HOUSTON-The two largest multifamily markets in Texas – Houstonand Dallas – are “beaten up” from the new supply that has come tomarket over the past 12 months.

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Richard Campo, chairman and CEO of Camden Property Trust,outlined the problems the additional inventory have created forREIT’s properties during its first quarter earnings call. The localcompany owns interests in and operates 185 properties containing63,658 apartment homes across the U.S.

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“The Texas markets are getting beaten,” Campo notes, adding thatthey’re suffering from “a ton of new supply” that was constructedduring the last part of the development cycle when Dallas andHouston were the only two markets in the country where developerscould build. “Unfortunately, some of it is directly competitivewith a lot of our assets in Houston and in Dallas, as well.”

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Campo notes that merchant builders are offering heftyconcessions for the new propeties. He gave this example during thecall: every day during his morning commute, he drives by a newapartment community that is in lease up. It has a banner on theside of the building offer three months of free rent.

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“That is the kind of pressure that we are seeing on the supplyside,” Campo explains. “[Merchant builders are] in a race to get tothe finish line from a stabilization perspective, and they’rewilling to do virtually anything on rates and concessions to getthere. And, it makes for really sloppy execution on anything thatis tangential to those submarkets.”

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During the first quarter, Camden’s portfolio showed some stressfrom the new supply – same property NOI declined 9.1% compared tothe first quarter of 2009, with revenues declining 4.8% andexpenses increasing 2%. Same property physical occupancy levels forthe portfolio averaged 93.1% during the first quarter 2010,compared to 93.6% for the same period in 2009.

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Campo says the news about Texas isn’t all bad: Dallas andHouston both created jobs during the quarter, the Bayou City at abetter rate than the Metroplex. “There’s still an opportunity towork our way out of supply challenges with better job growth,” hesays.

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And even with the supply challenges, Dallas and Houston are notthe REIT’s worst markets – Phoenix and Las Vegas fill thoseunfortunate positions. “Those markets are clearly stillstruggling,” Campo says. “It’s not really a supply issue, but themassive job losses.”

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Camden’s best market is Washington D.C., which has been aperennial top performer for almost every apartment REIT. “The D.C.metro is unquestionably our strongest market and it seems to beimproving,” Campo notes, adding that Denver has also been a “good”market for the REIT. Interestingly, Denver has not been a strongperformer for other apartment REITs, given its job losses andhousing bubble.

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