Camden Properties Trust NYSE:CPT) , the well respected residential REIT, run by always amiable and friendly CEO Rick Campo recently announced the purchase of eight apartment communities, totally 2,957 units. The properties, spread across 4 markets in Texas increase the firm’s holdings to 69,170 units, including deliveries under construction. If the press releases are to be taken at their word, then it means the average cost per unit is a stunning $88,265, We’re surprised, to say the least.
There are currently two schools of thought on how to evaluate multifamily units for acquisition, one is on replacement cost, and the other is on the value of in-place cash flows against the future growth of their competitive set and surrounding areas. Just for comparison purposes, and using data going back only a year or so, the average cost per unit of recently closed transactions in Houston is about $47,500, in Dallas, around $60,000 per unit, and in Austin, somewhere just above $70,000 per door. The San Antonio part of this is harder to estimate because of the extremely limited transaction volume, but we’ll go with an absurdly higher guess at around $110,000 per door. Taken together, it seems that CPT paid about $16,000 per door too high. Now an argument can be made that the purchase price paid was representative of higher cash flows and rent increases at the portfolio properties, but it’s a tough sell when you’re about $16,000 per unit higher than we would have valued this. There is no pop in value in Texas when buying such a windblown portfolio, and the fact these might have been advantageous to CPT in some way clearly didn’t translate into much shareholder interest as far as we can tell. If in fact, CPT did overpay for these units, they must be betting on a pretty dramatic turnaround in Texas markets and higher levels of growth in their favored Houston market. If this is going to work for them, even with a long term hold on the units, we don’t see them gaining back much in the way of value for at least 5 years. For now, we’re going to wait to see if they continue to buy above the market, and without as much diversification and we had hoped to see.
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