Apartments takeover fight reveals market state


Laurel's Tall Oaks apartments, owned by Baltimore-based Town & Country Trust, look OK for rooms starting at more than $800 per month.

But the complex, on Fort Meade Road near Tischer Nissan, is decades old. The landlord has invested only $3.6 million in improvements since 1993, according to regulatory filings. Tenant reviews for Tall Oaks' 352 units on the apart Web site are, uh, mixed.

"Good for a year" is one of the positive ones.

Nevertheless, Tall Oaks and its affiliate properties are the prizes in a spirited bidding war that has driven Town & Country's previously sleepy stock from less than $30 a share late last year to near $40 now.

Three companies are vying for 38 generally older, middle-market Town & Country complexes, many in the Baltimore-Washington corridor. The contest speaks volumes about the regional apartment market, which continues to heat up even as the spectacular increase in single-family home prices seems to be cooling down.

Is your rent rising? Can't find a good, affordable apartment? The takeover battle for Town & Country, with investors falling over each other to buy into a landlord-friendly, tenant-unfriendly economy, helps explain why.

"The rental market in Baltimore is very strong," says Grant Montgomery, a vice president at Delta Associates, a real estate consulting firm in Alexandria, Va.

So strong that metropolitan Baltimore had the second-lowest apartment vacancy rate in the nation at the end of the year, at 2.7 percent, says Delta. The lowest was metroropolitan Washington, at 2.5 percent.

Think of it as the other shoe dropping in the housing boom.

Detached homes and townhouses in metro Baltimore have gotten so expensive - more than $250,000 on median - that apartments are the only option for many. But the supply is doubly squeezed because apartment construction has trailed population growth, and thousands of apartments were converted to condominiums as the homeownership juggernaut rolled forward.

Maryland keeps adding 40,000 or so jobs a year, but the housing boom has made single-family homes unaffordable for numerous arrivals to the area. Then it soaked up some of the apartment supply via conversions, too.

Condo conversions aren't just happening in Baltimore, says Montgomery. They're all over the suburbs, as demonstrated by The Sun's Laura Barnhardt, who chronicled the planned conversion of Towson's Rodgers Forge Apartments last month. A fifth of the metro Baltimore apartment sales for the 12 months ending last March were to developers converting them to condos, according to Delta.

Last week, J.P. Morgan Securities reported that recent apartment- company profits beat expectations and that the apartment-company outlook is "bright," according to Bloomberg News.

How's this for bright?

At the end of 2005, average monthly rent for a Baltimore-area apartment was $1,209 - up 5.7 percent from a year earlier, according to Delta. That's more than half again as high as the 2005 consumer inflation rate of 3.4 percent.

So we have soaring rents, drum-tight supply and hordes of future apartment dwellers on the way. Tens of thousands of government and service jobs are shifting to Maryland thanks to military realignment. The Sun has reported that at least 5,300 defense positions are coming to Fort Meade, down the road from Tall Oaks.

Metropolitan Baltimore's apartment vacancy rate is less than half the national rate, according to Delta. And it's less than a third the vacancy rate in overbuilt places such as Houston, Dallas and Atlanta.

No wonder Berkshire Property Advisers, Oriole Partnership and a Morgan Stanley joint venture are all bidding for Town & Country Trust, which also owns apartment properties in Pennsylvania, Florida and Delaware.

The Morgan Stanley group opened the auction, agreeing in December to buy Town & Country for $33.90 a share. But the Oriole partnership offered $36, and then, after dark horse Berkshire said it would pay $37, upped its bid to $38.50.

Oriole and Berkshire want the company so badly they're apparently willing to pay the $20 million breakup fee Town & Country would owe the Morgan Stanley partners if it pulls out of that deal.

Analysts can't believe it.

"I never would have guessed it would have gotten to this point" for a group of apartment buildings that are "old, and they look old," Harris Nesbitt analyst Richard Anderson told The Sun last week - before Oriole increased its offer.

Apartment dwellers, get ready for more rent increases. Employers, don't be surprised if the high cost of living makes it harder to move employees here. Government leaders, maybe Maryland needs to approve more apartment projects.

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