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HOUSTON-It’s a tough time for anyone who is trying to obtain capital for new real estate plays today. The credit crunch that started over a year ago shows no signs of abating as lenders continue to tighten their underwriting criteria. Meanwhile, uncertainty over the economy has equity players sitting on the sidelines.

What’s a real estate player looking to grow its business to do? For Camden Property Trust, raising capital through an investment vehicle is one solution. The Houston-based REIT recently closed out Camden Multifamily Value Add Fund LP and a co-investment limited partnership to invest for its own account or alongside the entity.

With $375 million in equity commitments, the fund may eventually accumulate about $1.25 billion worth of real estate. Camden put up $75 million, or 20%, of the equity. The remaining commitments came from institutional investors. The capital will be used toward the development, acquisition and repositioning of apartment properties. Camden will receive payment for its property management, construction, development and capital improvement services.

Including communities under way, Camden already owns interests in and operates 64,329 units in 186 apartment properties across the country. Recently, the REIT’s chairman and chief executive officer, Ric Campo, spoke with GlobeSt.com about the new fund, the firm’s strategy and his views on the apartment market.

GlobeSt.com: Why did you decide to create the Multifamily Value-Add Fund, and how long have you been raising capital for it? Campo: We thought it would be a good idea to expand our capital base and increase the efficiency of our platform by adding properties through this fund. We thought we could add a lot of value to our investors and enhance our returns at the same time. We started working on the fund about a year and a half ago. The marketing of it probably took us about a year. We’re happy to have it completed.

GlobeSt.com: Right now, it’s a tough time to get debt or equity in the market. Is creating a vehicle like this to raise capital one strategy you’re employing in an environment like this? Campo: Raising equity is very hard. If we had to start raising our fund today, I think it would be a lot more difficult than it was. And it wasn’t easy. It is great to be able to have capital in a market where a lot of other folks don’t have access to it. Camden is well-funded right now, and most of the public companies have really good access to capital relative to the private sector. So this allows us to access another capital sources, as opposed to public capital or joint ventures.

GlobeSt.com: This is the first fund you have focusing on value-add opportunities. Did Camden have any other vehicles similar to this? Campo: It’s the first value-add vehicle in a fund format. But we’ve probably done about $1.5 billion to $2 billion worth of joint ventures with institutional investors. We felt the fund format was a better one for us at this point given the blind pool nature and longevity. Generally, funds tend to be longer than joint ventures, in terms of their duration. We’ll hold the assets for seven to 10 years.

GlobeSt.com: You said that you expect to leverage your equity commitments by 70% to get to that $1.25 billion in real estate. That’s a bit higher than what most other players say the norm is in the industry, which is about 60% to 65% leverage. Campo: That’s probably right. The current market is obviously very difficult for financing. Our financing target is 70%, though it may be hard to get there. On the other hand, I do think the financing markets are definitely in crisis now and they will return to some semblance of normalcy in the next year or two. We have four years to invest the funds, so we have a decent window. We’re not running out into the marketplace today trying to spend all our money. We think through the life of the fund we’ll be able to generate that 70% leverage.

GlobeSt.com: Do you have lending relationships established, or are your options pretty broad? Campo: It’s pretty open, but we have outstanding relationships with Fannie Mae and Freddie Mac and with a lot of banks. We aren’t worried about the financing at all.

GlobeSt.com: Where do you see the opportunities going forward? Campo: Transaction volume is down over 70% around the country. The bid-ask spread is very wide between buyers and sellers. I believe the opportunity will reveal itself over the next six or eight months to a year. It’s going to be in a couple of areas. With the credit crunch really limiting merchant builders and other developers in terms of starting projects, there’s going to be a shortage of multifamily product coming on line by the end of 2010 and early 2011. We’ll be very focused on development through the middle to end of 2009. That’s one area that’s going to be an opportunity, but it’s not one right now. You have to wade in to 2009 and see how the economy works out. We’re positioning ourselves to deliver product into 2011.

There will also be opportunities with acquisitions from sellers that have debt coming due that they can’t refinance, or need an equity infusion in order to refinance. That will create opportunities in mezzanine financing. A good example would be developers that are going to complete the construction of their projects in 2009. The market is weaker than they expected, so they won’t be getting the kind of rent numbers they originally expected in their pro forma. You’re going to have a fair amount new development that needs to be restructured from a capital perspective, so there’s going to be a need for mezzanine capital. We did mezzanine plays in the last down cycle, and did really well. But it’s all going to take some time. The middle of 2009 is probably going to be a good timeframe to capitalize on those opportunities.

GlobeSt.com: You mentioned development–do you have land banked? Campo: We have land banked for about $1.5 billion worth of development at this point. It’s very diverse. About half of the land is in the Washington, DC area and Southern California, and the rest is pretty spread across Denver, Houston, Las Vegas, Phoenix and Florida.

GlobeSt.com: Several people on the industry expect to see opportunities to take advantage of the tighter financing climate to acquire properties. That is, buying assets of sellers who cannot refinance and are forced to shed their assets. Campo: I see it as an opportunity for Camden, but I haven’t yet seen it materialize. The reason transaction volume is down so much is because there isn’t a lot of distress in the marketplace. There are a lot of highly leveraged mortgages coming due in 2010 and 2011, but not a whole lot in 2009. It would be really interesting to see how that manifests itself. I think there will be some distress. The question is when.

GlobeSt.com: What’s your outlook for the market, your plans for Camden and what challenges do you expect to face? Campo: The market is going to be really challenging in 2009. We’ve lost about 750,000 jobs so far this year, with nine straight months of job losses since December of last year. I think that is a pretty ominous trend that could continue through the middle of 2009. A lot of it depends on how successful the government is in stimulating the economy and loosening up the credit crunch. All that said, I don’t expect 2009 to be a banner year.

In developing or buying assets, we look at the potential rental growth. It’s very difficult to predict what’s going to happen in 2009 from a cash flow perspective. I think most people believe that even the best markets in the country are moderating from a growth perspective.

Fundamentally, however, the industry is in really good shape for a downturn in the economy. The good news is we have very limited supply coming in. The credit crunch is going to lower the supply of multifamily to the point where, according to some folks, it will lead to a shortage of multifamily units. That should cause rents to spike at the middle of 2010 to perhaps 2012. That will be an interesting time in the industry, if we have a mild recession and not a depression.The reason people aren’t doing anything right now is because they’re worried about the future. That feeds on itself. The fear over the economic meltdown is a bit self-fulfilling. Changing that mentality is pretty tough. It’s a pretty nervous time out there. The good news for us is we have a lot of capital. The bad news is we can’t put it out yet.

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