Incorporated: 1976 as Jefferson Properties, Inc.
Sales: $1 billion (2000 est.)
NAIC: 531110 Lessors of Residential Buildings and Dwellings
JPI is the largest U.S. developer of luxury apartments, many of which are a cross between an upscale house and a fine hotel, offering amenities including garages, “urban vegetable gardens,” marble entryways, high ceilings and spacious rooms, fitness centers, 24-hour concierge services, and high-tech gad-getry such as broadband Internet access, theater-quality sound in living rooms, and closed circuit television that allows tenants to monitor gates, swimming pools, and play areas. Based in Irving, Texas, the company also manages some 24,000 apartments located in 12 states and is involved in building student housing, both on campus and off. Hunt Realty Corporation is a major investor in JPI, as is GE Capital Services.
Founding Family Made 19th-Century Fortune in Cattle
JPI was originally formed in 1976 as Jefferson Properties, Inc., a subsidiary of Southland Financial, a business founded by the Carpenter family of Dallas, Texas, one of the city’s original business dynasties. A hundred years earlier the family had become involved in the cattle business, then in 1927 John Carpenter, Sr., moved into the insurance industry, establishing Southland Life Insurance Co. His real estate activities included the 1928 purchase of 200 acres in Irving for a family estate, which Carpenter named Hackberry Creek Ranch. His son, Ben H. Carpenter, became an executive at Texas Power and Light Company, then assumed the chairmanship of Southland in 1959 when John Carpenter died. In addition to insurance and cattle, Ben Carpenter, along with his brother-in-law Dan C. Williams, pursued the real estate business through Southland Financial Company and added significant acreage to Hackberry. In 1971 they merged the insurance operation with Southland Financial and took the company public.
In the early 1970s the family ranch struggled because of high taxes, and Carpenter found it difficult to continue in the cattle business. In a stroke of good fortune, the new Dallas-Fort Worth International Airport was built nearby, opening in 1973. Carpenter decided that he either had to sell Hackberry Creek or develop it. He chose the latter course, telling the New York Times in 1990, “When I thought about it, I realized, here was an opportunity from scratch to plan the best possible use of a piece of property on a large scale.” The result was a development that his mother dubbed “El Ranchito de las Colinas,” or the little ranch of the hills, which became simply known as Las Colinas. Carpenter bought additional land until Las Colinas encompassed 12,000 acres. His planned community, also dubbed the Emerald City of the north Texas plains, was grand and sweeping. Although it might take as many as 20 years to fulfill his dream, Carpenter wanted to make Las Colinas America’s premier corporate address, a self-contained, well regulated community built around a core of business parks, complete with Venetian canals and an overhead monorail, as well as luxury homes and apartment communities where business leaders could rub shoulders with their peers. It was a Disneyland for the executive class, combining Old World charm with the advances of tomorrow. Jefferson Properties was one of a number of real estate companies Carpenter created to develop Las Colinas, providing JPI with deep roots in serving the luxury market.
Formation of JPI Inc. in 1989
Las Colinas proved to be a prohibitively expensive undertaking, and the company, despite landing such tenants as Kimberly-Clark, was unable to generate the necessary capital. In 1983 ever profitable Southland Life Insurance was sold for $352 million and still Carpenter had to borrow heavily. By 1984 Southland Financial owed nearly $500 million, and to relieve shareholder pressure he attempted to take the company private but other investors, including Ivan Boesky, sensed an opportunity and entered the picture, driving up the price of Southland’s stock and effectively scuttling Carpenter’s deal. His health failing, Carpenter ultimately underwent several heart bypass operations. His son, John Carpenter III, succeeded him as CEO of Southland. They twice turned to Michael Milken to raise $200 million in junk bonds, but with the crash of the Dallas real estate market in 1986, Los Colinas was saddled with excessive debt and Southland came close to losing the development. Finally in 1988 Teachers Insurance and Annuity Association and JMB Realty, a Chicago-based real estate corporation, saved the Carpenters from bankruptcy. In a restructuring that followed, Southland Financial was liquidated and in 1989 Jefferson Properties split off, changing its name to JPI Inc., with the younger Carpenter serving as chairman.
Actively involved in both apartment development and management as well as commercial properties in the Dallas-Fort Worth area, JPI, based in Las Colinas, received a major boost when Hunt Consolidated Inc. (parent of Hunt Realty) agreed to acquire a major stake in the business and provide significant equity capital to fund ongoing multifamily developments. Under terms of the agreement, JPI would construct and manage the communities and Hunt would share ownership and income. Hunt Consolidated was run by Ray Hunt, one of the many offspring of famed Texas oil billionaire H.L. Hunt. Born in Illinois, H.L. Hunt was the son of a banker and left home at the age of 16, supporting himself to a large degree by playing cards. In the 1920s he ran a gambling hall in Arkansas during an oil boom and became involved in the petroleum business. After moving to east Texas in the early 1930s he ultimately established the Hunt Oil Company and became, for a time, the richest man in the United States. In addition to money Hunt also acquired wives and produced a wealth of children. The mother of Ray Hunt, who was born in 1943, was Ruth Ray, a secretary at Hunt Oil Company. It was not until 1957 that H.L. Hunt married her and legally adopted Ray and his three siblings.
JPI moved beyond the Dallas-Fort Worth area, developing multifamily communities in Florida, Virginia, Georgia, and Colorado. In 1994, in order to focus on apartment construction and management, it merged its commercial property operations, a portfolio of some three million square feet, with Texas-based Fuller-Macfarlan Real Estate Services. With all classes of apartment development thriving in the mid-1990s, particularly in Sunbelt markets, JPI focused on the luxury sector. The driving force was the generation of aging, affluent baby boomers who no longer cared for the responsibilities of homeownership. They wanted the space of a house and the convenience of a garage, but also the security and other amenities associated with a hotel.
JPI developed a concept for the luxury market it called Project 2000, the prototype of which, Jefferson Estates, was unveiled in January 1996 at the National Association of Home Builders Convention. The community was being built in Richardson, Texas, a complex of 528 units located in the heart of the area’s telecom corridor. JPI hoped to attract a tenant base from the 100,000 high-tech employees working at some 500 firms in the North Dallas area. The company also formed partnerships with firms to supply many of the extras that these tenants would find attractive. For instance, Xencom Communication provided intelligent thermostats, which allowed residents to monitor and adjust their heating and air conditioning by telephone. Southwestern Bell equipped the units with high-speed Internet access, in addition to surround sound and video-on-demand.
By the end of 1996 JPI reached $1 billion in assets, with 20,000 apartment units in ten states. In addition to the luxury apartment market it became involved in another niche, student housing. Colleges across the country were facing an extreme shortage: With the number of available on-campus beds at less than four million, some 4.4 million students had to seek alternate housing, either staying at home or other off-campus facilities. In certain markets the opportunity for developers was even greater. California public colleges and universities, for instance, could only accommodate 125,000 of the state’s 700,000 full-time undergraduates. Texas public institutions, with 140,000 beds, were unable to house more than two-thirds of its students, and New York, with 145,000 beds, was only slightly better off. Moreover, college enrollment was expected to rise by nearly 20 percent over the next decade. Privately financed and run student housing was also a highly fragmented industry, offering an excellent opportunity to an experienced, well-regarded developer such as JPI. School administrators, strapped for funding, were more than receptive to private companies who offered a no-cost, no-risk way to house an increasing number of students. In 1996 JPI developed or acquired five student on-campus housing projects, mostly in Texas, for a total of nearly 3,400 beds. JPI then moved into building on-campus apartment buildings, which were operated very much like dormitories, including the presence of resident assistants to iron out problems. Unlike dorms, privately built accommodations included such amenities as a private phone line and cable-TV hookup in each room, as well as individual computer connections—added values that were in keeping with JPI’s reputation.
The idea of privately built and operated on-campus housing began with Texas A&M earlier in the 1990s. According to a 1998 Wall Street Journal article, “The first on-campus privatized housing deals were structured as ground leases, where the developer got the lion’s share of the cash flow but the university continued to own the land and generally took title of the apartment buildings after 30 or 40 years. Lately, however, the trend has been for colleges to use not-for-profit foundations to own the apartment complex, while the developer received a fee for building and operating the complex.”
It is our purpose to build a company that will endure for our friends and associates, that will command the respect of our peers and that will quicken the pride of succeeding generations.
Joint Venture with GE Capital: 1997
Jefferson Estates was completed and opened in the spring of 1997, launching JPI’s Project 2000 initiative. Later in the year the company formed a joint venture, JPI Partners, with GE Capital Services to build luxury apartment and student housing communities across the country. GE Capital had already participated as an investor in over 40 JPI projects in Texas, Colorado, Florida, and the Northeast. Under terms of the agreement GE Capital would supply the bulk of funding, its initial commitment totaling $470 million. Hunt Realty would also own a stake in the venture. In addition to its cash, GE Capital carried clout and opened new doors for JPI. Because GE Capital Real Estate was already located in Canada, JPI began exploring the Canadian market in 1998, looking to take advantage of recent modifications in the country’s rent control legislation. JPI Partners opened an office in Toronto but GE Capital’s help was invaluable in helping the newcomers become familiar with Canadian regulation and practices.
JPI was actively building through much of 1998, but a downturn in the economy forced the company to cut back on development late in the year and into 1999. JPI soon regained its momentum, starting construction of 28 new projects that comprised 10,500 units. The company also sold 35 communities, some 13,500 units, to institutional investors. After devoting considerable attention to its core markets of Washington, Philadelphia, and North Carolina, JPI became increasingly interested in other markets. By the spring of 2000, JPI had 24,000 apartments under management and another 17,300 under development, spread across 22 states, including a presence in Arizona, California, Colorado, Nevada, New Hampshire, and Virginia.
JPI moved into the Columbus, Ohio, area in 2000, breaking ground on a 395-unit complex. It also began construction in downtown Toronto, a city with a 1 percent vacancy rate that had gone years without a new luxury high-rise rental building. With 424 units, the building featured such luxuries as a Hollywood viewing theater, teaching kitchen, fitness center, virtual golf facility, and business center, as well as a party room, barbecue areas, hot tub, spa, and sun decks on the roof. It was scheduled to open in the fall of 2002.
In 2001 JPI continued to enter new markets, including the outskirts of New York City. It began construction of a new gated community, Jefferson at Aberdeen, to be located in New Jersey’s Aberdeen Township. The complex was to be comprised of six four-story Victorian-style buildings, some 290 luxury apartments in all. It was also located near a New Jersey Transit train station, providing a 45-minute commute to Manhattan. Also in 2001 JPI looked to New York’s Westchester County, and after a lengthy negotiation with White Plains city officials was able to work out a deal on a site that for more than 20 years other builders had tried and failed to develop. Jefferson at White Plains called for an eight-story building housing 251 luxury apartments, as well as 30 separate townhouses.
In the aftermath of the terrorist attacks of September 11, 2001, and a troubled economy, coupled with overbuilding in some areas, JPI like other landlords had to contend with a sharp downturn in the apartment rental market. It was forced to lower rents in some cases and even offer inducements to prospective tenants, including digital cameras, 25-inch televisions, or $200 gift certificates. Nevertheless, JPI remained well positioned for the long run, and set its sights on international markets, where it again hoped to leverage GE Capital’s presence and expertise, with plans to enter Mexico and Western Europe in 2003.
Castle & Cooke, Inc.; Gables Residential Trust; Trammell Crow Company.
- Southland Financial goes public.
- Southland Financial forms Jefferson Properties, Inc.
- Jefferson Properties splits off as JPI when Southland Financial is dissolved.
- Hunt Consolidated buys a 50 percent stake in JPI.
- GE Capital Service forms joint venture with JPI.
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Brown, Steve, “Ray Hunt to Invest in JPI Program,” Dallas Morning News, April 19, 1991, p. 1D.
Chuang, Tamara, “JPI Thriving Despite Recent Snags,” Arlington Morning News, December 20, 1996, p. 6A.
Garbarine, Rachelle, “Apartments Planned Near Aberdeen Train Station,” New York Times, January 14, 2001, p. 11.
Holt, Nancy D., “Development: Luring Renters with Exotic Amenities,” Wall Street Journal, February 25, 1998, p. B12.
Kleinfield, N.R., “To the Brink and Back in Real Estate,” New York Times, January 7, 1990, Section 3, p. 1.
Page, Robert D., “ ‘Partnerships for the Future’ May Hold Key to Apartment Success,” National Real Estate Investor, January 1997, p. 30.
Rudnitsky, Howard, “Billion-Dollar Fire Sale,” Forbes, November 17, 1986, p. 44.
Templin, Neal, “Apartments Replace the Dorm,” Wall Street Journal, October 28, 1998, p. B18.
Totty, Michael, “Southland Financial May Have a Rescuer,” Wall Street Journal, May 16, 1988, p. 1.