Toward the end of 2009, however, several market forces collided that allowed Equity to assume a more aggressive stance on acquisitions: The REIT raised some $2.2 billion in GSE credit; the unsecured senior debt market was stabilizing and showing signs of normalcy; the firm’s rent fundamentals were beginning to recover; and—most importantly—attractive deals were starting to hit the market.

“Our business metrics were turning, and there was an expectation in real improvements in operating fundamentals that enabled us to think differently about 2010 rents. I think that gave us a leg up,” Neithercut explains. “We were finally seeing large and complex deals where we were only one of a handful of firms that could do them, so towards the end of last year and early into this year, we moved in and hit it pretty hard.”

In the first six months of 2010, Equity acquired more than 2,209 units, including the purchase of three luxury Manhattan apartment complexes—River Tower, 777 Sixth Street, and Longacre House—from New York-based Macklowe Properties in a deal totaling $475 million. The firm also purchased assets in Arlington, Va., in the first quarter, and turned once again to the Washington, D.C., metro in April with the $167 million acquisition of the 559-unit 425 Mass, a planned condo community that the REIT will convert to apartments with an expected stabilized yield of 8.5 percent in the third year of ownership. And the REIT may yet have some deal making left to do in 2010—guidance on Equity’s second-quarter earnings call suggested a year-end transaction total of $1.25 billion.

“Right now we are managing the delta between what we can buy at and what we can sell at. If we can find the right bid for assets we don’t care to own and the right investment opportunity to redeploy capital into, we will transact,” Neithercut says. “So far, we have moved pretty quickly and found the bottom. Not only did we get some exceptional assets that we are going to own and operate and make money on for some time, but we got them at very low prices.”

2. The Non-Traded REIT

Company: Behringer Harvard

Relying exclusively on one-off transactions over portfolio or multi-property deals, Dallas-based Behringer Harvard’s non-traded, publicly-registered Multifamily REIT I has cranked out near-monthly apartment deals, with notable buys in California, Colorado, Texas, Virginia, and Oregon that highlighted a first half of 2010 that saw the firm pull in $320.6 million worth of multifamily product.

Most recently [as of press time], Behringer Harvard announced the August acquisition of Acapella Apartments, a 163-unit luxury mid-rise in San Bruno, Calif., located less than 1 mile from the San Bruno BART station that provides quick commuter rail access to downtown San Francisco just 10 miles to the north. “Acapella Apartments is a centrally located, newly constructed multifamily community with luxurious amenities,” Behringer Harvard Multifamily REIT I chief operating officer Mark Alfieri says of the deal. “The community’s transit-oriented location in one of America’s most desirable metropolitan areas also provides an excellent fit with our platform’s investment strategy.”

Indeed, Behringer Harvard has not wavered from its focus on recently completed and/or stabilized Class A luxury apartments in core, high-barrier-to-entry markets. And little is expected to change as the firm continues to deploy proceeds from the sale of its shares, coupled with capital commitments from the Dutch pension fund PGGM. In January 2010 alone, the firm acquired 699 units in Denver; Sonoma, Calif.; and Orange County, Calif. It also received a $100 million co-investment boost from PPGM, bringing the pension fund’s buy-in to a total of $300 million.

According to Jason Mattox, Behringer Harvard’s chief administrative officer, more institutional buyers are competing for luxury multifamily properties in what he calls “strong markets,” particularly those with notable improvements in occupancy levels. As a result, Behringer Harvard executives won’t be surprised to see continued cap rate compression in major markets—a trend that will likely further motivate sellers to start listing assets. “I expect that the best markets will just continue to get better and will stay attractive as we move through this recovery in the cycle,” Mattox says.

While Behringer Harvard has been aggressive enough to both win bids and complete off-market transactions, Mattox says the firm isn’t tipping its hand on additional deals in the works for 2010, particularly as competition for trophy assets appears to be on the increase. “We haven’t announced any acquisition goals for 2010,” Mattox says. “We continue to rely upon our strong relationships with owners to source attractive acquisition targets. As more competitors have entered the market, these relationships are becoming more important than ever.”

3. The Private Operator

Company: Bernstein Management Corp.

Bernstein Management Corp. president John Bernstein equates his firm’s acquisition strategy to the old tortoise and hare fable. “I guess we are the tortoise in the analogy,” Bernstein says of his firm’s first half of the year acquisition volume of $272.8 million. “As soon as the race slows down, we are a bit more visible, particularly in a market like D.C. that everyone is interested in. But in reality, we are keeping the same pace and acquisition strategy that we have always had.”

Based on a long-term owner/operator holding model, the Washington, D.C.-based Bernstein Management portfolio of multifamily, office, and industrial assets has indeed made steady growth progress ever since the firm was founded in 1953. And although that portfolio is historically exposed to most commercial real estate asset classes, it’s been multifamily that has been boasting the better operating fundamentals across Bernstein’s Capitol region markets. “We really focus primarily on the Washington and Baltimore markets and within those, three core asset classes, including office, multifamily, and industrial. But across those asset classes, multifamily has enjoyed the greater performance,” Bernstein says.

To that end, the firm has made a point of targeting high-end luxury apartment assets in one of the highest-barrier-to-entry markets in the country. The company looks for stabilized deals but also regularly underwrites value-add and unstabilized properties where Bernstein credits local market knowledge and intimacy of historical and cyclical operating and rent trends as a key advantage in the competition for Class A and A-plus multifamily product.

Case in point: West End Residences purchased from the Chicago-based Hyatt Hotels and Resorts in April for $22.5 million. Still 25 percent vacant at the time of sale, the 85-unit building nonetheless sits in the exclusive West End neighborhood of Washington, D.C., close to Georgetown, Dupont Circle, and the Foggy Bottom metro station, offering plenty of long-term upshot to the deal. (continued on page 48)

“We are a regionally-focused firm, and we have no plans to look for opportunities outside of our region,” Bernstein says. “We are also long-term, non-opportunistic holders and that model allows us to look at both stabilized and unstabilized assets—and even land opportunities—as appropriate for our investors.”

That conservative market approach was notable in Bernstein securing a joint venture partnership agreement with Cleveland-based Forest City Enterprises in February 2009, a partnership that immediately yielded a 1,340-unit, three-property acquisition—the 549-unit Grand in North Bethesda, Md.; the 385-unit Lenox Club in Arlington, Va.; and the 406-unit Lenox Park in Silver Spring, Md.—at a combined 6.5 percent cap rate.

Since that deal, however, cap rate compression and corresponding price pressure in the Washington, D.C., apartment market have kept Bernstein on the sidelines. “There are a lot of out-of-state buyers exercising some extremely aggressive underwriting and purchasing in terms of expected rent increases over the next couple of years,” Bernstein says. “We are being outbid on some deals by up to 20 percent.”

Still, Bernstein characterizes the firm’s long-term and conservative capital as completely synchronized with its acquisition philosophy and operating platform and expects opportunities in 2011 and beyond to reveal themselves after the placement of impatient capital chasing deals has ebbed.

4. The Foreign Investor

Though it may seem difficult to be one of the top apartment purchasers in the United States during 2010 and still maintain a low profile concerning capital structure and portfolio operating and exit strategies, The Standard Portfolios has succeeded in doing so. The firm has kept itself under wraps by purchasing distressed assets via the courts or out of receivership and has generally eschewed media attention or any other semblance of basking in the buyer spotlight.

In January, the company successfully negotiated the purchase of a 16-property, 5,000-unit Bethany Group portfolio via bankruptcy court for $350 million and then quietly assumed operation of the properties, which are located in Maryland and Texas.

Standard closed on B-note purchases from New York-based BlackRock and Uniondale, N.Y.-based Arbor Commercial Mortgage before agreeing with senior lender Overland Park, Kan.-based Midland Loan Services PNC to lower the interest rate and extend the terms of the original loan, essentially amounting to a sale of the original equity stake to Standard, according to Bethany Group attorney Evan Smiley, a partner with the Costa Mesa, Calif.-based law firm Weiland, Golden, Smiley, Wang, Ekvall & Strok. “It is a purchase of the assets. The existing equity will all be cancelled: The Standard entity will own 100 percent of the equity of the portfolio, and the lenders have agreed to stay in the game,” says Smiley, who could not reveal information regarding Standard beyond what was available in court documents.

Although attorneys representing Standard from Houston-based law firm Pillsbury collected a 2010 Turnaround Atlas Award for Distressed Real Estate Deal of the Year from the New York-based Global M&A Network for the Bethany transaction, Standard declined to comment for this article via the law firm, and attorneys likewise cited client confidentiality when asked to comment generally on the firm’s multifamily portfolio and acquisition strategy. In a press release announcing the Atlas Award, Pillsbury described Standard as a Chinese investment group and noted that the Bethany portfolio marked Standard’s first entry into the U.S. commercial real estate market.

In August, Standard struck again at U.S. multifamily and once again structured the purchase of a Bethany Group portfolio, this time grabbing a 2,759-unit, seven-property Arizona portfolio out of receivership from San Diego-based Trigild for $123 million. According to Trigild president Bill Hoffman, Standard outbid significant buyer interest in the portfolio, which he characterizes as much improved following the Irvine, Calif.-based Bethany Group’s abandonment of the properties in March 2009. “We positioned the properties for a quick and profitable sale by improving the occupancy and revenues along with resident and community support,” Hoffman says. (A request for comment delivered to the company via Trigild received no response.)

As of press time, no other deals involving Standard have come to light in 2010 and further activity for the remainder of the year is unknown.

5. The Investment Bank

Company: CB Richard Ellis Investors

With $33.7 billion in assets under management, it may come as a surprise that Los Angeles-based global real estate investment firm CB Richard Ellis (CBRE) Investors is relatively new to the multifamily scene. While the company had scattered apartment holdings across its portfolio, it wasn’t until a March 2008 purchase of a controlling interest in Atlanta-based Wood Partners that CBRE Investors began a bona fide market move into multifamily. Since then, the firm has been on an acquisition tear, picking up stabilized apartment communities, raw land for development, and projects at various stages in between—all on behalf of Wood Partners and the firm’s combined $2.1 billion Strategic Partners U.S. 5 and Strategic Partners U.S. Opportunity 5 equity funds.

“CBRE Investors is relatively new to multifamily,” says Steve Zaleski, who left the head of acquisitions post at Boston-based Berkshire Property Advisors in April 2008 to join CBRE as managing director of multifamily development and investment. “There were two interrelated things that have been necessary for us to operate successfully in the market: We had to establish our name as being a qualified multifamily buyer, and we had to convince sellers that we were serious about acquiring.”

Consummation of the Wood Partners deal (financial terms were undisclosed) likely took care of any remaining doubters in the market, and CBRE’s first-mover attitude towards the acquisition market after the onset of the recession further solidified the firm’s status in the buyer space. “We got in the game on the early side and were out underwriting in the fourth quarter of 2008 and really actively buying and making offers toward the first quarter of 2009, and I think that gave us some credibility in the market,” Zaleski says.

So too does CBRE’s consistent acquisition strategy over the past two years: The company invests in a wide variety of asset types, including stabilized and unstabilized properties or land suitable for development but remains focused on core and core-plus markets with some value-add interest depending on the strength of market and the opportunity. The company also looks for the bigger scores.

“We are not buying anything under 200 units, unless it is in a top urban infill market location like Los Angeles,” Zaleski says. “I’d say our sweet spot is $40 million and up for acquisitions, while the development deals we are working on are in the $30 million to $40 million range.”

Bucking that lower-end development acquisition trend was its $90 million acquisition of a stalled 379-unit luxury project at the Spectrum Business Center in San Diego, a Wood Partners deal that will likely be ready for occupancy in 2012.

While Zaleski admits competition in the buyer’s market has pressured pricing, he’s nonetheless unfazed by cap rate compression, particularly given the softness of underlying fundamentals. “We talk a lot about cap rate compression into the 5 percents and 4 percents, but you’ve got to look at the income that you are capping versus historical rents,” he says, although with the caveat that CBRE is looking for a straight operating yield and arbitrage play independent of available financing.

“You need to underwrite on today’s rents and not some trended rents in the future, even given the prospects for rent improvements. We look at the unleveraged yield on every deal we do. You cannot let financing drive a deal. Otherwise you are kidding yourself.”