA. Only retail and hotels have higher levels of troubled assets.

 

Buyers Dropping Out

  • As the COVID-19 crisis raged in Q2, buyers not only stopped looking at new deals, they pulled out of agreed-on transactions, too.  
  • Joe Lubeck, CEO of American Landmark, which owns approximately 33,000 units in Florida, Georgia, North Carolina, South Carolina and Texas, says that many of the deals that fell apart probably shouldn’t have been attempted anyway. “I think the deals that fell out of contract are largely not the result of weakness in the market but are the result of the foolishness of the bidding that was going on previously [before COVID-19],” he says.
  • After the novel coronavirus upended the market with a dose of reality, Hart says there was a “disconnect coming up with a value” for apartment purchases. While he thought a 10- to 15-percent discount was appropriate, sellers were “mentally discounting a 5-percent difference.” That left a 5- to 10-percent gap.
  • “I think people that have traded have settled in somewhere between 5 and 10 percent from pre-COVID pricing,” Hart says.
  • The problem is projecting the future. Even before COVID-19, some buyers had been projecting flat rent growth after years of underwiring sizeable increases. Now, any realistic buyer is probably looking at a flat to negative rent growth.
  • “What will happen in the future is hard to predict, but we’re hoping for consistency across the board in the major southern markets,” Lubeck says. 
  • Lubeck says that American Landmark is evaluating some of the deals that have fallen apart during the past couple of months. After taking a break, TruAmerica is also reentering the market. 
  • “You gain strength by playing strong defense, and that allows you to play offense,” Hart says. “You’ve got to get on defense quickly and get people focusing on assets and collections, which we’ve done with ourselves and our management partners.”
  • Now that TruAmerica has shored up its defense, it’s back in the market. “We have four deals set up right now,” Hart says. “We’re moving forward.” —Les Shaver

 

Envolve Communities and Ross Management Announce Merger

 

  • In early August, Envolve Communities LLC announced that it merged with Denver-based Ross Management. 
  • Ross Management consists of 53 apartment communities totaling 2,920 apartment homes in Colorado and Oklahoma, while Envolve manages more than 33,000 apartments in 17 states. With the merger, Envolve can grow its presence in the Rocky Mountain region.
  • “We are excited to have the Ross team join the Envolve family,” said Daniel Hughes, Chairman and CEO of Envolve Communities, in a press release. “The long-standing pursuit of excellence by Ross fits nicely with the values and focus for Envolve. We think there will be synergies that benefit clients, teammates, and our shareholders—so we look forward with enthusiasm to 
  • the future.”
  • Ross Management, which is now known as “Ross - A Division of Envolve Communities,” will continue to be led by Executive Vice President Brooke Akins, a 20-year company veteran.
  • “Ross Management has been a leader in affordable housing in the Colorado and Western region for over three decades, and to now be joining with Envolve Communities ensures this continued legacy,” Akins said in a news release. 

 

MAXX Properties Leadership Transition

 

  • In July, MAXX Properties named Eric (Rick) Wiener as Chairman. He succeeds his father, Robert, who is assuming the role of Chairman Emeritus and will focus on strategic initiatives. 
  • In the transition, Andrew Wiener, Eric’s brother, will assume the Vice Chairman role, responsible for the administration of the family office. Executive Director David Wiener, Eric’s brother, will primarily be involved in strategic planning, capital allocation and acquisitions.
  • Rick Wiener began his career as a leasing agent and maintenance technician of a 23-apartment building. In 1992, he co-founded Wiener West Group in Denver. He led the company’s multifamily housing acquisitions in Arizona, Colorado, Florida, Nevada and Utah.
  • “As is often true in life, it’s all about the journey,” Rick said in a press release. “I look forward to meeting the challenge of results-oriented growth in an ever-changing and fiercely competitive business environment.”
  • MAXX Properties, which consists of multifamily housing, commercial and cooperatives, has been operated by Wiener family since 1936. The company’s current portfolio consists of 37 communities with 8,980 owned multifamily housing apartments in six states across the country and 2,344 cooperative apartments in New York.

 

Movers and Shakers


Michelle Wood  •  VP of Marketing and Engagement  •  Aeris Properties  •  Fort Lauderdale, Fla.


Michelle Wood has been named Vice President of Marketing and Engagement at Aeris Properties. She joins Aeris with more than 19 years of experience in multifamily housing, with specific concentrations in strategic marketing and training programs for some of the nation’s most successful owners and managers, such as Atlantic Pacific Companies and RangeWater Real Estate. Wood joins an executive team that has over 50 years of combined experience in multifamily investment management, as Aeris enters multiple markets across the country.


Laura Rygielski Preston  •  President  •  Trex Commercial Products  •  Winchester, Va.


Trex Co. has appointed Laura Rygielski Preston as President of Trex Commercial Products. She takes over management of the company’s commercially focused subsidiary, which includes two Minneapolis-based businesses — Trex Commercial Products and Staging Concepts. Rygielski Preston brings more than 25 years of experience as a sales and operations executive with large global companies. Most recently, she served as Vice President and General Manager of a $200 million business with Trane, Inc., a subsidiary of Ingersoll Rand.


Greg Bochicchio  •  Chief Transformation Officer  •  CSC ServiceWorks  •  Plainview, N.Y.


CSC ServiceWorks announced the promotion of Greg Bochicchio to Chief Transformation Officer — a newly created position. He will report directly to Chief Executive Officer Mark Hjelle and serve as a member of the Executive Leadership Team. In his new role, Bochicchio will lead the processes and distributed resources (internal and external) to continue to identify and advance the company’s value-creation agenda. He spent the past six years as Executive Vice President of CSC.