Getting it Right

A family-held enterprise that has been in continuous existence since 1925, Picerne Real Estate Group today owns and manages more than 40,000 apartment homes throughout the United States and Puerto Rico. It develops market-rate, affordable and military housing, as well as condominiums. Keat Foong, executive editor at MHN, speaks to David Picerne, CEO and president, for his perspective on the current economic and financial crises. What are the biggest challenges facing the apartment industry today? The dramatic rise in unemployment rates around the country has clearly resulted in downward pressure on occupancy and rents. However, the industry continues to be very localized. We have been fortunate in finding strong locations where we developed well-evolved quality product. As a result, our occupancies in most areas remain relatively stable. We are working harder to ensure resident retention and to monitor results on a daily/weekly basis for all operational data points. We are constantly fine-tuning all marketing efforts to maintain a good resident profile and high traffic quality, while ensuring the highest return possible on every dollar spent. For construction loans that are maturing, the options to refinance may be limited and not very attractive. Fortunately, our company has a relatively limited number of projects due for refinance over the next 36 months, so the lack of liquidity in the marketplace is less likely to impact us in the near term as much as it might affect other companies. Are there any ways to replace the income that formerly came from development and construction?Although we have had to reduce our level of construction personnel, we have typically run relatively lean with dedicated employees who have been cross-trained in development, construction and property management disciplines. Since we own and manage communities, we are able to utilize our construction staff to handle our capital improvement projects. We have therefore been able to retain many of our people in development and construction who are contributing in a variety of roles. Are there lessons learned from surviving prior market cycles? One of the lessons that has been handed down through the generations has been to not sell properties short when you have confidence in the long-term value of your product. And we are particularly focused on maintaining quality while cutting excess costs where necessary. Given our size, we are able to consolidate purchases to achieve economies of scale in our procurement. We also have long-standing relationships with our lenders and we communicate with them to make sure we’re working together to deal with market place challenges and to keep abreast of opportunities for new business.What opportunities do you see in this downturn? How are you pursuing them?We believe that lack of liquidity in the capital markets will result in fewer projects being built. Less competition from new construction, well-conceived projects and a “flight to quality” will inure to the benefit of the better developers and operators of multifamily housing. We also believe there will be acquisition opportunities, which we intend to pursue starting in 2010. To that end, we are talking with potential investors about these opportunities. Although this is not an easy time, we are bullish on the long-term prospects for multifamily housing and expect to continue to be a major player in selected markets.What would you like to see from HUD/the Obama Administration? With respect to affordable housing, we would look for the Obama Administration (working with HUD) to help stabilize the existing affordable housing stock around the country. Especially with Section 42 housing, it has come to light that many projects are under-subsidized. Assistance might include facilitating the modification of existing mortgages, providing real estate tax-exempt status, providing vouchers for utilities, and protecting tax credit investors from recapture. With respect to conventional housing, we would like to see more liquidity in the permanent loan market for multifamily. If Freddie Mac and Fannie Mae take the lead in providing lending, this would allow construction loans on reasonable terms. We think the benefit would be the stabilization of multi-family projects and would allow commercial banks to be repaid on loans and re-lend those funds for new projects. To comment, e-mail keat.foong@nielsen.com.