Landmark Apartment’s fast growth fueled by changing housing market

The recession and slumping housing market made the past few years a good time to invest in apartments — and Landmark Apartment Trust of America Inc. was poised to take action.
By acquiring more than $1 billion in properties in 2013, Landmark now owns or manages almost 33,000 units, says Joe Lubeck, executive chairman.
This correlates with increased interest in renting.
“We see that a lot of people are more interested in job portability and the ability to relocate from one city based on job availability, and they also no longer perceive a house as being the solid investment that it once was,” Lubeck says. “As a result, we’re seeing significant growth in the household formative years, the 25- to 40-year-old market, where people are specifically looking to be renters by choice.”
Targeting distressed properties that could be renovated to attract midmarket renters and a $536.5 million recapitalization from a 2012 merger enabled Landmark’s fast growth.

Strength in numbers

Lubeck and Jay Olander, former CEO of Cornerstone Realty Income Trust Inc., were friendly competitors for years. Both sensed an opportunity in combining Lubeck’s Landmark Residential and Olander’s Apartment Trust of America in 2012.
“At that time Apartment Trust of America was operating with approximately 5,000 units and what was then Landmark Residential was operating with about 15,000 units. We saw there was a great opportunity for partnership and synergy,” Lubeck says.
“So we put together a recapitalization plan, merged the two operating platforms, managed to have some pretty creative savings on the operational side through the merger, and put together what is now Landmark Apartment Trust.”
Lubeck became executive chairman and Olander was named CEO.
“We’re a particularly strong and well-capitalized company with a very strong investment record. As such we were able to take advantage of opportunities that perhaps other companies weren’t prepared to do,” Lubeck says.
He does, however, see the growth rate slowing as the market heats up.
“We like to buy below market, in what I consider attractive pricing, and right now there’s so much liquidity and new capital in the multifamily space that we see prices driven up to retail and above,” Lubeck says. “So we expect the next year or two to be focused on operations and growth of revenue in the existing portfolio.”
Landmark targets midmarket multifamily properties specifically.
“As we all know, real estate is cyclical. But midmarket — working class workforce housing is the one that is most likely to remain stable — has the highest rate of renewals, best rates for timely payment and quality credit,” he says.
“They’re more likely to renew and be renters by choice as compared to high-end rental living, where people who are paying for very expensive apartments are highly qualified to move to houses.”

Create value

Buying low can be a good strategy to build value. But while Landmark buys distressed properties, they don’t have significant physical problems or are located in challenged neighborhoods.
“When we refer to distress, it’s some type of economic distress — the previous owner didn’t have the proper capital to maintain the property, or overleveraged the property or some other sort of trouble that caused economic distress,” Lubeck says.
Landmark looks for properties in Sun Belt growth areas such as Texas, Florida, Georgia, North Carolina, South Carolina and Alabama, and upgrades them with renovations and amenities.
Branding is important as well. Lubeck says all tenants know they’re living at a Landmark property.
“You’re going to see consistency in everything from the name to the signage, to the look and feel of the model, look and feel of the coffee bar, to the standards for amenities like swimming pools, tennis courts, free Wi-Fi, dog parks — all of those are a standard set of amenities,” he says.
Landmark’s volume of properties also allows for operating efficiencies.
“Because we’ve reached a significant size, there are operating synergies and savings on everything from insurance to trash removal, where we can negotiate broad contracts across the portfolio for significant savings,” Lubeck says.

IPO preparation

As a public corporation, Landmark Apartment Trust files with the Securities and Exchange Commission, so taking the next step to be publicly traded has been considered.
“Like any midsize and growing company we’re always looking at strategic alternatives for how to maximize shareholder value,” Lubeck says.
“On a regular basis we look at alternatives, whether it be by way of internal growth, merger and acquisition or becoming a traded company.”
Being listed publicly would bring additional legal and filing requirements, which the company will do if the timing is right.
Lubeck, a panelist at the 2014 Global REIT (real estate investment trust) Summit in San Francisco, says going public was one trend discussed at the March conference.
“When we recapitalized and merged with ATA they were a more traditional, non-traded REIT with an external adviser and external management company. We all agreed that those were really less attractive structures and not warmly welcomed in the traded world,” he says.
Eliminating external advisers and management companies cuts costs, benefitting shareholders and investors and making a stock offering more attractive.
Regardless of whether it becomes publicly traded, Lubeck says Landmark Apartment Trust will continue to grow and deliver on its mission to offer great places to live in a comfortable living environment, provide exceptional return and value to shareholders and offer team members opportunities for growth, diversity and improvement.

“If we can do all of those things, we’re happy campers,” Lubeck says.