THE EVOLUTION of AIMCO - Free Online Library

THE EVOLUTION OF AIMCO - Free Online Library

BETH ROGERS

APARTMENT INVESTMENT AND MANAGEMENT COMPANY BECAME The PUBLICLY TRADED COMPANY ON THE NEW YORK STOCK EXCHANGE FOUR YEARS AGO. SINCE THEN, THE COMPANY HAS GROWN AT A New GALLOP. AIMCO'S JOURNEY MIRRORS THE DEVELOPMENTS THAT HAVE MADE THE MULTIFAMILY INDUSTRY WHAT IT IS TODAY.

Four a prolonged time ago, 3 individuals through distinct segments with the apartment industry came collectively to end up being able to form Apartment Investment as well as Management Co. (AIMCO). Exactly what began as a venture using 9,637 units will mushroom to near to 400,000 units through the third quarter involving this year when its acquisition associated with Insignia Monetary group is complete.

Each with the 3 key players got in for you to the business differently. CEO Terry Considine began owning as well as operating apartments and commercial properties when he was obviously a student with Harvard Law School. at a relatively youthful get older he demonstrated considerable enterprise acumen by simply syndicating apartments (assembling partnerships exactly where he had been the typical partner and then promoting restricted partnership interests in order to others). Inside Boston, Considine participated within the formation in the Cabot, Cabot, as well as Forbes terrain REIT, one of the actual nation's 1st real estate investment trusts.

Steve Ira, executive vice president of AIMCO, was a former cop who moonlighted as a burglar alarm guard in his or the girl own Denver apartment community. He soon left law enforcement to start their own property management company along with grew the company enterprise into what had grow in order to be the largest fee-operated apartment management business in Denver.

Ira and also Considine fulfilled the additional person in 1987 when Considine acquired 75 percent ownership regarding Ira's company. the mixed firms run as Property Asset Management along with Considine, who has been simply at time serving like a Colorado State Senator along with discovering himself stretched thin, asked Ira to consider the organization national. (Considine would eventually operate unsuccessfully for the U.S. Senate inside 1992 by leaving politics.) Considine liked Ira's design of management, that has been depending on Ira's 'one-hour rule' - a new principle that will whoever managed any property had to be a maximum of one hour away as a result by virtually any mode associated with transportation because, notes Ira, 'I don't believe people can manage a new property intensively being way away.'

Considine along with Ira applied in which management principle to their holdings through any strategy of buying various other management companies that possess been closer for the assets that they were needed to manage, after which creating their own base by means of acquiring various other charge management. Your a pair of were capable of acquire other companies by means of leveraged buyouts.

Between 1987 and 1994, Ira built Property Asset Management to the 12th largest charge management business inside the United States, serving as its president. Then, throughout 1994, Considine along with Ira made a choice to organize a condo REIT. This ended up being from this occasion around which they hooked on top of Peter Kompaniez, which headed a firm which was their largest client.

Kompaniez would be a lawyer whom ultimately became senior companion in a Los Angeles firm that provides been instrumental within forming four REITs. 1 associated with his customers wooed him far from law within 1986 to be a president within his firm, which in turn owned any number of companies nationwide, which includes apartment holdings regarding more than 6,000 units. Throughout 1992, Kompaniez formed his or your ex own asset management firm, PDI Inc., to manage individuals units, and employed Property Asset Management as its fee manager, Kompaniez brought those units to the table when AIMCO went public.

AIMCO became a new public organization traded around the NYSE by means of a preliminary public providing inside July 1994. Since then, the organization has grown at a gallop, progressing coming from relatively humble beginnings via its voracious appetite regarding acquisitions. in early 1997, AIMCO managed just under 43,000 apartments, but with just about all the end-of-year acquisition of NHP as well as other companies, it had nearly quintupled in dimensions in order to 192,910 units. This past May, it merged using Ambassador Apartments, Inc., that brought 15,728 much more units into the fold.

THE INSIGNIA DEAL

AIMCO's biggest coup thus far, however, may be the actual acquisition and merger agreement to always be able to acquire the multifamily operations and also specific property holdings with the Greenville, South Carolina-based Insignia Economic Group, Inc., the largest property manager inside the country, as well as Insignia's 75 % fascination with its REIT subsidiary, Insignia Properties Trust. The Particular transaction will be valued at approximately $190 million.

Leeann Morein, AIMCO's senior vice president of investor relations, notes that Insignia's comparable size along with business strategy created the organization an all-natural match. Kompaniez explains why Insignia was obviously a excellent goal with regard to acquisition: 'We try to always be able to find a good return with regard to our shareholders in transactions consequently we have located it advantageous, versus our competitors, to complete deals which involve some complexity in their particular mind as well as in which in turn the seller will not need money automatically yet desires to create an investment throughout AIMCO or even yet another REIT. That Will demands a decision through the seller that will favor AIMCO simply because you're then holding AIMCO paper versus someone else's.' Individuals were the particular components in the Insignia acquisition.

Kompaniez continues: 'Insignia felt which they might maximize his or her return pertaining to their own shareholders by throughout impact holding AIMCO widespread shares, and also that's what they'll become getting.'

And pleasing shareholders seems to be what drives offer making. Dave Glickman, chairman as well as CEO of Ambassador, stated in a press launch right after its merger, 'We think that will merging with AIMCO enables Ambassador to become able to fulfill its primary goal of maximizing shareholder value and also escalating earnings per share. ... I am pleased and also impressed using the parallels in between AIMCO as well as Ambassador. both companies use a strategic vision dedicated to three consumer groups: shareholders, residents, and employees. Each companies get expanded significantly since their original public offerings through raising equity money within innovative ways. ... We are excited concerning this mixture with a dynamic company.'

Andrew Farkas, CEO of Insignia, stated virtually the identical when he declared, 'Clearly we're delivering - in dramatic manner - on our resolve for enhance shareholder value. The Actual value produced from this transaction, which includes the particular efficiencies and ongoing opportunities we are usually going to recognize with AIMCO, creates a dynamic and exciting growth story for each Insignia and AIMCO shareholders.'

Insignia shareholders will probably be issued $203 million in AIMCO Series E Preferred Stock which will instantly become converted into AIMCO widespread stock next payment of the special dividend associated with $50 million. Insignia shareholders will even obtain $100 million in AIMCO Series F Preferred Stock which, next AIMCO shareholder approval, will come to become able to be AIMCO typical stock.

The Insignia offer calls for AIMCO to visualize property management involving approximately 191,000 multifamily units which consist regarding general along with restricted partnership investments throughout 122,000 units and third-party management of 69,000 units. Using the conclusion of the deal, AIMCO is going to be a true market behemoth because it owns/manages apartments throughout Puerto Rico and each state except Vermont, together with near to 400,000 apartments under management and also 16,000 employees (up from 8,000).

DEALING WITH GROWTH

Steve Ira admits in which you may find definite dangers throughout turning out to be also large. 'I think that large companies inside terms of property operations particularly are usually at an increased risk involving turning out to be mediocre.' AIMCO plans to avoid this problem simply by structuring itself so that, inside effect, it does not act large.

'What we do,' explains Ira, 'is we break up our portfolio straight into 10 thousand unit pieces and hire a local, regional individual who is very entrepreneurial in nature, as well as provide these with a new company unit which they run with fantastic day-to-day autonomy inside that will smaller portfolio. We give these people the call 'regional operating centers.'

AIMCO now has 15 ROCs and, with almost all the Insignia acquisition, expects to have 35 to 40. Regional managers are usually 'coached' along with 'resourced' by the senior vice presidents on a daily basis. This particular construction guarantees which despite the fact that the business will be large, management is always in hand and always accountable.

At your moment, senior management is situated inside Los Angeles (Kompaniez), Denver (Considine), along with Orlando (Ira). The Actual trio meets twice a month throughout Denver. Tom Toomey, executive vice president involving finance as well as administration situated in Denver was hired after the IPO. Right After the Insignia acquisition, says Kompaniez, AIMCO plans on adding four to five a lot more 'super ROCs.' the just stuff that usually are not regionalized within the company, notes Kompaniez, are money allocation, liability management, along with acquisitions.

Is there just about any restrict for you to how huge AIMCO may grow? 'First involving all, we simply grow where it is beneficial in order to our shareholders,' says Ira. 'In some other words, simply because management features this type of significant stake inside the company, and the three folks who founded it hold significant numbers of stock personally, our objectives and also aspirations are extremely much aligned along with these in our shareholders - that's where we help to make our money, and in which we won't acquire a property or even a portfolio unless it is accretive towards the original stockholders. So, different from several who believe that growth is actually good for growth's sake, we're only growing where there's an possibility to grow, exactly where it means which our original shareholders benefit from which growth. Just About All which getting said, the growth will simply be limited by the quantity associated with richesse which can be formed, as well as for the extent in which properties are usually available to acquire. We nonetheless think that will there are vast quantities of properties to be able to acquire that could be beneficial for our shareholders in order to own and we will continue to check for almost all those specific opportunities.'

Morein notes that AIMCO utilizes a number of techniques that permit it to cultivate from each an interior along with external standpoint. Any time AIMCO acquired NHP, it signalled your company's decision she says, to adopt an 'even much more active stance in establishing general partnership interests, obviously acting in a fiduciary capacity for your restricted partners whilst additionally giving them an exit strategy' - meaning in which limited partners, in certain scenarios (where the property profile is actually similar towards the AIMCO profile), can easily have a cash provide or perhaps will take operating partnership units ( a new tax deferral strategy), or perhaps these people usually stay restricted partners. Since Kompaniez noted in the press release, 'AIMCO continues an effective strategy involving increasing its ownership within property partnerships by which AIMCO has already been the general partner via purports to obtain the particular restricted partners' partnership interests. the limited partners possess the possibility to cash out his or her investment, or even turn out for you to be restricted partners throughout AIMCO Properties, L.P. as well as diversify their real estate holdings through AIMCO, or remain as partners together with AIMCO because the general companion inside their real estate partnerships.'

ACQUISITION STRATEGY

The organization has simply no rule of thumb for its acquisitions, says Ira, 'but, typically speaking, they have to be priced from lower than replacement cost. We think which if your specific company, by example, offers all luxury, class A, high-end properties along with you would contemplate those Cadillacs, we'd like to own Chevy trucks. We believe which that's in which in turn the largest number of people who are now living in apartments throughout America reside along with for that reason those are the kinds of products that individuals prefer to own. That's to not state that we don't get luxury buildings - we've a few regarding the nearly all luxurious high-end properties within the country - yet they've been mostly acquired because associated with certain locational benefits or since these were part of the portfolio purchase. Our strategy can be aimed at center marketplace apartments and residents.'

AIMCO looks in order to acquire inside areas in which usually the neighborhoods are generally with an up trend, says Ira. The Actual business has simply no lower limit as for you to what it will acquire - it features a 20-unit community throughout Bowie, Texas, which in turn ended up being acquired as component of your portfolio. 'That's obviously not necessarily our target,' comments Ira, 'but we aren't fearful of smaller sized properties and because we're regionally based, we possess the management infrastructure in place to take good treatment of individuals properties, whereas a lot of companies do not.' Its single largest holding at the moment may end up being the 2,113-unit Foxchase Apartments in Alexandria, Virginia.

After the actual Insignia acquisition, of the 400,000 units AIMCO will most likely be managing, it'll come along with an ownership interest in greater than 300,000. The Particular remainder are fee management accounts, most of that are controlled accounts (meaning that AIMCO features a controlled situation in the management process). Though only a little fraction associated with AIMCO's company is within straight charge management, your attraction in order to property people who just love AIMCO's services more than its competitors can be its tremendous purchasing power. 'For instance,' says Ira, 'we could purchase insurance on the 400,000 unit base; we pass those financial savings alongside for you to our clients with out any markup. ... We could save our customers additional money alone just within insurance when compared with the value of the actual management fee. Currently once you expand that to purchases similar to appliances, hardware, pool chemicals, carpeting, paint, or perhaps any of the other things, we can obtain and also run for them cheaper when compared with other people within the country.' AIMCO's charge management accounts, says Ira, are generally managed identically to the approach it manages these properties where it comes using an ownership interest: 'We possess a really intensive management design that we extend in order to properties that will unfortunately we cannot very own - for that reason customers are usually greatly advantaged simply by that will system.'

Ira's assessment regarding the near future viability with the apartment market is that occupancy rates generally adhere to occupation formation. Since the economy continues for you to be robust, says Ira, it's been a great moment for your industry. But, since the industry is cyclical, the organization does worry about overbuilding which may be why, says Ira, AIMCO provides shied way through development: 'What we're doing is actually being really cautious, we're purchasing apartments that are in that center sector since you will find much more people who just work at Wal- Mart when compared with you will find vice presidents associated with high technologies companies and also these are individuals who I feel will continue over extended intervals regarding time and also power to require middle-of-the-market housing opportunities. I furthermore believe there can be a limitation in order to how lots involving people can go out and buy homes. ... An argument is the real fact that certainly folks will always want in order to buy a home whenever they hold the capacity to, yet I feel there's a large quantity of people, plus a growing number of people, whom like apartments because regarding the approach in order to life as well as the amenities.'

Overbuilding, Ira feels, may end up being the number-one difficulty inside the apartment industry. (Although AIMCO is actually associated with hardly any development, it will actively rehabilitate along with expand its current properties, for example Morton Towers in Miami.) the second largest problem is regulation. 'I consider regulation,' says Ira, 'remains to become if i listen to an individual ask me often the largest unknown. the myriad of governmental approvals in which are needed simply to function your company change thus radically as well as often, frequently through neighborhood custom and design, that you worry about how those changes could affect the particular market inside a extremely negative way.' one product associated with legislation in which Ira presently worries about is the telecommunications bill which usually has got the possible to consider away an owner's right to be able to manage access inside an apartment community: 'We worry which special passions tend to be lobbying for you to allow unrestricted access about private property for the installing of telephone, cable, or some other solutions without having going through the actual owner. We think that those are generally huge issues simply because they will violate someone's private property rights.'

MANAGEMENT STRATEGY

The hallmarks of a well-run property, says Ira, are generally intensity and providing superior service. Ira notes that will it's easy to turn out for you to be complacent in the management process. 'Apartment management is actually something that is a method that needs to be repeated constantly and it has to be renewed by having an intensity virtually every day when the manager comes for you to work. Well-managed properties are properties exactly where folks don't grow for you to be complacent, as well as where they are generally doing turn out for you to be very, very active and also interested as in order to what continues on every day within their neighborhood and they treatment passionately concerning the individuals in which they're there to take care of.' Since component of your resolve for service, notes Ira, Considine devised the 24-hour service guarantee which in turn means that any resident having a criticism who just isn't looked after inside 24 hours will get free regarding charge rent until the problem can be resolved. However, admits Ira, the typical consumer, when apartment shopping, seldom bases his sound decision on the management company. Ira feels that renters learn how to appreciate high quality when they've lived in an AIMCO community, 'but I think that the typical consumer selects a flat not really simply because of your manufacturer name.' Nor can he think that branding will actually always be possible. 'What you can do,' say Ira, 'is have spots that are superior, you'll have communities which are convenient, and in addition you can take care of the particular residents which you've and they in turn will enable you to be described as a better provider associated with housing.'

Kompaniez agrees that will branding is nearly impossible: 'What we can work on doing, as well as that which in turn you believe we are previously doing a good job in doing, will be providing great amenities along with top quality housing as a quid pro quo for your us dollars the resident is actually paying - in fact we guarantee it.'

If there's a glaring hole within an amenity after AIMCO acquires a brand new community, AIMCO will add it. In the particular event that any property lacked a lot of in the amenities that residents want today, claims Ira, AIMCO probably wouldn't purchase the property as it would not be performing well. Often, following an acquisition, AIMCO will add enhancements such as washer along with drier hookups, carports, or other issues residents indicate these people would like to have. the something in which AIMCO is performing together with virtually all associated with its communities is gating these - AIMCO, says Ira, believes in providing an accessed environment that individuals feel at ease living in.

Ira, which labored his in place along with learned management around the fly (with admitted assistance in the National Apartment Association, the particular Colorado Apartment Association, and the peers), attempts to impart to his employees that, 'number one, there's huge opportunity to possess an apartment Gated Community Potomac MD expert to cultivate and also prosper and being happy within his job. I have no idea involving every other sector in America nowadays where a person can literally start like a custodian or even as a groundskeeper or possibly a leasing agent and work his way in to becoming an executive and also I believe that individuals opportunities still happens to apartment property management.'

The second factor Ira efforts to convey to always be able to employees is often that 'the most important factor inside their life is remembering that your customer can be along with working each along with every single day with creating his or her client happy. If your customer is happy, you are going being successful since it flows via to exactly what helps make a condo successful, regardless associated with whether it's raising rents, lowering the turnover rate, or even whether it's carrying out some of the particular stuff that help make which occupation function - it's a very important component.'

CORPORATE STRATEGY

Why were Considine, Ira, and also Kompaniez able to, contemplating their relatively humble beginnings, grow the enterprise enterprise into a massive entity where many other people get failed? 'Let me just say a essential factor with regards to Terry,' responds Ira. 'He may end up being the nearly all thoughtful and also intelligent and sophisticated purchaser regarding apartments that I've actually fulfilled within my career. He is an extremely productive entrepreneur nevertheless he could be in addition incredibly able to always be able to perform complicated transactions. I believe that capacity is among the largest main causes why AIMCO has grown around it has. ... Various Other people had attemptedto find a approach to acquire Insignia, yet Terry has been in any position to discover methodology to locate widespread ground for you to function with extremely wonderful individuals who own individuals companies and find ways to set them together. I feel that's a very distinctive skill. ... Considine is the greatest inside the country at offer formation as well as richesse formation. AIMCO wouldn't achieve success with out Considine as well as Kompaniez, simply no question.'

As is normal with a lot of successful businesses, most of the senior folks in AIMCO perform hard, along with Kompaniez traditionally seen in his workplace simply by six a.m. That They almost all travel, in accordance with Kompaniez's calculations, 0.6 associated with their time. Ira, an exclusive pilot, flies himself to evaluate his territory associated with Florida, Georgia, Alabama, as well as Mississippi.

One factor that will helps to make the company unique, says Ira, will be its deference to its shareholders: 'The management of our own company, since it's truly a public company, is usually watching out for that shareholders. We consider our individual compensation, or individual net worth gross, by simply aligning using the shareholders, consequently if we generate income the actual shareholders help to make money. We've done in which since day one and I consider that's a unique means of considering the particular world.'

At AIMCO, says Kompaniez, base salaries are usually stored fairly reduced in contrast in order to sector standards. AIMCO features a policy involving compensating directors mainly throughout AIMCO shares along with requiring senior management to end up being able to agree to significant investment throughout AIMCO stock. Throughout February regarding this year, AIMCO strengthened those ties between management and also shareholders simply by establishing a fresh class involving high performance equity within the AIMCO operating partnership with regard to 12 members of management and 4 impartial directors. The Particular new safety expenses a lot much more than $2 million money and it has absolutely no worth unless your AIMCO three-year total come again to shareholders can be 15 % greater when compared with market averages. Considine noted, in the press release, 'The new higher performance equity provides management a solid incentive to out-perform the particular REIT averages. The idea focuses management, such as the board, using one bottom line: dividend earnings and also discuss cost appreciation. If AIMCO will not significantly out perform its peers, the particular $2+ million investment is actually lost.' Additionally to those high performance units, AIMCO's senior management and independent board members own approximately $150 million valuation on AIMCO stock.

In 1997 AIMCO earned $2.47 for each talk about within AFFO (adjusted funds through operations), the 21 percent boost coming from 1996. Your total come back to shareholders has been 38 percent, including money dividends associated with $1.85 for each share along with share price appreciation associated with $8.50. Your annualized total return continues to end up being able to be 31 % since the particular company's original public offering. Inside comparison, additional business averages, such since the Morgan Stanley REIT index, merely elevated by 19 percent. in 4 years, AIMCO stock provides were built using a lower involving $16.50 a reveal in order to a high involving nearly $40.

Although AIMCO is marked with a hunger in order to acquire, it also offers sold some of its holdings, creating continuous churning in its portfolio. 'In virtually any property cycle there are some properties that anyone simply must sell,' observes Ira. 'Terry calls it the 'water the particular roses, pull the particular weeds program.' every year we require a look at each property that individuals own, rank them, and in addition the bottom-ranked properties - it does not imply that will they're poor properties, it doesn't mean that will they are not heading to be effective - we will sell, consider the richesse via in which sale, and re-deploy straight into properties that individuals feel far better about.' Though AIMCO seems being purchasing almost everything that's pertaining to sale, Kompaniez firmly notes AIMCO itself just isn't up pertaining to grabs. Many takeovers are marked by a sense of trepidation through the acquired company. Communication, says Kompaniez, can get rid of that fear. Your Insignia acquisition may be preceded through frequent visits in order to Greenville. 'I possess really found,' says Kompaniez, 'that along with open communication and also distinct direction you will find not many problems. NHP went fairly smoothly, Ambassador was obviously a virtual non-event for the primary reason that regard, and I anticipate that the same may happen together with Insignia.' With Regard To probably the actual most part, Kompaniez says, explaining the human logistics involving an acquisition, current personnel remain, particularly those who are employed on-site, 'and they're happy to carry on having a larger business simply because that they correctly perceive which they have got greater possibilities pertaining to advancement.' The Actual decision as to that workers grow to be AIMCO employees is established department through department, and also AIMCO is presently going through Insignia 'to notice why is sense.' Ira says, 'we've been relatively successful at keeping people involved. Each And Also Every occasion an individual acquire a new operating entity you're certainly looking for economy associated with scale yet through the exact same token, if it's somebody who we feel very of, we're attempting to keep the best folks coming from those acquisitions as well as keep them involved within our company.'

Although AIMCO's primary concentrate will be multifamily housing, occasionally, admits Kompaniez, several commercial properties get assumed as part of the larger portfolio. Your company features a relatively significant chunk of housing that is occupied mostly or only through seniors (concentrated inside Arizona and also Florida), also it is actually looking to develop in which niche. Ira notes that will the company prefers assisted living 'sort of automatically - a new handful of your buildings that we operate we acquired whenever we acquired Kompaniez's organization so we continue to add them in, a new building with a time, when they're in portfolios that will we've acquired.' Ira terms assisted living any 'huge chance in which we're constantly exploring inside regarding AIMCO.' He claims in which AIMCO hasn't taken a count, yet thinks you could find approximately 9,000 assisted living units in which the company at present operates, and adds that he wouldn't be surprised to discover out that will AIMCO has been the particular largest manager of assisted living units inside the nation.

Despite AIMCO's phenomenal growth, it's got not outstripped any 1 of the actual 3 founders' ambitions as well as expectations. Since Kompaniez notes, 'When we went public, Terry, Steve, as well as I felt it could potentially be quite feasible that we will be as huge as 500,000. We've had the actual oppertunity to accomplish which faster when compared with I had expected simply because markets have been a lot more favorable and also our public currencies, each associated with widespread stock as well as operating partnership units, have been viewed a lot more favorably, therefore that's been an extremely great currency for folks that are seeking tax deferral and also who would like in order to sell the particular operating partnership. I feel the essential business plan of being a new low-cost owner along with operator involving apartment units using a diversified base together with low-risk leverage, within various other words, long-term, fixed-rate, fully amortizing debt - which business plan has been borne out, therefore we're fairly comfy moving forward.' U

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