Change at the top: Post Properties reveals its strategies for renovation and repositioning class A communities in high barrier to entry markets.

After aggressively pruning its portfolio of more than 20,000 apartment homes and harvesting significant value in the early part of the decade, Atlanta-based Post Properties now has a strong portfolio of class A communities in high barrier to entry submarkets. including Uptown Dallas, Hyde Park and Harbour Island in Tampa, Tysons Corner and Arlington in Virginia and Buckhead. Cumberland and Midtown in Atlanta. With capital from asset sales and exceptional locations. Post has considered a variety of options for capital reinvestment.

Post's approach to evaluating existing assets is comprehensive and ongoing. Its investment group--headed by Executive Vice President and Chief Investment Officer Tom Senkbeil--constantly evaluates and plans for the best use of Post's assets. The group evaluates each asset on a case-by-case basis, considering the direction of the surrounding neighborhood, the level of nearby competition, history of rent growth, planned development and barriers to entry.

As construction and land costs increased over the past five years. Post began to find that renovating communities in hard-to-duplicate locations is often a better use of capital than simply selling the asset. "scraping" and rebuilding or converting the property to condos.

Renovation and rehabilitation have not always been a focus for Post. But the company has found that its 35-year history as a developer gives it a unique eye for improving a community and the ability to find creative ways to generate value from renovating an existing asset and the land it sits on.

Post's approach to rehabbing is as comprehensive as its approach to evaluation. Post assembles an internal team similar to that of a development team that engages an architect who provides "fresh eyes" as Post evaluates assets and the market's needs. Nothing is off-limits: Post evaluates colors and exteriors, removes walls, adds or changes amenities and continues to target new demographics. The team's task is to attain a return from each incremental change it makes.

Beating the Competition

Two recent rehabilitation projects--Post Chastain in Atlanta and Post Worthington in Dallas--provide examples of the types of community improvement opportunities that Post is pursuing. Post Chastain benefits from a strong in-town location in a submarket where condo converters have consumed much of the nearby class A product. Although rents and numbers always have been strong within the community, Post realized that it could capture significant rent increases by refurbishing and refinishing the property:

To compete better with new product on the market. Post gutted much of the unit interiors, which opened the layouts. Post upgraded the kitchens and bathrooms. including new countertops, cabinets, flooring and appliances. The company also plans to add a new clubhouse, leasing center and other common amenities.

Those changes already have been effective. When complete, Post will have invested $16.2 million to rehabilitate 558 units, with 127 units complete at year-end 2006. Post Chastain is increasing the monthly rent by 20 cents per square foot as it completed the renovated apartments.

At Post Worthington in Uptown Dallas, the changes were even more dramatic because of the design and layout of the high-rise community.

Post upgraded the lobby and common areas with new ceramic tile and stonework, changed the exterior fenestration and added new carpet in hallways. Post completely renovated the pool and terrace area and rejuvenated the community by adding a courtyard, covered pavilion, gas fireplace, grills and entertaining areas.

Post upgraded kitchens in all homes with granite countertops, cherry cabinets and black and stainless steel appliances. A club room with a gourmet kitchen, business center complete with conference room and wireless Internet and a fitness center with all new equipment completed the transformation.

Input from an experienced architect and Post's property management staff helped the company to determine the right mix of improvements. At a cost of $10.6 million ($38 per occupied square foot), Post Wellington is leasing renovated homes at an additional $0.26 per square foot in monthly rent. Prior to renovation, the undepreciated book value of the asset was $41.1 million. Post now has a Class A-plus luxury high rise--with 332 units--on the books at a per-unit cost of just over $155,000, well below replacement cost in one of Dallas' top in-town submarkets. Furthermore, Post has reduced the cap rate associated with the asset by 50 to 100 basis points.

Overcoming Obstacles

Comprehensive rehabs are not without their challenges. Post has been successful by starting small and moving slowly. Apartment companies must carefully stage each project--inventory management is critical to maintain maximum occupancy while releasing enough units to keep contractors and their subcontractors onsite.

For future projects, Post will continue to plan carefully and test its plans, including rehabbing a model unit to gauge the reactions of potential renters. This approach allows Post's leasing staff to judge the appeal of various amenities and the rent growth that the community could generate by varying levels of improvements. It also allows Post to test and evaluate a potential investment and maximize the input and skills of the company's onsite teams.

In the high-rise environment of Post Worthington, the renovations take on a higher level of complexity because of residents living in the middle of a construction project. To mitigate the traffic in the elevators, the community added an exterior elevator lift to remove debris and bring in new materials. Talented and well-trained onsite associates have been a crucial part of the renovation efforts at Post Worthington and Post Chastain, as they have worked to keep residents informed about changes and address any of their concerns.

Moving forward, Post expects large-scale renovations to be a growing use of capital when appropriate. Although the average age of a Post community is a youthful nine years, Post has several assets between 10 years and 15 years old in irreplaceable locations in Washington, D.C.; Dallas; Atlanta; Tampa, Fla.; Houston and Charlotte, N.C., that may be well-suited for these investments.

Thomas L. Wilkes, CPM, is President of Post Apartment Management. Wilkes is a member of the National Multi Housing Council, Urban Land Institute and the Institute of Real Estate Management. He is President-Elect of the Atlanta Apartment Association.