Camden Property Trust
Camden Property Trust
Sales: $433.1 million (2004)
Stock Exchanges: New York
Ticker Symbol: SPT
NAIC: 525930 Real Estate Investment Trusts
Camden Property Trust is a Houston, Texas-based real estate investment trust (REIT) that specializes in the development, acquisition, and management of luxury and middle-market apartment complexes. All told, the company is involved in about 200 urban and suburban communities, containing more than 65,000 units, making it the fifth largest, publicly traded, multifamily property firm in the United States. About one-quarter of the apartments are located in Texas, with the rest spread across a dozen other states, including Arizona, California, Colorado, Florida, Georgia, Kentucky, Missouri, Nevada, North Carolina, Pennsylvania, Virginia, and Washington, D.C. Camden is listed on the New York Stock Exchange.
ROOTS DATING TO CENTURY DEVELOPMENT AND THE EARLY 1980S
Camden started out in 1982 as the residential arm of Century DevelopmentCentury Development, the Houston company owned by Houston real estate developer Kenneth Schnitzer, known as an aggressive and hard-nosed negotiator. Born in Houston in 1929, Schnitzer began his career, after dropping out of both the universities of Texas and Houston, working in his family's paper distribution business, Magnolia Paper Company. He also married into money, the Weingarten family of Houston supermarket fame, the first of four times he was wed. In 1952, while still working as an executive at Magnolia, Schnitzer completed his first real estate deal, constructing a three-story office building on credit near Rice University. His appetite whetted, Schnitzer became involved in the development of ever larger office buildings in Houston. He truly made his mark in Houston real estate, however, in the 1970s with the development of Greenway Plaza, a project that required the buying of 350 homes to secure enough land. He succeeded and eventually built ten office towers, a 400-room hotel, and the Houston Summit Arena, which became the home to the Houston Rockets professional basketball team and the Houston Aeros of the now defunct World Hockey League of the 1970s. Schnitzer was owner of the Aeros and co-owner of the Rockets.
In the early 1980s Schnitzer's Century Development began building high-rise condominiums in Houston and Austin, Texas. According to Forbes in a 1987 article, "There weren't a lot of takers, especially after oil prices and the Mexican Peso started crashing in 1982. So the developers started renting the units. That didn't go over too well, either. Then, in late 1983, someone decided he could unload the condos through syndicated partnerships." Century was the most aggressive of the syndicates, pitching the idea that investors could enjoy federal tax breaks in the near term, then receive a big payoff when the Houston economy rebounded. Heading up Century's effort was Richard J. Campo, who was just in his late 20s. A graduate of Oregon State University, he came to work for Schnitzer in 1976, and then in 1982 cofounded the syndication unit.
The syndication plan did not pan out for investors as advertised, however. Congress passed the Tax Reform Act of 1986 that gutted the tax breaks on which the plan hinged. Campo seized on what he called "desyndication" as a way to salvage as much from the situation as possible. "What he did," wrote Forbes, "was unwind the deal, make some money in the process but keep the investors content enough with their own losses so that he could do business with them again." In short, the condos went back to the developers and the investors avoided any liability for the mortgages. Although investors lost money, they knew that if it had not been for Campo, they would have lost even more, and many of them were willing to trust him on future projects.
Along with partner D. Keith Oden, Campo broke away from Schnitzer by engineering a leveraged buyout of Century's syndication division in 1986, renaming it Centeq Companies. Schnitzer would become caught up in the savings and loan scandal of the 1980s, be convicted on federal fraud charges, and then be acquitted on appeal before dying of lung cancer in 1999 at the age of 70. Campo and Oden, in the meantime, began assembling a portfolio of Texas apartments that by 1990 numbered 2,500.
Not until the Tax Reform Act of 1986 eliminated tax shelters did it change the nature of the real estate industry by making REITs a truly viable investment vehicle. REITs had been created by Congress in 1960 as a way for small investors to become involved in real estate in much the same way as mutual funds. REITs could be taken public and their shares bought and sold like stock. Like stock companies, REITs were subject to regulation by the Securities and Exchange Commission. Unlike stock companies, however, REITs were required by law to pay out at least 95 percent of their taxable income to shareholders each year. This stipulation severely limited the ability of REITs to retain internally generated funds, and so during the first 25 years of existence, REITs were only allowed to own real estate, a situation that hindered their growth because third parties had to be contracted to manage the properties. The 1986 act finally permitted REITs to provide customary services for property, in effect allowing the trusts to operate and manage the properties they owned. Despite these major changes in law, however, REITs were still not embraced by investors. In the latter half of the 1980s, banks, insurance companies, pension funds, and foreign investors provided the bulk of real estate investment funds. But a glutted marketplace resulted, leading to a shakeout. It was only when real estate became available at distressed prices in the early 1990s that REITs finally became an attractive mainstream investment option and many real estate firms used their holdings as a foundation on which to form a REIT and take it public, starting in 1993. Many of these new REITS carved out niches, such as office buildings, shopping malls, or apartments, and then used their newly minted shares as a way to acquire more property.
FORMING AS A REIT IN 1993
Campo and Oden incorporated Camden Property Trust in May 1993, with their niche the upper end of the apartment market. An initial public offering of shares was completed in August of that year, raising $218 million. The new REIT then bought 20 Texas apartment complexes, 17 of which were owned or controlled by Centeq. Altogether, Camden started out with about 7,000 apartments.
Camden is one of the nation's largest multifamily real estate corporations, with a portfolio of apartment communities that stretches from the East Coast to the West, and includes the Sunbelt and Midwestern states. Our rise to the top reflects a first-line focus on resident satisfaction, employee empowerment and financial balance—all supporting our commitment to providing superior, value-added living excellence.
In the mid-1990s REITs in the different real estate sectors began to consolidate as it became apparent that they needed a sizable market capitalization if they wanted to attract institutional investors and capital for continued growth; any REIT that did not continue to grow knew it was destined to be left by the roadside. Determined to be one of the chosen, Camden had grown aggressively since going public, so that by the end of 1996 it owned more than 19,000 apartments in Texas and Arizona, although most of its properties were still located in Houston. The REIT completed its first major acquisi-tion in April 1997, a deal agreed upon in late 1996. At a cost of $328 million in stock and the assumption of $288 million in debt, Camden picked up Dallas-based Paragon Group Inc., which owned interests in nearly 17,000 apartments in Texas, Florida, Missouri, and North Carolina. Unlike Camden, Paragon had not been aggressive on the acquisition front, and as a result saw its stock slip to $15 a share, compared with the $21.25 per share price when the REIT went public in 1994. The addition of Paragon was important for Camden in a number of ways. It gave the company assets worth more than $1 billion, a cutoff point for many institutional investors, who refused to buy stock in REITs with less than that amount. The deal also bolstered Camden's position in the Dallas market and gave it a beachhead in several desirable markets, including St. Louis; Charlotte, North Carolina; Kansas City, Missouri; Louisville, Kentucky; Tampa-St. Petersburg, Florida; and Orlando, Florida. As a result, Camden gained flexibility, able to shift construction and acquisition resources to markets enjoying growth and pulling back in cities not faring as well.
In addition to integrating the Paragon assets over the course of 1997, Camden completed three smaller acquisitions, costing $46 million, while spending another $192 million in new development. The REIT ended the year with ownership interests in nearly 35,000 apartments, generating income just shy of $200 million, a significant increase over 1996's $111.6 million. It also closed 1997 by reaching agreement on another major acquisition, paying $53 million in stock and assuming $451 million in debt to add Las Vegas-based Oasis Residential Inc. When the deal closed in April 1998, Camden added another 15,000 apartments, giving the REIT more than 51,000 units and a significant presence in Nevada, Colorado, and California markets. Camden also began a program in 1997 to balance out its geographic mix, leading to a three-year effort to sell off nonstrategic assets, which between 1997 and 2001 would total more than $600 million.
In addition to being a successful consolidator and turning itself into a super-regional REIT, Camden proved to be a savvy developer as well in 1998 when it bought the 700 acres of a private airport located close to Houston's upscale Westchase District for $53 million. It then sold off 500 of the acres for $35 million to the Sunrise Colony Co., which planned to develop a private country club community that would include a world-class golf course and 1,200 homes. Camden sold off another 100 acres to recoup the rest of the $53 million it laid out, and was left with 100 acres for development that was essentially cost-free. The REIT planned to build some 2,000 apartments on the site in the years to come, with Campo telling the Houston Chronicle, "It will allow us to control multifamily development in that area for a long time." Because the land was essentially free, Camden would also be put in a favorable competitive position in terms of rental rates.
With the addition of Oasis, Camden enjoyed another jump in revenues, from $200 million to $324 million in 1998. Because of market conditions it was difficult to raise capital to complete large acquisitions, but Camden's development pipeline permitted it to continue its growth pattern. Six communities composed of 2,500 apartment units were completed in 1999 at a total investment of $185 million. The REIT also took steps to provide for further development opportunities. It bought a 38-acre parcel in Dallas's Central Business District, earmarked for a luxury 1,200-unit apartment community, as well as a ten-acre development site located in downtown Long Beach, California, close to the convention center, where it planned to build 240 high-rise condominiums, a 550-apartment complex, as well as a 500-room hotel. Revenues continued to rise steadily, topping $371 million in 1999, a 14.7 percent improvement over 1998.
- Houston-based Century Development forms a syndication unit.
- Richard Camp and Keith Oden acquire the syndication unit, renamed Centeq Companies.
- Centeq forms the basis of a new real estate investment trust: Camden Property Trust.
- Paragon Group, Inc. is acquired.
- Oasis Residential, Inc. is acquired.
- Summit Properties Inc. is acquired.
LAUNCH OF BRANDING STRATEGY IN 2000
Again Camden did not grow externally in 2000, but it still added apartments through development, completing the construction of four new communities and gaining nearly 1,500 apartments. It also broke ground on an apartment community on its Long Beach property in 2000. More so, the REIT launched a branding strategy in 2000, pursuing the theme of "Living Excellence," an effort to build value in the Camden name, not only with investors but the real estate industry, and ultimately with customers.
A combination of low mortgage rates that made house buying attractive and an oversupply of apartments created more challenges for everyone in the apartment field. Camden was especially affected by the terrorist attacks of September 11, 2001, because it owned properties located close to Dallas's airport and the American Airlines headquarters. Camden saw overall occupancy rates decline somewhat, but only allowed price reductions as a last resort. Instead, the company preferred to offer such incentives as repainting apartments or installing ceiling fans, steps that pleased tenants but also enhanced the value of the real estate. Camden also took a hit on its balance sheet because of the meltdown in the Internet sector, writing off several million dollars in investments in Internet companies serving the apartment market. Revenues reached $411 million in 2002 and grew only slightly in 2003 to $416.5 million. New developments were a key element in maintaining a modicum of momentum for Camden.
In 2003 the REIT unveiled several new communities: Camden Ybor City in Tampa, Florida's historic district; Camden Vineyards in California's fast-growing Inland Empire; Camden Tuscany in San Diego's Little Italy District; Camden Sierra at Otay Ranch in Chula Vista, California; and Camden Oak Crest in Houston.
Although difficult conditions continued in some markets in 2004, Camden, because of its diversified approach, continued to prosper. For the year it recorded $433.1 million in revenues and realized a net profit of $41.4 million. In the final months of the year it also agreed to the first major acquisition in six years: the $1.9 billion purchase, including the assumption of debt, of Charlotte, North Carolina-based Summit Properties Inc. It was an important move for Camden, allowing it to keep pace with rivals in a real estate sector that remained fragmented but was beginning to see consolidation heat up. With the addition of Summit, Camden became the fifth largest public owner of multifamily real estate properties. Summit was especially strong in two of the nation's strongest apartment markets: Washington, D.C., and southeast Florida. It also gave Camden a beachhead on which to grow along the East Coast.
All told, Camden was well positioned for ongoing growth: It enjoyed a geographically balanced portfolio of properties, was present in 16 of the top-20 job growth markets in the country, and boasted a development pipeline of $1.1 billion worth of construction projects.
Camden Operating, L.P.; Camden Development, Inc.; Camden Realty, Inc.; Camden Builders, Inc.
Apartment Investment and Management Company; Archstone-Smith Trust; Equity Residential.
Allen, Kathy, "Return of the REITS: Camden Creates Trust to Buy Apartments," Houston Business Journal, August 16, 1993, p. 4.
Barrett, William P., "Six Bites from One Apple," Forbes, September 7, 1987, p. 88.
Bivins, Ralph, "Building Greater Trust," Houston Chronicle, August 9, 1997, p. 1.
―――――――, "How Camden Got 100 West Side Acres for Almost Nothing," Houston Chronicle, May 30, 1999, p. 8.
―――――――, "Schnitzer Has Left Large Mark on Houston," Houston Chronicle, July 19, 1996, p. 1.
Burke, Erica, "Strength in Numbers," Construction Today, May 2005, p. 93.
Pacelle, Mitchell, "Camden Property to Buy Paragon in REIT Merger," Wall Street Journal, December 17, 1996, p. C.
Smith, Ray A., "Camden Property Agrees to Acquire Summit Properties," Wall Street Journal, October 5, 2004, p. A8.