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VOL. 127 | NO. 17 | Thursday, January 26, 2012

Sunbelt Focus for Multifamily Development

By Sarah Baker

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Since MAA pays out 95 percent of its earnings every year to its shareholders, CEO Eric Bolton spends a fair amount of his time chasing money.

Eric Bolton, CEO of MAA, addresses the Memphis Rotary Club on Tuesday at the University Club. Multifamily was the highest performing sector out of all of the commercial real estate sectors last year.
(Photo: Lance Murphey)

Formerly Mid-America Apartment Communities, MAA is a self-administered, self-managed apartment-only real estate investment trust (REIT) based in Memphis at 6584 Poplar Ave.

The firm, which went public on the New York Stock Exchange in 1994, has about $200 million in apartment value in Memphis across eight communities, with a local payroll of about $18 million for 235 people.

“Our performance as a REIT, some people don’t appreciate the uniqueness of our model,” Bolton said Tuesday, Jan. 24, in his address to the Memphis Rotary Club. “We’re a corporation just like any other, except as a REIT, we don’t pay taxes. But we … have no retained earnings.”

Bolton said the typical apartment REIT carries about 65 percent debt and 35 percent equity. MAA today carries about 40 percent debt to growth assets. It recently was granted a $150 million loan with no collateral but solely based on its 17-year reputation as a public company.

MAA’s approach is also unique in that the company’s focus is to allocate capital exclusively in the Sunbelt region of the U.S., compared to the national shift toward the West Coast, Bolton said.

MAA owns or has ownership interest in 48,813 apartment units throughout the Southeast, from the East Coast all the way to Phoenix and as far north as Fredericksburg, W.Va. The REIT employs about 1,300 across the Sunbelt region.

“This region of the country is going to continue to attract employers,” Bolton said, citing recent examples such as Toyota’s opening in Tupelo, Miss.; Volkswagen in Chattanooga; and the 2013 widening of the Panama Canal, which is expected to provide better access to manufacturing opportunities at the ports of Houston and New Orleans. “Frankly, this region is where the majority of U.S. citizens live.”

Compared to coastal markets, the Sunbelt region is also relatively easy for developers and investors to come in and build new apartments and homes, Bolton said.

But the biggest barrier that the Sunbelt region faces is the ability for developers to access financing. As the economy recovers and jobs are created in coming years, pent-up demand will unleash.

Bolton said in order to keep up with the increasing 20- to 35-year-old and 60- to 75-year-old population over the next 10 years, the country needs to build about 300,000 apartments annually. Only 90,000 apartments were constructed last year, and this year’s projections are about 110,000.

Since new multifamily construction won’t reach that 300,000 level again until 2014, Memphis will garner positive absorption until 2016, Bolton said.

“Memphis fits into what we define as secondary market,” he said, based on population and also the fact that no other apartment REITS are based here. “These markets tend to be very stable. There’s a certain degree of stability in the way we think about how we deploy capital. Not going to shoot for the moon each time.”

PROPERTY SALES 36 154 6,546
MORTGAGES 34 94 4,129
BUILDING PERMITS 201 554 15,915
BANKRUPTCIES 43 126 3,396