Alex Jessett didn’t end up at Camden Property Trust through happenstance or mere luck. The new CEO eyed opportunities at the Houston-based REIT while working in the real estate lending department at Comerica Bank of Texas in his first job out of school.
“We lent to Camden, and I can remember calling on Camden, and I thought, ‘I really like these people, and I think I'd much rather be on that side than this side,’” Jessett told Multifamily Dive. “I finagled my way into an interview, and then I got hired as an analyst.”
Jessett didn’t regret his decision. “As soon as I started at Camden, I thought to myself, ‘I'm home. This is exactly where I'm supposed to be,’” he said. “I can honestly say, in 27 years, I never thought about looking anywhere else.”
Jessett’s work paid off. In March, Camden announced that Jessett would become the second CEO in the 44-year-old company’s history, replacing Co-Founder and Executive Chairman of the Board of Trust Managers Ric Campo as CEO. He knows he has big shoes to fill.
“Camden is one of the few REITs that still has the founders heavily involved,” Jessett said. “And Ric, in particular, is a very big personality. He is very front and center, and so there certainly is absolutely a connection to Ric and to [co-founder] Keith [Oden]. Even though Keith is retiring, that connection with Keith isn’t going anywhere anytime soon.”
But just because Campo and Oden were the driving force at Camden for decades doesn’t mean they made decisions in a vacuum. For the past 20 years, Jessett said he’s been heavily involved in every major decision the REIT has made. He insists that Camden will remain a great place to work, providing apartments that are great places to live and be a great company to invest in under his leadership.
“We're not gonna fix something that's not broken,” Jessett said. “We're gonna keep doing exactly what we're doing.”
That doesn’t mean there won’t be strategic changes. Camden, one of the last remaining major apartment REITs from the flurry of initial public offerings in the early ‘90s, recently exited Southern California by selling an 11-property, 3,620-unit portfolio to a BlackRock-managed vehicle for $1.6 billion.
“We're reinvesting those proceeds into our Sun Belt markets because we believe that over a long period of time the Sun Belt will absolutely outperform,” Jessett said. “We're also reinvesting some of those proceeds and buying back our own shares because we are a screaming ‘buy’ right now, unfortunately, or fortunately, depending on what side you’re on.”
Here, Jessett talks with Multifamily Dive about the REIT’s optimism about the Sun Belt, where it wants to buy and sell assets, and the implications of the Equity Residential-AvalonBay Communities merger.
This interview has been edited for brevity and clarity.
MULTIFAMILY DIVE: What feeds into your optimism about the Sun Belt?
ALEX JESSETT: There has been a direct funnel out of the Northeast and the Pacific Northwest down to the Sun Belt for the past 40 to 50 years. That is not changing. Our business is really simple. If you think about the demand drivers of our business, it is population growth and employment growth. Therefore, you should be exactly where the demand drivers are. If you look at the markets that have the largest population growth and the largest employment growth, they are all Sun Belt markets.
If I were given a choice between picking an investment in a market that had low supply but low demand, or investing in a market that had high demand and sometimes had high supply, I would always take the high demand, sometimes high supply. That is the Sun Belt.
All you have to do is look at the trailing last 10 years of total shareholder return, and look at the companies that are at the top. When you look at the big six multifamily, it's the Sun Belt companies. That continues to outperform. So that's exactly what we're doing. I feel very, very bullish about the Sun Belt on a go-forward basis. And by the way, we’re so bullish that's why we exited California and are taking those proceeds and reinvesting them in the Sun Belt markets.
Now that you’ve left California, are there other places where you feel that you’re overweight?
We're in 13 major markets now. Our largest market is the DMV [Washington, D.C., Maryland and Virginia]. Our second largest market is Houston. I love both of those markets, but both of them are over 10% of our NOI. I don't want any one market to be over 10% of our NOI. So we will bring our exposure to both of those markets down a little bit. That has nothing in the world to do with the quality of the market and everything to do with just making sure we're appropriately diversified.
As the Elme sales process has shown, Washington, D.C., is a tough market to dispose of assets in right now. Does that concern you?
The thing about multifamily is that it really is a story of asset class. Elme is a very different class of real estate than what we own in the DMV, and I think, obviously, what Elme saw is that the [depth of] bids was not that deep for sort of B-minus multi in the DMV. That's not what we own. We own a much higher class of multi.
By the way, there are other ways to reduce your exposure to a market. One of them is you increase your exposure to your other markets and accomplish the exact same thing. So we're going to be really selective about how we do things.
We're going to make sure that if the way that we bring down our exposure is to opportunistically trim around the edges, then we will trim in an appropriate way, making sure that what we put on the market is stuff that is attractive. One thing I've learned after going through the California transaction is there is still a really, really, really strong bid for quality multifamily.
Where would you like to expand?
Nashville is our smallest market. I definitely want to add to Nashville. I definitely want to add to Austin. A lot of people are nervous around Austin. I'm incredibly bullish on Austin. Every 25- to 34-year-old in America wants to live in one of two markets. It's either Austin or Nashville. And what they're suffering from right now is the oversupply issue.
But when that supply goes away, the demand is going to stay, and it is going to be incredibly robust. So we'd like to see increased exposure to both of those markets, and then I look at the rest of our markets and I say they're like our children. I love them all equally. Now sometimes I get annoyed with a couple of them. But I love them all equally, and would like to see us add real estate in all of them.
How does the AvalonBay-Equity Residential, now Vivmark, merger affect Camden?
It has no impact for us whatsoever. Think about this for a second. Both Equity and Avalon had publicly commented that they were going to try to increase their exposure to the Sun Belt. I think that's in large part because they've looked at the outsized returns that we and Mid-America have had, and so we will take imitation.
But what they've now done is, because they've effectively doubled down on more of a coastal approach, I don't think that really has much of an impact on us whatsoever. I do think that you have taken away some of the optionality that a shareholder has.
“If I were given a choice between picking an investment in a market that had low supply but low demand, or investing in a market that had high demand and sometimes had high supply, I would always take the high demand, sometimes high supply. That is the Sun Belt.”
Alex Jessett
CEO Camden Property Trust
I think shareholders who invest in Camden invest in Camden because of our Sun Belt exposure, because of our operating expertise and because of our development prowess. I don't think that anything to do with Vivmark is going to change that whatsoever.
I've been asked about this on other calls, and what I consistently say is bigger is not better. Better is better. I like being the size we are right now because we can easily do a couple of things and create alpha. When you are multiple sizes of this, it becomes really hard to do anything that really moves the needle. There's always the adage that it takes a lot to change or to move a large battleship. I'd rather be a nimble speedboat, and I think that's exactly where we are. I think that gives us the best opportunity to do things that really make a difference.
Do you expect this to be a catalyst for mergers in the apartment space?
I don't. I really don't. I think that Equity-Avalon was such a unique case, and unique because it was a merger of equals. I just don't think that this is going to be any type of catalyst to really change it.
And by the way, if I were an investor, I wouldn't want further consolidation. If you think about your investor today, at least there's optionality. Depending upon what your approach is, you have options. If we all start continuing to consolidate, that optionality goes away. So I don't think it's going to happen. And by the way, I think we're best suited to where we are right now for our shareholders.
How long do you expect your stock buybacks to continue?
We are trading at a significant discount to replacement value, a significant discount to NAV, and because of that, buying shares makes a ton of sense. Now, when we sold California, because we're a REIT, there are tax consequences of large gains. So we wanted to maximize our tax efficiency. The way we maximized our tax efficiency is that we basically sold it for $1.625 billion, used $1 billion of it to buy back multifamily assets in 1031 exchanges and used the delta to buy our shares.
I actually ended up buying $700 million instead of $600 million because I just couldn't help myself. So that's exactly what it is. Now my hope is this doesn't last long. My hope is that our share price will recover quickly and we can get back to developing and acquiring real estate and creating value for our shareholders through that. But at this point in time, buying shares is a fantastic opportunity for us.
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