Article Excerpt:
TWST: We'd like to begin with a brief historical sketch of Associated Estates and the things you're doing at the present time.Mr. Friedman: Associated Estates Realty Corporation is a publicly traded real estate investment trust. We took the company public in November 1993 after having built a company that specialized in apartments in the greater Cleveland area and northeastern Ohio. Following the IPO, we initially expanded into Columbus, Ohio, as well as other Midwest locations. In the late-1990s, we expanded into the mid-Atlantic, Southeast and other markets that we thought would balance our significant Midwest exposure. We own and manage some 110 properties ' over 23,000 units ' and we currently operate in 11 states.
TWST: A couple of years ago, you were affected by low interest rates
that were turning people more to buying than to renting. Has that
situation changed somewhat now that interest rates are higher?
Mr. Friedman: When you say 'we,' I assume you are referring to those of
us in the apartment business, so let me talk a minute about the drivers
of the apartment business and then how those factors have impacted
Associated Estates. What drives the apartment business is both job
creation and household formation. So in markets where there are a lot of
jobs being created and people moving into those areas, typically, the
apartment rental business is healthy and rent growth is strong. Over
the last few years, when you consider the impact of historically low
mortgage interest rates, two things happened. In terms of the
competition in the apartment business for renters, first-time homebuyers
and the supply of new homes that were being built created new
competition in the apartment business. Over the past few years, the
spread between the cost to own ' because of the low interest rates ' and
the cost to rent was the narrowest it had been in many years, in most
markets. You hear stories about the high cost to own in Northern
California, in the Northeast and in certain other select markets today,
like South Florida, but if I can generalize markets, typically, the
spread between the monthly cost to own and the cost to rent has been
very wide. So renters found value in renting. With low interest rates,
the cost difference narrowed. Therefore, a number of customers that
would have, historically, rented, became homeowners.
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