THE EVOLUTION OF AIMCO - Free Online Library
BETH ROGERS APARTMENT INVESTMENT AND MANAGEMENT COMPANY BECAME A New PUBLICLY TRADED COMPANY ON THE NEW YORK STOCK EXCHANGE FOUR YEARS AGO. SINCE THEN, THE COMPANY HAS GROWN AT a GALLOP. AIMCO'S JOURNEY MIRRORS THE DEVELOPMENTS THAT HAVE MADE THE MULTIFAMILY INDUSTRY WHAT IT IS TODAY. Four a long time ago, three individuals from distinct segments in the apartment industry came collectively to always be able to form Apartment Investment as well as Management Co. (AIMCO). What began as a enterprise using 9,637 units will mushroom for you to near to 400,000 units by the third quarter of this year when its acquisition associated with Insignia financial group will be complete. Each of the three crucial players got to the enterprise differently. CEO Terry Considine began owning as well as operating apartments along with commercial properties when he was obviously a student in Harvard Law School. With a relatively youthful get older he demonstrated considerable business acumen by simply syndicating apartments (assembling partnerships where he ended up being the overall partner after which selling limited partnership hobbies to end up being able to others). Throughout Boston, Considine participated inside the formation of the Cabot, Cabot, along with Forbes territory REIT, certainly 1 of your nation's initial property investment trusts. Steve Ira, executive vice president associated with AIMCO, would be a former officer whom moonlighted as a burglar guard at their own Denver apartment community. He quickly left law enforcement to start his or the girl own property management business along with grew the company enterprise directly into what became the largest fee-operated apartment management company inside Denver. Ira along with Considine satisfied one another in 1987 when Considine acquired 75 percent ownership involving Ira's company. the combined firms operated as Property Asset Management and also Considine, who had been in the time serving like a Colorado State Senator as well as finding himself stretched thin, asked Ira to take the business national. (Considine would ultimately operate unsuccessfully for your U.S. Senate in 1992 and leave politics.) Considine liked Ira's design of management, that was based on Ira's 'one-hour rule' - a principle that will whoever managed any property had to be a maximum of one hour away from this by any kind of mode associated with transportation because, notes Ira, 'I don't think individuals can easily manage the property intensively getting way away.' Considine as well as Ira applied that will management principle for their holdings through any strategy of buying other management companies that get been closer to the assets they needed to manage, and then building their base via acquiring additional fee management. Your a couple of were in a new position to acquire some other companies via leveraged buyouts. Between 1987 along with 1994, Ira built Property Asset Management in to the 12th largest fee management company in the United States, serving as its president. Then, inside 1994, Considine along with Ira chose to organize a condo REIT. That ended up being in this moment around that they
hooked track of Peter Kompaniez, that headed a firm that was his or her largest client. Kompaniez was a lawyer whom ultimately became senior partner in a Los Angeles firm that was instrumental inside forming four REITs. 1 of his customers wooed him away from law inside 1986 for you to turn in to a president within his firm, that owned a new number of organizations nationwide, such as apartment holdings involving a lot more than 6,000 units. Throughout 1992, Kompaniez formed his or the girl own asset management firm, PDI Inc., to be able to manage these units, and also used Property Asset Management as its charge manager, Kompaniez brought individuals units for the table when AIMCO went public. AIMCO became a public organization traded about the NYSE by means of an initial public providing in July 1994. Since then, the business has grown at a gallop, progressing via relatively humble beginnings through its voracious appetite pertaining to acquisitions. Throughout early 1997, AIMCO managed just under 43,000 apartments, but with the end-of-year acquisition of NHP as well as other companies, it had nearly quintupled in dimensions for you to 192,910 units. This specific past May, it merged with Ambassador Apartments, Inc., which in turn brought 15,728 much more units in to end up being able to the fold. THE INSIGNIA DEAL AIMCO's biggest coup thus far, however, has been the particular acquisition and merger agreement for you to acquire the multifamily operations along with certain property holdings of the Greenville, South Carolina-based Insignia Economic Group, Inc., the actual largest property manager in the country, as well as Insignia's 75 percent interest in its REIT subsidiary, Insignia Properties Trust. Your transaction is actually worth approximately $190 million. Leeann Morein, AIMCO's senior vice president associated with investor relations, notes in which Insignia's similar size along with business strategy created the company an most natural match. Kompaniez explains why Insignia would end up being a great target for acquisition: 'We try to become able to find an excellent return regarding our shareholders in transactions consequently we now have found it advantageous, versus our competitors, to accomplish deals which possess some complexity to them along with the place exactly where the vendor will not want money automatically but desires to make a great investment inside AIMCO or another REIT. In Which needs a determination through the vendor that will favor AIMCO since you're then holding AIMCO paper versus somebody else's.' These were the particular components of the Insignia acquisition. Kompaniez continues: 'Insignia felt that they could increase their return pertaining to their own shareholders through inside effect holding AIMCO typical shares, and also that's what they'll become getting.' And pleasing shareholders seems to become what drives deal making. Dave Glickman, chairman along with CEO of Ambassador, stated in a press launch following its merger, 'We think in which merging along with AIMCO enables Ambassador for you to fulfill its main aim associated with maximizing shareholder value along with growing earnings for each share. ... I am pleased and also impressed with the similarities in between AIMCO and also Ambassador. Each companies possess a strategic vision centered on 3 customer groups: shareholders, residents, as well as employees. Each companies have expanded significantly since their own initial public offerings simply by raising equity capital throughout innovative ways. ... We are excited about this combination using a dynamic company.' Andrew Farkas, CEO regarding Insignia, said virtually the same when he declared, 'Clearly we get
been delivering - within dramatic fashion - in our dedication to enhance shareholder value. Your worth created through this transaction, which includes the particular efficiencies and also ongoing opportunities we'll realize with AIMCO, creates a dynamic and also exciting growth story with regard to each Insignia and AIMCO shareholders.' Insignia shareholders will probably be issued $203 million in AIMCO Series E Preferred Stock which will immediately always be transformed straight into AIMCO widespread stock next payment of your unique dividend of $50 million. Insignia shareholders will also get $100 million inside AIMCO Series F Preferred Stock which, next AIMCO shareholder approval, will convert to AIMCO typical stock. The Insignia deal calls for AIMCO to imagine property management regarding approximately 191,000 multifamily units which consist involving general and restricted partnership investments throughout 122,000 units along with third-party management of 69,000 units. Using the conclusion with the deal, AIMCO is likely to be a genuine sector behemoth because it owns/manages apartments in Puerto Rico and each state except Vermont, along with close to 400,000 apartments below management and 16,000 employees (up from 8,000). DEALING WITH GROWTH Steve Ira admits in which there are definite dangers within becoming too large. 'I believe that significant companies in relation to property operations specially are at an elevated risk associated with turning out in order to be mediocre.' AIMCO plans to stay away from this problem through structuring itself consequently that, inside effect, it doesn't act large. 'What we do,' explains Ira, 'is we break down our portfolio straight into 10 thousand unit pieces along with hire a local, regional one who is very entrepreneurial inside nature, as well as let these people have a business unit they run along with great day-to-day autonomy inside in which smaller sized portfolio. We contact them 'regional operating centers.' AIMCO now has 15 ROCs and, using the Insignia acquisition, expects to have 35 in order to 40. Regional managers tend to be 'coached' and 'resourced' by the senior vice Gate House For Sale Potomac MD presidents on the day-to-day basis. This particular construction warranties that although the company is large, management is definitely at hand and constantly accountable. At the moment, senior management is based within Los Angeles (Kompaniez), Denver (Considine), as well as Orlando (Ira). the trio meets two times a month within Denver. Tom Toomey, executive vice president regarding finance and also administration located in Denver ended up being hired after the IPO. Following the Insignia acquisition, says Kompaniez, AIMCO plans in adding 4 or even 5 much more 'super ROCs.' The Particular just stuff that aren't regionalized inside the company, notes Kompaniez, are generally money allocation, liability management, and also acquisitions. Is there any restrict to always be able to how huge AIMCO may grow? 'First of all, we only develop exactly where it truly is helpful for you to our shareholders,' says Ira. 'In various other words, simply because management offers such a significant stake inside the company, and the three people which founded it carry big levels of stock personally, our objectives and also aspirations are very a lot aligned with those of our own shareholders - that's where we help to make our money, and we won't acquire a new property or even a portfolio unless it's accretive for the original stockholders. So, distinct via a range of whom believe that growth is actually good for growth's sake, we're only expanding exactly where there's an opportunity to grow, where it means which our original shareholders reap the benefits of which growth. all that becoming said, the growth will simply be limited through the quantity of richesse that will could be formed, and towards the extent which
properties are open to acquire. We still think in which you may find good sized quantities of properties for you to acquire that would be beneficial for our shareholders for you to own and we will carry on to appear for those particular opportunities.' Morein notes that will AIMCO uses a variety of strategies that enable it to grow via both an interior along with external standpoint. When AIMCO acquired NHP, it signalled your company's choice the lady says, to take an 'even much more active stance in acquiring general partnership interests, obviously acting in a fiduciary capacity for your limited partners whilst furthermore giving these people an exit strategy' - meaning that will limited partners, in some scenarios (where the particular property profile will be similar for the AIMCO profile), may require a money provide as well as can take operating partnership units ( a new tax deferral strategy), or perhaps they usually stay limited partners. Since Kompaniez noted in the press release, 'AIMCO carries on a prosperous strategy involving escalating its ownership within property partnerships by which AIMCO is already the overall partner via offers to buy the restricted partners' partnership interests. The Particular limited partners possess the chance to money out their investment, or perhaps grow for you to be restricted partners inside AIMCO Properties, L.P. and also diversify their particular property holdings via AIMCO, or perhaps remain as partners using AIMCO since the general partner within their real estate partnerships.' ACQUISITION STRATEGY The organization provides simply no rule of thumb pertaining to its acquisitions, says Ira, 'but, generally speaking, they have to be priced from lower than replacement cost. We think which if a particular company, through example, provides just about all luxury, class A, high-end properties as well as you would contemplate individuals Cadillacs, we'd prefer to personal Chevy trucks. We think which that's the place where the largest variety of people who are now living in apartments within America live along with consequently those are the forms of items that we like to own. That's not to state that we do not have got luxury buildings - we have a couple of involving the the majority of luxurious high-end properties within the nation - nevertheless they've been largely acquired because involving Gate House For Sale Potomac MD certain locational benefits or even because these folks were component of the portfolio purchase. Our strategy can be targeted at center marketplace apartments and residents.' AIMCO looks for you to acquire in places where the neighborhoods tend to be on an up trend, says Ira. the company provides zero lower limit as to what it'll acquire - it has a 20-unit neighborhood in Bowie, Texas, which usually had been acquired as part of a portfolio. 'That's obviously not really our target,' remarks Ira, 'but we aren't scared of smaller properties also, since we are regionally based, we have the management infrastructure set up to adopt care of those properties, whereas most companies do not.' Its single largest holding with the moment is the 2,113-unit Foxchase Apartments within Alexandria, Virginia. After the particular Insignia acquisition, in the 400,000 units AIMCO will possibly be managing, it will provide an ownership curiosity about greater than 300,000. The Particular remainder are usually fee management accounts, the majority of which are controlled accounts (meaning which AIMCO features a managed position in the management process). Even though merely a little fraction associated with AIMCO's company is at straight fee management, your attraction to property owners of AIMCO's solutions over its competitors will be its tremendous purchasing power. 'For instance,' says Ira, 'we may buy insurance on a 400,000 unit base; we pass individuals cost savings together for you to our clients with out any markup. ... We could save our clients more money by yourself just within insurance than the cost of your management fee. Today when you broaden that in order to purchases just like appliances, hardware, pool chemicals, carpeting, paint,
or any 1 of another things, we could purchase and also operate on their own behalf cheaper when compared with anyone else inside the country.' AIMCO's charge management accounts, says Ira, are usually managed identically for the approach it manages individuals properties in which it comes together with an ownership interest: 'We possess a very intensive management type that individuals extend in order to properties that we don't personal - for that reason customers are usually greatly advantaged through in which system.' Ira's assessment involving the future viability of the apartment business is usually that occupancy rates generally comply with task formation. Since the actual economy has been robust, says Ira, it features been a good occasion for your industry. But, as the marketplace is cyclical, the organization does be worried about overbuilding which is why, says Ira, AIMCO offers shied way through development: 'What we're performing is actually getting really cautious, we're purchasing apartments that are in that center sector since you will find a lot more those who work on Wal-Mart than you will find vice presidents involving substantial technology companies along with individuals tend to be individuals who I consider will carry on more than long periods of time to require middleof-the-market housing opportunities. I furthermore believe there's a limitation in order to how lots of people may venture out as well as buy homes. ... An argument is that certainly people will usually need it a house whenever they hold the ability to, but I consider there's a big quantity of people, along along with a expanding quantity of people, who prefer apartments because associated with the approach in order to life and in addition the amenities.' Overbuilding, Ira feels, will end up being the number-one problem within the apartment industry. (Although AIMCO is associated with almost no development, it can actively rehabilitate along with expand its active properties, for example Morton Towers within Miami.) Your 2nd largest issue is regulation. 'I think regulation,' says Ira, 'remains to be to me often the largest unknown. Your myriad of governmental approvals which are essential simply to run your business alter consequently radically and also often, frequently by simply nearby custom as well as design, that an individual simply worry about how exactly those changes could affect the industry inside a extremely negative way.' one product associated with legislation that will Ira presently worries concerning may end up being the telecommunications bill which usually has got the potential to take away an owner's right for you to manage access within a condo community: 'We be concerned which special interests are lobbying to end up being able to allow unrestricted access on private property for that installing telephone, cable, or even any other solutions without having dealing with the particular owner. We believe that those are large problems simply because they violate someone's private property rights.' MANAGEMENT STRATEGY The hallmarks of your well-run property, says Ira, are intensity as well as providing superior service. Ira notes that will it's simple to grow for you to be complacent inside the management process. 'Apartment management is actually something that is a process that really needs to become repeated constantly plus it features being renewed by having an intensity nearly every day once the manager arrives to end up being able to work. Well-managed properties are generally properties where individuals don't grow for you to be complacent, along with exactly where they are usually doing turn out to always be able to be very, really active along with interested as to end up being able to what goes on every day within their neighborhood and consequently they care passionately in regards for you to the folks which they're there to adopt treatment of.' Because portion of the dedication to service, notes Ira, Considine devised the 24-hour support guarantee which usually signifies that virtually any resident using a grievance which isn't looked after within twenty 4 hours will get free rent until the issue can be resolved. However, admits Ira, the typical consumer, when apartment shopping, seldom bases his sound
decision on the management company. Ira feels which renters figure out how to appreciate quality as soon as they've lived inside an AIMCO community, 'but I think that the common consumer selects an apartment not really since of your brand name name.' Nor can he feel that branding will ever end up being possible. 'What you can do,' say Ira, 'is have got areas that are superior, you could have communities that are convenient, and you may take good treatment of the particular residents that you have and they consequently will assist you to be considered a better provider regarding housing.' Kompaniez agrees that branding is practically impossible: 'What we tend to be in any position to work about doing, and also what we consider we're already carrying out a good occupation in doing, can be providing good amenities as well as high quality housing as being a quid pro quo for that us dollars that the resident is paying - throughout fact we guarantee it.' If there's the glaring hole inside an amenity after AIMCO acquires a manufacturer new community, AIMCO will add it. In your event that a property lacked way as well many of the amenities which residents want today, claims Ira, AIMCO most likely wouldn't choose the property since it wouldn't be performing well. Often, after an acquisition, AIMCO will add enhancements such as washer and drier hookups, carports, or any kind of other things residents indicate these people would like in order to have. the something in which AIMCO does together with virtually just about all associated with its communities can be gating all of them - AIMCO, says Ira, believes throughout providing an accessed environment that folks feel comfortable living in.
Ira, that worked his in place as well as discovered management about the fly (with admitted support in the National Apartment Association, the Colorado Apartment Association, and his peers), tries to impart in order to his employees that, 'number one, there's huge chance to have an apartment expert to develop as well as prosper as well as to be happy throughout his job. I do not necessarily know of every other market throughout America nowadays exactly where somebody can literally commence as being a custodian or even as a groundskeeper or maybe a leasing agent and also perform his means directly into becoming an executive and also I think in which individuals opportunities still happens to apartment property management.' The 2nd thing Ira efforts to convey to employees is always that 'the most important factor inside their life is remembering who the actual client is actually along with operating every single day at generating their own client happy. In case your customer is actually happy, you're heading being effective as it flows by means of to be able to precisely what helps make a flat successful, whether
it's raising rents, lowering the particular turnover rate, or even whether it's performing some of the particular things that help make which job work - it's truly a extremely important component.' CORPORATE STRATEGY Why had been Considine, Ira, along with Kompaniez able to, thinking about their relatively humble beginnings, grow the business into a massive entity where many others get failed? 'Let me just say a extremely important factor about Terry,' responds Ira. 'He may always be the many thoughtful along with intelligent and complicated purchaser involving apartments in which I've actually met in my career. He is definitely an extremely successful entrepreneur nevertheless he could be also incredibly able in order to do complicated transactions. I feel that ability can be among the greatest main reasons why AIMCO has grown just just as much as it has. ... other individuals had attempted to look pertaining to a method to acquire Insignia, however Terry has been in a new position to find methodology to locate common ground in order to work with very great those who personal these companies in order to end up being able to find ways to set these together. I believe which will be a very distinctive skill. ... Considine will become the very best inside the country in offer formation as well as capital formation. AIMCO wouldn't achieve success with out Considine as well as Kompaniez, simply no question.' As is typical with most successful businesses, almost all of the senior folks at AIMCO function hard, along with Kompaniez traditionally seen in his office simply by 6 a.m. They Will all travel, according to Kompaniez's calculations, 0.6 involving their own time. Ira, a personal pilot, flies himself to confirm his territory regarding Florida, Georgia, Alabama, along with Mississippi. One thing that helps to make the business unique, says Ira, can be its deference for you to its shareholders: 'The management of our own company, simply because it is a public company, is usually looking out for that shareholders. We take our individual compensation, as well as private net really worth gross, by aligning using the shareholders, thus if we generate income the shareholders help to make money. We've carried out that since day 1 and also I consider this can be a distinctive way of taking a look at the particular world.' At AIMCO, says Kompaniez, base salaries are kept fairly lower compared to sector standards. AIMCO includes a policy of compensating directors mostly inside AIMCO shares and also requiring senior management to invest in substantial investment within AIMCO stock. in February associated with this year, AIMCO strengthened those ties among management and shareholders by simply establishing a brand name new class associated with substantial performance equity inside the AIMCO operating partnership for 12 members involving management along with four impartial directors. the new safety costs more than $2 million cash and it has zero worth unless the particular AIMCO three-year total come back to shareholders is actually 15 percent greater compared to sector averages. Considine noted, inside a press release, 'The new high performance equity provides management a strong incentive to always be able to out-perform the particular REIT averages. That focuses management, which includes the particular board, on the single bottom line: dividend earnings as well as discuss value appreciation. When AIMCO will not significantly out perform its peers, the actual $2+ million investment can be lost.' In addition about bat roosting substantial performance units, AIMCO's senior management as well as impartial board members own approximately $150 million price of AIMCO stock. In 1997 AIMCO earned $2.47 per discuss within AFFO (adjusted funds coming from operations), a new 21 % improve coming from 1996. The Actual total return to shareholders had been 38 percent, which includes money dividends involving $1.85 per discuss and share cost appreciation regarding $8.50. The Actual annualized total return continues for you to be 31 percent since the company's
initial public offering. in comparison, some other business averages, such since the Morgan Stanley REIT index, only elevated simply by 19 percent. Throughout four years, AIMCO stock has were built with a low of $16.50 a new talk about to be able to a high regarding practically $40. Although AIMCO is actually marked with a hunger in order to acquire, it also has offered some of its holdings, creating continuous churning throughout its portfolio. 'In just about any property cycle there are generally some properties that anyone simply must sell,' observes Ira. 'Terry calls it any 'water the roses, pull the actual weeds program.' every 12 months we require a examine each property that we own, rank them, and the bottom-ranked properties - it doesn't suggest which they're negative properties, it will not imply that will they tend to be not going to be productive we'll sell, consider the richesse from that will sale, as well as re-deploy straight into properties that people really feel much better about.' Even though AIMCO seems being acquiring almost everything that's with regard to sale, Kompaniez firmly notes AIMCO itself is not up regarding grabs. Many takeovers are generally marked with a a sensation of trepidation from the acquired company. Communication, says Kompaniez, could eliminate in which fear. The Actual Insignia acquisition has been preceded by frequent visits for you to Greenville. 'I have truly found,' says Kompaniez, 'that with open up communication as well as obvious direction there are not many problems. NHP went fairly smoothly, Ambassador would always be a virtual non-event because regard, along with I anticipate in which exactly the particular same may happen using Insignia.' With Regard To probably the particular most part, Kompaniez says, explaining a person's logistics involving an acquisition, present personnel remain, specially those that are employed on-site, 'and they're pleased to carry on using a larger organization since they will correctly perceive they get higher opportunities regarding advancement.' Your choice regarding which usually workers become AIMCO employees is determined department by department, along with AIMCO will be currently experiencing Insignia 'to see the factor in which makes sense.' Ira says, 'we've been relatively productive with maintaining people involved. Each and Every time anyone acquire a fresh operating entity you're certainly trying in order to find economy of scale nevertheless from the exact same token, if it's someone who we think extremely of, we're trying to maintain the greatest folks via these acquisitions and also keep these involved in our company.' Although AIMCO's primary emphasis is actually multifamily housing, occasionally, admits Kompaniez, a number of commercial properties acquire assumed as portion of a larger portfolio. The Actual company features a relatively significant chunk regarding housing which is occupied mostly as well as exclusively simply by seniors (concentrated within Arizona as well as Florida), also it can be seeking to grow which niche. Ira notes that the organization prefers assisted living 'sort regarding by default - a new number of the actual buildings that people run we acquired whenever we acquired Kompaniez's business and we still add these in, the building at a time, if they're in portfolios which we've acquired.' Ira terms assisted living the 'huge opportunity in which we are constantly exploring inside of AIMCO.' He claims which AIMCO hasn't taken any count, however thinks there are approximately 9,000 assisted living units that will the business currently operates, along with adds that he would not necessarily be surprised to discover out that will AIMCO had been the largest manager associated with assisted living units inside the nation. Despite AIMCO's phenomenal growth, it's not really outstripped some of the actual three founders' dreams or perhaps expectations. While Kompaniez notes, 'When we went public, Terry, Steve, and also I felt it could be very possible that individuals would be as large as 500,000. We've had the oppertunity to do that will faster when compared with I had expected because markets are already more favorable and our public currencies, each involving typical stock along with operating partnership units, happen for you to be viewed much more favorably, and thus that's been a very good currency for people who're seeking tax deferral and who would like to offer the operating
partnership. I believe the fundamental business plan regarding getting any low-cost owner along with operator regarding apartment units with a diversified base with low-risk leverage, throughout various other words, long-term, fixed-rate, completely amortizing financial debt - that will business plan may be borne out, therefore we're quite comfortable shifting forward.' U Rogers can become a freelance author based in Bethesda, Maryland. COPYRIGHT 1998 National Apartment Association No part of this article may be reproduced without the particular express written permission from your copyright holder. Copyright 1998, Gale Group. Most rights reserved. Gale Team is a Thomson Corporation Company.