CarrAmerica Realty Corporation

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CarrAmerica Realty Corporation

1850 K Street Northwest, Suite 500
Washington, D.C. 20006
U.S.A.
Telephone: (202) 729-7500
Toll Free: (800) 417-2277
Fax: (202) 729-1150
Web site: http://www.carramerica.com

Public Company
Incorporated: 1992
Employees: 780
Operating Revenues: $527.72 million (2002)
Stock Exchanges: New York
Ticker Symbol: CRE
NAIC: 525930 Real Estate Investment Trusts; 531210 Offices of Real Estate Agents and Brokers

CarrAmerica Realty Corporation operates as a real estate investment trust (REIT) focusing on the acquisition, development, ownership, and management of office properties in more than a dozen markets in the United States. CarrAmerica is distinguished as the first REIT to specialize in office buildings on a national scale. The company owns greater than 50 percent interest in 260 office buildings, which contain roughly 20 million square feet of net rentable area. CarrAmerica’s properties are located in Washington, D.C.; Seattle, Washington; Phoenix, Arizona; Austin and Dallas, Texas; Chicago, Illinois; Atlanta, Georgia; south Florida; Denver, Colorado; and throughout California.

19th-Century Origins

CarrAmerica, as it stood at the beginning of the 21st century, represented the culmination of assets, interests, and companies whose origins stretched back to the late 19th century, to the arrival in the United States of the Carr family. In 1885, Solomon Carr emigrated from Leicester, England, taking his six children to Washington, D.C. Shortly after his arrival, Solomon Carr established himself as a homebuilder, developing a successful business in an area west of the Capitol building.

Generation by generation, Solomon Carr’s progeny established themselves as prominent entrepreneurs in Washington, forging a family enterprise whose scope of operations broadened beyond home construction and the nation’s capital. Solomon Carr’s son, Arthur Carr, led the second generation of the family, guiding the company into its principal area of business for much of the 20th century. Arthur Carr managed office buildings in Washington, most notably the original Mills building. Arthur Carr’s management of the Mills Building—a property that would be long affiliated with the Carr family—led to his collaboration with General Anson Mills. Together, they began building office buildings in Washington, D.C, and Houston, Texas.

The next generation of the family was headed by Arthur Carr’s son, Oliver T. Carr, who took over the management of the Mills Building in 1922. His son, Oliver T. Carr, Jr., formed Oliver T. Carr, Jr., Inc., a homebuilding company founded in 1955. Through this entity, Oliver T. Carr, Jr., began building houses in Montgomery County, Maryland, a suburban region outside the Washington metropolitan area. It was through Oliver T. Carr, Jr., that the Carr collection of assets took on the characteristics that later described CarrAmerica. Specifically, the real estate service company that existed at the beginning of the 21st century drew its most direct ancestral line from Oliver T. Carr Management, Inc. Founded in 1962, Oliver T. Carr Management, Inc. operated as an office and apartment building management and development company. The company’s first project was the development of the Jefferson House, a high-rise apartment building in Washington. Following the development of the Jefferson House, the company began focusing primarily on building and managing properties.

Emergence of a Development Company: 1960s

As the management and development company matured, it became the heart of the Carr family enterprise, a business recast as The Oliver Carr Company that focused nearly exclusively on the development of office properties. After redeveloping the Mills Building in 1966, the company began developing several office properties in the center of Washington, including 1800 M Street and 1730 Pennsylvania Avenue. Next, the company focused its attention on the western reaches of Washington. After purchasing the Sealtest Dairy site at 26th Street in what was known as Washington’s West End, the company formed West End Planning, Inc., a nonprofit company created to assist in the planning of a community on the Sealtest Dairy site.

Success in Washington’s West End encouraged the company to expand its presence in the city’s eastern markets. Throughout the 1970s and into the 1980s, The Oliver Carr Company established itself in several of Washington’s fast-growing suburban markets. At the same time, the company also forged relationships with numerous corporate denizens, developing office complexes according to customer specifications. The Oliver Carr Company developed headquarter facilities for organizations such as the American Association of Retired Persons, telecommunications giant MCI, and The American Automobile Association. During this period of expansion, a new generation of Carr leadership joined the company. In 1973, Oliver T. Carr, Jr.’s son, Robert O. Carr, joined the company as a development project manager, the first step in his climb toward becoming president and chief executive officer of The Oliver Carr Company. In 1985, Robert Carr’s brother, Thomas A. Carr, joined the company, starting as vice-president of suburban development and eventually becoming president of The Oliver Carr Company’s successor.

By the end of the 1980s, The Oliver Carr Company ranked as the largest office property owner and management-services provider in the greater Washington area. Although the company’s stature by the end of the decade was impressive, a period of unprecedented growth was set to follow, its arrival signaled by several important changes implemented by The Oliver Carr Company’s management. The first of the significant changes to occur during the 1990s happened in February 1993, when the company changed its name to Carr Realty Corp. and converted to public ownership. The public offering raised $147.4 million, but equally as important as the infusion of capital was the new corporate designation under which Carr Realty went public. Management decided to convert to a real estate investment trust, more commonly known as a REIT. The reorganization into a self-administered and self-managed, publicly traded REIT greatly increased the company’s ability to raise capital, fueling its evolution into a nationally oriented enterprise.

Although there were many requirements for a company to qualify as a REIT—some quite technical—several conditions described the rough framework of Carr Realty’s new status. According to requirements mandated by the Internal Revenue Service (IRS), Carr Realty was forced to distribute at least 90 percent of its taxable income to shareholders. Further, at least 95 percent of the company’s gross income needed to be derived from passive sources, such as rent. In return for conforming to these conditions and others, Carr Realty enjoyed greater ease in raising capital to finance its growth. Generally, REITs were able to build new projects more economically than traditional developers because they paid no development fees or interest on loans. Instead, REITs raised capital through the sale of stock and debt, freeing them from securing investment partners for individual projects. Able to develop projects more quickly and under more salubrious financial conditions because of its status as a REIT, Carr Realty stood poised to eclipse the efforts of its conventionally structured rivals. “We’re delivering more bricks and sticks for the money than a traditional developer,” remarked a Carr Realty vice-president in a November 17, 1996 interview with the Austin American-Statesman.

National Expansion in the 1990s

With its qualification as a REIT, Carr Realty pursued a new strategy. Beginning in February 1993, the company sought to increase the value of its portfolio and to increase its cash flow by expanding its management and leasing business and by acquiring properties in the greater Washington metropolitan market. Toward this end, the company increased the size of its portfolio by 700,000 square feet in 1994. During the year, the company also commenced development of projects representing 400,000 square feet. In 1995, Carr Realty acquired two office buildings, one in Tysons Corner, Virginia, and another in Bethesda, Maryland. The purchase of the two office buildings, which contained 620,000 square feet, marked the beginning of the company’s emphasis on suburban office buildings. Before the end of the year, a new, much broader and more ambitious strategy was hatched. The implementation of the company’s new strategic focus spawned a new era of growth and distinguished Carr Realty as an industry pioneer.

In a December 1997 interview with National Real Estate Investor, Oliver T. Carr, Jr.’s son, Thomas A. Carr, Carr Realty’s president and chief executive officer, explained the major shift in the company’s focus. “While we came public as a very tightly focused regional company with every square foot of office space we owned being located in downtown Washington, we saw the opportunity in the broader national markets.” Carr continued, “So, in November 1995, we announced our new national strategy, which was concurrent with our announcement of a major strategic investment of Security Capital U.S. Realty.” Security Capital U.S. Realty was a component of one of the most successful REITs in the United States, the Security Capital Group of Santa Fe, New Mexico.

Company Perspectives:

“We are committed to building a company that will be a great place to work, that will make a difference in our industry, and, most important, that will make a difference for our customers. By focusing on these objectives, CarrAmerica is building a great future.”

—Tom Carr, president and CEO

The deal struck between Carr Realty and Security Capital in November 1995 was consummated in April 1996, when Security Capital invested $250 million in Carr Realty in exchange for a 39 percent interest in the Washington-based REIT. With the infusion of capital, Carr began to expand nationally for the first time, a shift in strategy reflected in the change of the company’s name to CarrAmerica Realty Corporation, effected in April 1996 as well. Expansion came quickly, with decided vigor, as CarrAmerica spread its presence across the country. The company entered suburban markets in Austin, Denver, Seattle, Chicago, and Atlanta during its first wave of expansion, distinguishing itself as one of the most active REITs in the nation. By November 1996, CarrAmerica had purchased, or agreed to purchase, more than $840 million worth of real estate in nine suburban markets, giving it an interest in 147 office properties containing more than 12 million square feet of office space. By the end of 1996, the company had spent no less than $1 billion on new properties, closing 27 transactions. “Our game plan,” a CarrAmerica vice-president explained in the November 17, 1996 issue of the Austin American-Statesman, “is to come into a market and quickly develop a critical mass. We’ve found that’s the most efficient way to come into a market.”

As CarrAmerica prepared for its first full year of expansion following its signal partnership with Security Capital, the company hoped to duplicate the achievements of 1996. Among the purchases completed during the year was a significant investment in the executive suites business, a new market niche entered into through an investment in OmniOffices, Inc., completed in August 1997. More traditional purchases of land, development properties, and office buildings ensued throughout the year, enabling CarrAmerica to meet its goal of investing $1 billion during the year. From there, however, the company’s pace of expansion decelerated, as CarrAmerica management responded to changing market conditions, a common occurrence in the cyclical real estate business. In 1998, the company cut its investments in half, spending $500 million on new properties. During the year, the company also sold $180 million worth of assets.

By the end of the 1990s, CarrAmerica exuded impressive strength, despite the reductions in spending. The company owned a controlling interest in a portfolio of roughly 255 office properties. By the end of 1999, CarrAmerica also was involved in the development of 40 office properties, development projects that were located in more than a dozen fast-growing markets. In the years ahead, the company continued to exert its might, albeit in slightly different fashion than during the mid-1990s.

As CarrAmerica entered the 21st century, the company adapted to the anemic economic conditions, making subtle yet significant changes to the way in which it conducted business. CarrAmerica began to focus on developing office buildings rather than purchasing them, a change in strategy adopted by many REITs. The harsher economic climate also forced management to take a second look at where company properties were being developed. In this process, decisions were made to reduce or to exit some markets and re-deploy the resources in other markets. In 2000, for instance, the company decided to exit the south Florida market, “a national decision,” according to a CarrAmerica executive in the April 14, 2000 issue of the South Florida Business Journal, “not a reflection on the South Florida office market at all.” In November 2001, the company made another move to bolster its financial position when it agreed to purchase more than nine million shares of its stock from Security Capital. The following month, Security Capital divested the remainder of its holdings in CarrAmerica, completing what was referred to as a “quick and uncomplicated exit” of the relationship between CarrAmerica and Security Capital, according to the CarrAmerica corporate web site.

Principal Subsidiaries

Carr Real Estate Services, Inc.; CarrAmerica Development, Inc.

Principal Competitors

Jones Lang LaSalle Incorporated; Shorenstein Company, L.P.; Trizec Properties, Inc.

Key Dates:

1885:: Englishman Solomon Carr immigrates to the United States and becomes a successful homebuilder.
1962:: Oliver T. Carr, Jr., founds Oliver T. Carr Management, Inc., the most direct corporate link to CarrAmerica.
1993:: Carr Realty Corp. is adopted as the company’s new corporate title, concurrent with its conversion to public ownership.
1996:: Security Capital U.S. Realty acquires a 39 percent interest in the newly named CarrAmerica Realty Corporation, enabling national expansion.
2001:: Security Capital divests its interests in CarrAmerica.