AMREP Corporation

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AMREP Corporation

641 Lexington Avenue
New York, New York 10022
U.S.A.
(212) 705-4700
Fax: (212) 705-4740
Web site: http://www.rionetnm.com

Public Company
Incorporated: 1961 as The American Realty and Petroleum Corporation
Employees: 1,570
Sales: $161.80 million (1996)
Stock Exchanges: New York
SICs: 1521 General Construction—Single Family Houses; 1522 General Construction—Residential Buildings, Other Than Single Family; 1531 Operative Builders; 6552 Land Subdividers and Developers, Except Cemeteries; 5192 Books, Periodicals and Newspapers; 2732 Book Printing; 7389 Business Services, Not Elsewhere Classified

AMREP Corporation is the largest builder of housing in the state of New Mexico, and the 80th largest builder in the United States. The company’s flagship development is Rio Rancho, New Mexico, but it also has projects in Colorado, Florida, and New Jersey, as well as operating a major magazine distribution company. The corporation has weathered a storm of legal problems and business downturns to emerge in the late 1990s as a strong, profitable, and steadily growing operation.

Founded in 1961

AMREP’s beginnings date to 1961, when the company was founded as The American Realty and Petroleum Corporation by a group of New York advertising and real estate men, including Irving W. Blum and Howard Friedman, in association with an Oklahoma oil company. AMREP’s first major venture was the purchase of 55,000 acres of land north of Albuquerque, New Mexico, which was to be subdivided and sold to northerners looking for vacation or retirement homes in a warm climate. During the 1960s, the company experienced steady land sales, but relatively little construction took place. The population of the development, which had been dubbed Rio Rancho by AMREP, stood at only about 1,000 by 1970. In 1971, AMREP purchased an additional 35,000 acres of adjoining land. The total area of Rio Rancho was now larger than the neighboring city of Albuquerque.

In the late 1960s, AMREP had also purchased the Kable News Company. Kable, which was started in the late 1800s as a printing business, had evolved into a company that distributed magazines to stores and fulfilled subscriptions for magazine publishers. After purchasing Kable, AMREP’s primary focus remained real estate, but it also derived a steady income from this subsidiary. During these early years AMREP also started smaller housing developments in Florida, Missouri, and near Santa Fe, New Mexico. By the beginning of the 1970s the company was selling land from about 30 sales offices around the country. AMREP’s stock began trading on the New York Stock Exchange in 1972.

By the 1970s the company’s business of selling real estate to northern retirees and wintertime “snowbirds” had been honed to a fine art. Like a number of its competitors, AMREP used high pressure techniques to sell properties that the prospective purchaser might never actually see. A typical sales presentation involved a free dinner for a group of people who had been lured by invitations sent in the mail. Following the dinner, an AMREP representative would screen a movie entitled “Your Golden Future,” depicting the life of ease and exciting activities available at Rio Rancho. The sales pitch would also stress the property’s value as an investment. In reality, there was almost no potential for the property to rise in value, as the company had many thousands of lots left to sell and the development was only lightly populated. A typical lot cost $3,600 in the early 1970s, and was paid for by putting down around ten percent of the cost and paying the rest in monthly installments. Though some of the houses that did get built were put up by outside contractors, the majority were handled by an AMREP-affiliated builder.

Legal Woes Begin in 1975

By the mid-1970s, the interstate land sales business had attracted the growing attention of government investigators. While Rio Rancho and AMREP had initially been spared, and even were cited by the U.S. Office of Interstate Land Sales as being relatively complaint-free on several occasions, in 1975 the company was charged with defrauding 45,000 investors of as much as $200 million in Federal District Court. Charges were lodged against the company and some of its senior officers, including President Howard Friedman, Senior Vice President for Sales David Friedman, Executive Vice President Chester Carity, and one of the directors, Henry Hoffman. The prosecution charged that the company had defrauded buyers by promising that their investments would double or triple in value within “a few short years,” while knowing that there was actually no resale market for the land. The government won its case, which was upheld on appeal. Despite a letter of support from the Governor of New Mexico, and the fact that no previous interstate land sales fraud case had resulted in prison time, in 1977 the four company officers were each sentenced to six months in prison, while the company was given the maximum fine of $45,000.

Over the next few years other sanctions were taken against AMREP, including requiring the company to show a detailed warning statement to prospective land buyers. This dark period in the company’s history finally was put to rest in 1993, when, after years of dragging through the courts, a relatively small award of $350,000 was made in a civil case brought by the Federal Trade Commission to settle the claims of 22,000 land buyers who had been defrauded.

Not long after losing the 1977 trial, AMREP decided to get out of the interstate land sales business and concentrate on building low-cost housing on its lots and on selling the real estate locally. The company began to offer low-interest loans for buyers who did not qualify for conventional financing. AMREP also began trying to attract businesses to Rio Rancho in order to boost its job base, thus bringing more people to the area to purchase new homes. Housing in Rio Rancho was attractively priced, costing 15 percent or more less than a comparable home in Albuquerque, only a few miles away.

The 1980s: Intel Comes to Rio Rancho

In 1981 AMREP scored a major coup when computer chip maker Intel decided to build a $50 million plant in Rio Rancho. AMREP offered tremendous incentives to attract their business, including property tax abatements, bargain land prices, and state-subsidized employee training programs. Over the next few years other incentives were created to attract still more major companies. A “SWAT Team” approach was developed, to provide interested businesses with a custom-tailored, rapid-response program for relocating to Rio Rancho. AMREP Southwest, AMREP Corporation’s subsidiary that ran Rio Rancho, had the only private-sector Economic Development Division in the state of New Mexico. AMREP Southwest offered relocating companies a “turnkey” situation that cut red tape and completed facility planning and construction in a period of only a few months. Rio Rancho was now growing steadily and was incorporated as a city in 1981, with an estimated 10,000 residents.

In 1985 the company’s annual revenues stood at over $89 million, with profits of just over $7 million. The bulk of AMREP’s earnings were from home sales in Rio Rancho, but other income was generated by the Kable News subsidiary and several smaller developments in other states. AMREP had sold off its Silver Springs Shores subdivision properties near Ocala, Florida in 1983, but continued to manage some property in that state, in Colorado, and near Santa Fe, New Mexico.

The late 1980s saw a drop in home sales as the U.S. economy tightened, and AMREP was stung, with losses amounting to $4.3 million in 1991. The company’s stock had dropped from a high of over $23 per share in 1986 to less than $4 five years later. Company founder Howard Friedman stepped down as CEO of the firm and Anthony Gliedman, who had recently been in charge of Donald Trump’s Trump City project, was named to the position. Under his guidance, and with a bit of good fortune, AMREP was able to bounce back quickly. Within two years of assuming the role of CEO, Gliedman announced significant reductions in administrative and middle level supervisory personnel, saving the company an estimated $1.8 million annually. At the same time, Intel decided to add on to its existing plant with a $1 billion expansion project, which was expected to create several thousand new jobs in Rio Rancho. This move by the world’s largest semiconductor manufacturer gave AMREP and Rio Rancho a great deal of positive publicity, and many other companies became aware of the advantages of locating in Rio Rancho. Other corporations that had significant operations built or under development around this time included software maker Intuit, J.C. Penney Telemarketing, Bergen Brunswig, AeroParts Manufacturing, and Olympus Corp., the first Japanese company to locate in New Mexico. AMREP had also moved several of its own business operations to the city. Rio Rancho was now the fastest growing city in New Mexico, and had become the fourth largest in the state.

Company Perspectives:

We are aiming for a growing, thriving Rio Rancho with a healthy environment and a strong business community that will continue to create new jobs and attract new companies. We work as a team in Rio Rancho with citizens, government leaders and business representatives cooperating and working to make our city the kind of place we all enjoy. We at AMREP are noted not just for our homebuilding abilities but also for our dedication and efforts to help make Rio Rancho a complete, well-rounded community.

Continued Growth in the 1990s

AMREP had been building primarily low-cost housing in Rio Rancho but the growing number of business executives and other professionals who were now moving to town allowed it to expand into construction of more expensive homes, with some priced in the $250,000 range. While the company had sold off small parcels over the years to other developers and builders, the bulk of the construction was still handled by AMREP. Rio Rancho was starting to look more like a city than a suburb. While in the early 1980s almost 85 percent of the residents drove to Albuquerque to work, by the following decade there were so many jobs in Rio Rancho that people had begun to commute in the opposite direction. The community also began to attract upscale restaurant operations, and city services and schools were steadily improving. AMREP built a shopping center and office buildings in the early 1990s which were instant successes.

In 1992 AMREP announced the purchase of H.W.S. Solutions, an environmental consulting firm, which became known as AMREP Solutions. The following year Kable News purchased another magazine distributor, Capital Distributing Co., and two years later it acquired The Fulfillment Corporation of America. Beginning in 1995, the business of distributing magazines to retailers underwent dramatic changes. Up until this time there had been many different regionally based distributors for magazines, and stores, or chains of stores, would typically receive their stock from several different suppliers. In the mid-90s, however, after a group of Safeway stores in Seattle decided to put their magazine supply contract up for bid, reducing the number of distributors they dealt with from four to one, many retailers began to consolidate the number of distributors used in any one region. This trend ultimately forced many of the smaller distribution companies to merge or to go out of business. The total number of magazine distributors dropped by almost a half within a short period of time. Kable, which distributed such publications as Shape, Ring, Muscle And Fitness, and Superb Word Finds, was able to ride out these changes. Following the industry shakeup, and a concurrent price rise for magazines, retail sales fell off. Kable’s purchase of the new fulfillment company, and the industry’s sales slump, caused Kable’s revenues to swing from deriving mostly from distribution to retail stores, to originating primarily from subscription fulfillment. Kable was now the third largest fulfillment company in the United States.

AMREP’s smaller housing development operations continued to grow in the ’90s. In 1994 the company announced the purchase of a 482-acre site near Denver, with space for 1800 homes, called Bradbury Ranch. AMREP had already been involved with a low-priced condominium project in nearby Aurora in the early 1980s, which it got out of when the market faltered toward the end of that decade. Just prior to purchasing Bradbury Ranch, the company had also purchased 196 lots near Denver in a subdivision called Broomfield. Several other smaller groups of lots in the Denver area were acquired over the next several years. The company was building moderately priced homes in these developments, selling for around $125,000 to $150,000 per unit. Sales in the company’s Denver developments were strong.

Other development activity in the 1990s included half interest in a project in New Jersey which began construction of 380 townhouses in 1990, part ownership of 250 units of moderately priced rental housing in Orlando, Florida, and part ownership of a congregate living facility in West Palm Beach, Florida. Other projects were ongoing in Brooklyn, New York and Santa Fe, New Mexico.

By the late 1990s, AMREP had successfully put to rest its reputation as a high pressure interstate land dealer, and was expanding its primary development of Rio Rancho, New Mexico with newly attracted employers and improved city infrastructure. The company’s other housing developments were doing well, and the Kable News subsidiary, a survivor of the recent magazine distribution shakeout, appeared set for continued success.