BIRMINGHAM, AL - Colonial Properties Trust said it plans to exit the for sale residential market, citing its entrance into that market as "the worst strategic decision" the company ever made. President and Chief Financial Officer Weston Andress said last week the company's exposure to the residential market has raised concerns among some investors.
The company, a real estate investment trust that specializes in multifamily housing, will complete its condominium project currently under construction in Charlotte, N.C., and then weigh any residential components in future mixed-use developments on a case-by-base basis, including at Colonial Brookwood Village, said Jerry Brewer, executive vice president. Andress' and Brewer's comments came at an investor's conference in Memphis last week.
Colonial's Web site indicates several residential nonmixed-use, for sale developments planned for the Gulf Coast area. "That's been the worst strategic decision we have made," said Andress. "The timing there was poor." As a result, the company (NYSE: CLP) had an impairment charge of $26.8 million in the third quarter of 2007, he said. Brewer, in a separate interview with the BBJ, said plans for condominiums at Brookwood are not currently on the drawing board but shouldn't be ruled out. "If it's economically feasible and we feel we are in a good situation, we could do that," he said. "Right now, it's not on the drawing board, but it is a possibility."
While the company has said it will put a new building at Brookwood, it has not released specific details other than to say it could include office, retail and residential elements. The company also said it plans to build a new office building at its Colonial TownPark Colonnade off U.S. 280. But no new buildings will be coming out of the ground in Birmingham this year, said Brewer, due in part to declining yield margins and a cooling credit market for new developments. "That being said, it's not something you can turn on or off," he said. "We are a development company at heart."
Having retail attached to its 200-unit condominium project has been a distinctive feature for Colonial's Metropolitan project in Charlotte, which also includes office and retail, said Emma Littlejohn, president of Charlotte-based real estate sales and consulting firm The Littlejohn Group. Littlejohn said with more major retailers and restaurants currently being secured, sales of the remaining units in that project should sell quickly. For now, the overall condo market in Charlotte is "safe, but not doom and gloom," she said, with an average of two units a month selling in Metropolitan's submarket in Charlotte.
Colonial's Brewer said that for the time being, in Birmingham, the company will focus on completing its two newest retail developments in Fultondale and Tannehill, he said, slated for completion in the second quarter of this year and first quarter 2009, respectively. According to last week's investor presentation, the local shopping centers are two of five properties Colonial has in its development pipeline for sale – part of its multifamily-core strategy. The properties represent $125 million of for-sale property on the balance sheet, Brewer said.
Andress said the sale of the five properties is "critically important" to the company's future, as far as being able to take advantage of "opportunistic investments" or buying properties from distressed sellers, Brewer said. When asked if the company would take a lower price to get the properties off the books, Andress said it would, but hoped it wouldn't come to that.
But, overall, the multifamily REIT is going strong in an uncertain economy, Andress told investors. He said the company's current portfolio is the best it's ever had, outperforming its multifamily peers over the last five years, and it's on track to pay out a promised $2 per share dividend to shareholders. Colonial's stock closed Sept. 9 at $19.09 a share. According to the New York Stock Exchange, its 52-week high was $37.55 in October last year.
Source: Birmingham Business Journal