Flexible business model allows Greystar to harness market opportunity

By Suzanne Heyn

 

Phoenix’s high-transaction market is perfect for a firm like Greystar, with a foundation in third-party property management but the inclination to invest or develop as market forces create opportunities.

During the market downturn, Greystar found opportunity in the elevated number of real-estate-owned properties and distressed transactions.

“You had a new wave of owners who didn’t really want to be owners that needed managers,” says John Rials, Greystar’s managing director of real estate.

The company took on new business while others downsized.

Greystar, founded in 1993, began as a third-party property management company. It is now one of the nation’s largest, with a portfolio consisting of more than 200,000 apartments in every major market across 32 states. The company’s success in property management opened doors in investment and development, says Rials.

For example, when the market began recovering in 2011, Greystar pounced on the opportunity to invest in properties nationwide. In 2012 and 2013, the company worked with Goldman Sachs to close a $1.5 billion deal that included 27 Equity Residential properties nationwide — six in Phoenix. Rials, who previously worked for Equity Residential, had managed some of those properties.

Rials began his real estate career in Dallas in 1988, fresh out of college. During the early ’90s, as soaring interest rates made financing impossible, he turned to property management to pay the bills. While working for various real estate companies, he lived in northern California, El Paso, Texas, and Portland, Ore., eventually returning to Dallas to work with Equity Residential. In 1999 he moved to Arizona, and in 2009 he joined Greystar, where he oversees property management operations in Arizona, Nevada and west Texas.

“There’s a very robust development pipeline,” he says. “Prices for single-family homes have increased about 30 percent, pushing some families back into multi-family housing. People are either reluctant to go back into a single-family purchase, or now they’re starting to be priced out of single-family homes again. And with the recent rise in interest rates, their buying power has been reduced.”

Recent job growth is also contributing to a strong multifamily housing market. The Arizona Department of Administration predicts the state will gain 46,500 jobs in 2013 and 51,800 in 2014.

“If job growth continues at that rate, I think the market will be stronger,” says Rials. “When we start seeing consistent job growth, you know the local development groups are poised to take advantage of that. You want to be on the front end of the cycle. You want to get your projects developed and get units out as early as possible.”

With that in mind, Greystar broke ground on a 370-unit, master planned community in Desert Ridge set to deliver first units in January 2014. Greystar acquired another Equity Residential property, Scottsdale’s Via Ventura, in May.

Having made a substantial investment in the Phoenix market, Greystar’s aggressive stance will cede to one more selective.

“When you were able to buy at distressed prices, it was pretty easy math. The math’s not that easy today,” Rials says. “We’re not going to do a deal just to do a deal. We’re going to do deals that make sense.”

A sellers’ market combined with still-attractive pricing has led to bidding wars on hot properties.

Hot areas for development include Camelback, the Biltmore, north Scottsdale, Tempe and Chandler. Job growth in those areas is driving multifamily development, says Rials, who predicts the healthy economy will keep the market moving at a steady pace.

 “As an investor, you have to be selective,” he says. “I think you have to really focus on the dynamics of the property and the location of the property. I think you have to be a little more selective than you did before.”

Still, opportunities abound. A Phoenix rent experiment has rents in select prime areas venturing into $2.10 per square foot territory.

“If those rents continue to be proven and established, then I think you have a new wave of institutional investor come to town,” says Rials. “We’ll never compete with New York City or Los Angeles or any of those markets, but we may move a step up.” 

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