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Diversified REIT Prowls the Market

Atlanta's Cousins Properties applies an old lesson on its 50th anniversary.

The year Tom Cousins scraped up $2,500 to start a real estate development company in Atlanta, Dwight Eisenhower was in the White House, Charles de Gaulle was premier of France, and Elvis Presley was a private in the U.S. Army. It was 1958, and by the year's end, Cousins had racked up $11,000 in home sales.

Through the decades, the founder blazed a trail by joining with powerful partners from IBM to Bank of America and Hines to build signature towers across the South and as far as California, including Austin's 33-story Frost Bank Tower and Atlanta's striking $700 million Terminus towers in Midtown.

Now a REIT, Cousins Properties is celebrating its 50th anniversary, and last year it rang up more than $165 million in property sales. The portfolio includes interests in 7.7 million sq. ft. of office space, 4.8 million sq. ft. of retail space, 737 multifamily residential units and 24 single-family residential communities.

At a time when some of the nation's highest-profile financial institutions have splintered and many developers are begging for credit, Cousins sits in the enviable position of having enough cash to invest in irresistible deals and bankroll fellow developers' projects. One reason for Cousins' good fortune is that when it came to its portfolio contents, current Chairman and CEO Tom Bell knew — in gambling parlance — when to hold 'em, and when to fold 'em.

“We sold $3 billion of our commercial properties in 2004, 2005, and 2006,” says Bell, former CEO of marketing firm Young & Rubicam. “We significantly reduced our portfolio when we thought people were paying prices we probably wouldn't see again for some time.”

Cousins has lasted because it's opportunistic, says the CEO, and because it has focused on the burgeoning Sunbelt. “We try to keep our equity value somewhere between $1.5 billion and $2 billion,” he adds. The REIT's stock closed at $24.49 on Sept. 23, down from a 52-week high of $33.25.

With its wad of cash, the REIT has shifted gears from its earlier practice of developing office, multifamily, retail and industrial properties and is openly prowling for distressed real estate. In particular, Bell is tracking failed residential projects owned by banks that he can wrangle at discounts of 40% to 50%. His people are scouring Tennessee, North Carolina, Texas, Georgia and Florida for projects whose infrastructure is already in place, and for raw land to hold until the market rebounds.

Financial institutions have been slow to come to grips with the plummeting value of their loans and investments, and the deep discounts the REIT seeks aren't likely to be available until the second or third quarter of 2009. Cousins currently has offers on the table in Georgia and Florida for two residential developments that fell on hard times.

The strategy has often allowed Cousins Properties to give its shareholders 20% annual returns. Founder Tom Cousins believes great fortunes can be made in ailing markets; he remains chairman emeritus.

Any regrets? The greatest mistake the enterprise made over the years, reflects Bell, is that it did not take advantage of the Resolution Trust Corp.'s fire sale of distressed properties during the 1980s. “We were too risk-averse to jump in. That was an opportunity to make a lot of money for our shareholders that we passed on.” But the lesson was not lost, says Bell. “Are we making up for the past? You could say that.”

In Progress: Holiday Inn Hanoi Dong Da

DEVELOPER: InterContinental Hotels Group

LOCATION: Hanoi, Vietnam

SIZE: More than 300 rooms

BUZZ: The hotel is the first Holiday Inn Hotel in Vietnam's capital city of Hanoi and will be part of a mixed-use development complex with a retail and commercial center. The project is located in the Dong Da District, which features a wide variety of residential, commercial, and entertainment venues.


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