One of the foremost diversified real estate development companies in the United States, Atlanta-based Cousins Properties, is more concerned about quality than quantity, according to Joel Murphy, president of Cousins Properties retail division. "Our goal is not to become bigger in size for the sake of size, our goal is to create more value for our current shareholders," he says. "Instead of going out and buying a $100 million office building or retail project, our preference is to invest $100 million of equity in development projects and create $140 million of value."

Founded in 1958 by Thomas G. Cousins, chairman of the board and chief executive officer, Cousins Properties currently focuses on the development of commercial retail and office properties in selected markets throughout the country. The company went public in 1960, qualified as a real estate investment trust (REIT) in 1987 and is publicly traded on the New York Stock Exchange under the symbol CUZ.

Since the company' founding, it has developed more than 20 million square feet of office space and over 12 million square feet of retail space, including seven regional malls. In addition, the company has developed more than 3,000 multifamily units and at least 30 single-family subdivisions. Cousins Properties actively develops in many Southeast markets, including North Carolina, Virginia, Florida and Georgia, and has full-service offices in Atlanta and Charlotte. It also has developments in Texas and California.

According to Murphy, Cousins Properties is unique in comparison to other publicly traded real estate companies in that the company primarily develops or redevelops projects for its own account rather than acquires properties developed by others. "A lot of other companies, while they may do some development, are primarily in the acquisition business," he says.

Cousin' second distinguishing factor is that it is diversified by product type. "We develop and own office and retail, and we also have a land division that deals with single-family residential, which has been a significant part of the company since the early 1960s." Murphy notes that Cousins Properties has its roots as a single-family residential developer.

A New Development Concept

In recent years, Cousins Properties has expanded its success in the retail market through its new development concept, The Avenue. Introduced in 1998, this concept came from conversations between Murphy and several specialty retailers about putting together a project in an open air, non-regional mall environment. These retailers felt that a development like this could bring them closer to customers that they believed weren1t being reached by traditional malls. Intrigued by the idea, Cousins Properties did a detailed demographic scan of the Atlanta market based on income and growth and a variety of other factors. "We decided if we were going to do one of these, we wanted to do it in our own backyard," says Murphy. "We had no idea going into it that our own backyard would be seven miles from our corporate headquarters. That' where we developed The Avenue East Cobb."

The Avenue East Cobb in Atlanta is an upscale, open-air, well-landscaped, pedestrian-friendly shopping center with traditional mall-based retailers such as Gap, Banana Republic, Ann Taylor, Talbots, Williams Sonoma and Pottery Barn. It appeals to the time-constrained shopper who wants high-quality merchandise in a more convenient setting than a regional mall provides. Through the success of this 225,000-square-foot center, which is now 100 percent leased and occupied with reportedly outstanding sales, Cousins Properties has opened The Avenue of the Peninsula in Los Angeles and The Avenue Peachtree City in southern metropolitan Atlanta. The company is also in the pre-development stage of The Avenue Chenal in Little Rock, Arkansas, and in other markets as well. "We' taking all the best components of things we1ve learned and are now working to roll out the concept in a little more of a broad basis, all under the name, ¯The Avenue,1" says Murphy. "The bottom line is that all the projects will have basic similarities, yet each will be tailored to the particular market in which it' located. Our goal is for our retailers to know that if it' an Avenue, it will have a consistently high standard for excellence."

And so far, this concept is well-received by retail customers. For example, The Avenue Peachtree City opened its doors on March 29 and early results from retail sales in the first weeks were nothing short of extraordinary. "Virtually all of the retailers are exceeding their plan by a significant percentage and are quite stunned at the breadth of the trade area and the distance people are driving to come to the center," says Murphy. "When you house all these specialty stores in one place, customers--in the Peachtree City case--don1t have to make the 45 minute drive one way to a quality mall. We are providing a very appealing shopping alternative, especially in an area like Fayette County, which is very affluent with high growth, and in our opinion, under served for quality retail." The 175,000-square-foot center celebrated its grand opening with a "community celebration" on May 5.

As a result of The Avenue concept' success, Cousins Properties is considering other markets in the Southeast and the Southwest in which to develop. "I think the challenge for this type of development is understanding your market and understanding that these projects have to be set on real estate with certain unique characteristics," says Murphy. He says he is now being approached by others with ideas for key sites or a particular market for an Avenue project. Murphy finds this idea appealing: "It allows us to grow more rapidly The Avenue concept as opposed to doing 100 percent of every deal ourselves. We can put our expertise in this product type together with our national merchant relationships and strong capital position. I think this makes us an attractive partner." Murphy also notes that this same strategy can be applied to neighborhood and power center products as well.

In addition to The Avenue Peachtree City, Cousins Properties is also working on a specialty mixed-use development called The Arboretum that will include office, retail, residential and hotel components in Cary, North Carolina. The project will be anchored by Renaissance Hotel by Marriott, a 186-room, four-star hotel developed by Summit Hospitality of Raleigh, North Carolina. "This will be the first four-star hotel in the Research Triangle," says Murphy. The Arboretum is in the pre-development phase and the company plans on breaking ground this fall. It is slated for completion in the fall of 2002. "We like the Research Triangle market," says Murphy, "because it is stable, has good growth, a high quality of life, and it' a great place to live and work."

Looking to the Future

When asked about the future of retail in the Southeast, Murphy says that demand for space in Cousin' projects is quite good. "I do think that some retailers are being more cautious than they were previously because many of their store' comp sales have been flat or in some cases, negative," he says. "I think that has caused retailers to be a bit more cautious in future store capital allocations as well as a little more conservative in sales and sales growth projections." But Murphy has also found that in a well-conceived project, people are still opening new locations and are still bullish about the future prospects of their stores. "If it' a well-conceived project, they are willing to step up and do what it takes to make a deal." He also notes that it' difficult to make a global statement about the retail market in general, but points out that Cousins Propertie' retail projects are 97 percent occupied. "By definition, that means demand is pretty good, but we are still keeping a close eye on it."

An institutionally favored product type right now is the neighborhood anchored shopping centers. "We develop these centers and will continue to because they are attractive to the investment community," says Murphy. Unlike the grocery-anchored centers, the demand in the investment community for power centers has weakened. In fact, Cousins Properties has trimmed its portfolio in the power center business over the last 4 to 5 years, harvesting the value created and investing the capital in new retail and office projects. "We are still bullish on power centers as a product type as long as we control the best piece of real estate in the particular submarket and only do tenant deals with retailers first or second in their category."

Another investment vehicle that the company likes is, of course, The Avenue. "This is a vehicle that we feel can establish a fair return for our shareholders," says Murphy, "and at the same time, it offers an extremely attractive return to our retailer partners because their occupancy costs in an Avenue are often 40 percent less than in a traditional regional mall." He also adds that an Avenue is not burdened by the CAM and overhead charges of many enclosed malls.

Murphy also believes that opportunities for development will continue in the Southeast, but he is tightening up the front-end underwriting. "When you combine the favorable weather and the employment opportunities in the Southeast, it' extraordinary," says Murphy. "It' no accident that the Southeast and the Southwest continue to see employment and population growth." Where the people are is where there will be the best opportunities for well-conceived development. That' why the company is focused on the Southeast, the Southwest and other sunbelt markets, he adds.

With prosperity, there is also the fear of overbuilding. While certain submarkets might get overbuilt for office and retail on a temporary basis, Murphy doesn1t think the Southeast will see the "almost irresponsible" speculative building that occurred in the 1980s with the "old ¯build it and they will come1 motto." He sites Atlanta, which, on a per square foot basis, has an amount of retail per capita that exceeds the national norm. At the same time, he points out, its growth is so extraordinary that there continues to be retail demand. "Statistically, Atlanta is overbuilt," he says. "But in retail, you have to look a lot closer at submarkets and the particular project cotenancies in the submarkets. I think there are still retail opportunities in Atlanta, they' just more niche-based opportunities as opposed to major regional-based centers."

So what does the future hold for Cousins Properties? "The best way to look at where we are headed is to look back at where we1ve been," says Muphy. Since 1977, the company has posted an average annual return of 24.9 percent to its shareholders. If one looks at investments over the last 25 years, that number is consistent with returns delivered by blue chips such as Time Warner, GE, Coca Cola and Bank of America. "Realizing that we1ve made returns equal to or better than a lot of those companies over a 25 year horizon tells us that we are a company that not only knows how to grow and deliver superior returns to our shareholders during the good times, but we1ve also shown how to operate successfully during the downturns of 1980 to 1981 and 1990 to 1991." Murphy notes that the company has been through these difficult times and in fact, feels it can be even stronger in a relative period of economic malaise. "Because we have such a low level of debt within our company, we can take advantage of opportunities that others might not be able to take advantage of in a downturn," Murphy says. "So I think looking at our past is a good way to gauge where we see our future."


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