COVER STORY, DECEMBER 2004

IN THE PATH OF GROWTH
Colonial Properties Trust expands its presence in the Southeast and beyond.
Julie Fritz Hunt

When Southeast Real Estate Business (SREB) spoke with executives from Birmingham, Alabama-based Colonial Properties Trust 2 years ago, the company’s philosophy was to put itself in the way of growth.

SREB sat down with the company again this fall and discovered that all of the growth and changes the company has experienced have not changed its philosophy.

(left to right) Linda Geiss, Reynolds Thompson and William Leitner III.

“The company is evolving, but our strategy is unchanged,” says Reynolds Thompson, chief operating officer. “We’re still a diversified real estate investment trust that has an interest in multifamily, office and retail. However, our geographic footprint has broadened somewhat in the last 2 years.”

There are 148 metropolitan statistical areas in the Sunbelt, and Colonial has ranked them based on population, job and income growth projected to occur over the next 5 years. “We’ve taken the top 37 cities from that list,” Thompson explains. “Our goal is to have 75 percent of our income coming from investments in those cities through multifamily, office or retail. Today, about 50 percent of our income comes from those cities, so we need to make a pretty substantial change. We’ve already made some significant headway toward that this year with the acquisitions and developments that we’ve got coming through the pipeline.”

Colonial Pinnacle at Craft Farms, Gulf Shores, Alabama.

The move will create a broader geographic diversification for Colonial. The company currently is heavily concentrated in Alabama, Florida and Georgia, and this will give Colonial a bigger presence in the Carolinas, Texas and Arizona.

The company recently entered into a partnership with DRA to acquire a total of 16 multifamily properties in Albuquerque, New Mexico; Phoenix and Tucson, Arizona; and Las Vegas. Colonial acquired a 20 percent interest in the partnership and will handle the property leasing and management of more than 4,200 units.

“We’re trying to put ourselves in the way of the growth, where population growth, job growth and incomes are going to help our properties succeed,” says Thompson. “A city like Orlando, Florida, is a good example of the kind of presence we’d like to have in a dynamic, growing city. We have all three of our operating divisions represented, and we’re the largest suburban landlord in Orlando. We’ve got over 5,000 apartment units and a very sizable retail portfolio in Orlando. We’ve got that kind of presence in Birmingham, but we’d like to have that kind of presence in Charlotte, Texas and even further out West. Toward that end, we’ve also brought a lot of new talent on board. These are a bunch of young, energetic people who have a vision for what we want our retail business to become in the years ahead.”

People Make the Difference

Colonial has hired a number of new executives recently, including Chip Light, executive vice president, retail division; Brian Neltner, senior vice president, retail division; and William Leitner III, executive vice president, retail development and acquisitions.

Brian Neltner (left) and Chip Light.

The company also has doubled the size of its retail development team in the last 18 months. In addition to Bryan Ratliff, Paul Glascock and John Hughey, all of whom have 15-plus years with Colonial, the company has added three senior vice presidents of retail development in three major markets: Duke Sullivan in Atlanta, Todd Hardin in Houston and Clint Connel in Austin, Texas. “We want the retailers to think of themselves as our partners: Where they go is where we’ll end up,” Light explains.

“The group as a whole averages of 18 years of experience, has long-standing tenant relationships and has extensive market knowledge,” says Leitner. “We really feel like we have a seasoned team in the company right now. We’ve set up a decentralized strategy in various top-tier markets and put these developers in a position where they are like the owner of that franchise. They are all things retail development for that market. It enhances and increases deal flow in all respects.”

The company’s strong retail leasing team also has gotten a boost from added talent with the addition of Ray Sankovich, Dan Zoghby, Wade Robinett, Pat Kelly and Lanne Cort.

“When I started here last August, I was the SVP of leasing,” says Light. “It was a good leasing staff, but we wanted to add more depth. We brought in four or five seasoned professionals that we consider senior statesman of the real estate industry — they’ve had experience with Jacobs, Urban, Westfield, Glimcher and CBL. We meshed those people with the people that we already had on the ground, and it was a wonderful exchange of ideas. We brought Brian in, and he’s taken it one step further. Not only does he bring a strong leasing background, but he adds a strong financial component as well.”

Reynolds Thompson (left) and William Leitner III.

“The leasing staff is leaning to a greater tendency to be where the properties are to learn the markets, and to understand not just the malls that we have but [also] properties we don’t own that might be opportunities 2 or 3 years down the road,” says Neltner.

Additionally, Colonial appointed a new chief financial and investment officer, Weston Andress, last spring.

“Weston’s background is investment banking,” says Thompson. “He has really accelerated our participation in the deal flow and the different things that we’re looking at, from joint ventures to larger transactions. He is really going to help us try to grow the enterprise more than we have over the last few years.”

Retail Pipeline

In January 2003, Colonial’s pipeline was almost 250,000 square feet. The company’s current pipeline tips the scales at more than 2 million square feet.

“Our emphasis is on the open-air format, both in acquisitions and development,” says Thompson. “We’re looking for a diversified retail portfolio, [but] we want to weight our portfolio toward open-air shopping centers. That includes everything from grocery to power centers to lifestyle centers. We’re working on all types of those projects today.”

New projects include Colonial Promenade at Alabaster, a 660,000-square-foot power center in Alabaster, Alabama. Wal-Mart Supercenter, Lowe’s Home Improvement Warehouse, Belk and AmStar Cinema will anchor the project. “When it is completed, it will be the largest shopping center in Shelby County, Alabama’s fastest growing county,” says Leitner.

The largest development the company is working on right now is Colonial Pinnacle at Turkey Creek in Knoxville, Tennessee, a 76-acre development spanning 535,000 square feet. This high-end lifestyle center will be anchored by Proffitt’s, an 18-screen Regal Cinema and a grouping of the core concept lifestyle fashion and home décor retailers. “Tenant demand has allowed us to launch Phase II across the street,” says Paul Glascock, developer for the company. “We’ll bring in some power center-type retailers to round it out.”

In Gulf Shores, Alabama, Colonial is developing Colonial Pinnacle at Craft Farms. Cobb Theatres, a traditional department store and a high-end restaurant package will anchor this lifestyle center development. The theater will open next June, and the shopping component will open in 2006. “The Gulf Shores market resembles Destin, Florida, 3 years ago,” says Leitner. “The 4.5 million tourists who visit this market have high levels of disposable income, evident by the fact that the average condo price in Gulf Shores right now is $500,000.”

Colonial is underway with Colonial Pinnacle at Tutwiler Farm in eastern Birmingham. One section of the project contains price-sensitive big box retailers, behind which is a lifestyle element. Light describes the lifestyle portion as an outdoor mall. “It will have Belk, Best Buy and two traditional department stores — the typical things you’d find in a mall — and the tenants that are ancillary to those stores. Our goal is to have everything that a mall and peripheral retail offer in one package where it will be a little more consumer-friendly. You can park right in front of the stores and go in,” says Light.

Colonial prides itself on creating convenient, pedestrian-friendly, village environments that are extensively landscaped.

“It’s not an asphalt jungle,” says Light. “We want to give people an environment that they want to keep coming back to.”

Retail Redevelopments

Retail redevelopments are a big part of Colonial’s portfolio. Last month, the company hired Brian Jones as vice president of redevelopment. He previously worked for Kimco Realty Corporation.

“[Jones is] very leasing- and financially oriented,” says Neltner. “He’s trying to squeeze as much money out of each one of these assets [as possible], to really create better shopping environments in each one of them.”

The company redeveloped Beechwood Shopping Center in Athens, Georgia. When Colonial purchased the shopping center, it housed Harris Teeter, Stein Mart and some local shops.

“Through our very strong mall background, and the better tenant relationships that we’ve had, we were able to backfill that shopping center with a much better tenant mix, including Ann Taylor, Chico’s and Talbots. It’s been an absolute gem with great sales volumes — all due to Colonial’s experience with the mall tenants,” Neltner says.

“With our breadth of knowledge, we’re able to cross those boundaries and bring strip tenants into malls,” Light notes. “We’re also able to bring some of these mall tenants into the lifestyle centers.”

Many of the properties Colonial works on today don’t fall into one particular category.

“These properties don’t fall into pre-conceived categories anymore,” says Thompson. “They’re hybrids. At Brookwood Village in Birmingham, we’ve turned the ground floor inside out. It now faces outside, and we created outparcels for restaurants. Once you go inside and upstairs, it’s a traditional mall. It clearly doesn’t fall into a single category anymore. We’re also working on a project right now in Birmingham that has lifestyle center and power center tenants. It’s just a great location and all the retailers wanted to be there.”

Office & Multifamily

Because it has expertise in the office, retail and multifamily sectors, Colonial has the ability to allocate capital to each sector as it demonstrates an opportunity for growth.

“In the late 1990s, we were as much as 60 percent multifamily,” says Thompson. “Today we’re about 27 percent. Multifamily concessions are starting to burn off, and we’re seeing an improvement in economic occupancy. Because of that, we believe it’s time to increase the investment that we have in the multifamily sector. We believe that the multifamily sector has some opportunity for internal growth in the future.

“Office is going to be very opportunistic for us,” Thompson continues. “Office business is still very challenging. We’re watching that market. It’s not unlike multifamily; it’s going to turn around as well. It’s just a question of timing.”

Colonial has made a few office acquisitions this year in markets in which it already has a presence, and the company is looking for opportunities in some of the growth cities it has identified.

“Pricing has been very aggressive and we just have not found something that makes a lot of sense,” Thompson explains. “One thing that we may try to do in the office sector is to make some acquisitions through joint ventures. That’s something we’ve done in multifamily and retail.”

Goals

Colonial’s overall goal is to be the star performer in real estate, and each division’s goal ties back to this corporate goal.

“We really have three constituents — shareholders, merchants/residents/ office clients, and employees,” says Thompson. Colonial is traded on New York Stock Exchange as CLP. “We want to make sure we do what’s right by each one of [our constituents]. At a time like this, when we’re looking at shifting assets into multifamily, some of these dollars that we’re creating in retail actually may go back into multifamily. At the same time, we’re also dedicating a tremendous amount of capital to our retail development pipeline. We’re trying to weight our overall business in a different way.”

The company also is interested in teaming with a developer that is creating a master-planned neighborhood; Colonial could provide the retail, multifamily or office component. “That’s something that we think we’re well suited to do,” says Thompson. “We understand that.”

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