Wrestling with recession

By Michael Fickes

Thomas A. Carr didn’t intend to go into his family’s real estate business, a century-old office developer and owner based in Washington, D.C. After graduating from Brown University and Harvard Business School, Carr went to work for another real estate company, Cadillac Fairview. As it turned out, Cadillac Fairview planned to expand into the Washington, D.C. office market. “I didn’t feel right about helping to compete with my family’s business,” recalls Carr. “In 1985, I jumped ship and went to work for my family.”

Starting as a development project manager, Carr moved into finance before becoming president in 1993 and played a key role in taking the family business public. Today, Carr is chairman and CEO of CarrAmerica Realty Corporation (NYSE: CRE), which has an equity market capitalization of $1.3 billion, 2002 revenues of $528 million and net income of $109 million. The company owns, develops and operates 298 office properties in 12 metropolitan markets across the U.S.

Portfolio: In 2000, CarrAmerica’s vacancy rate was 2.6 percent. By 2002, vacancies had risen to 7.3 percent, but that is very good compared to national average office vacancy rates of nearly 17 percent. How did you do it?

Carr: We prepared. In the 18 months before 2001, we sold $1 billion in assets and took our leverage down to 31 percent. We shut down speculative development programs and shrank our landholdings. We cut general and administrative costs by 20 percent. As a result, our performance has been strong, given the severity of the downturn.

Portfolio: You acted before the tech bubble burst?

Carr: Yes. We were concerned about the disconnection between the absorption of office space and underlying job growth.

Portfolio: But there was no disconnection before 2001.

Carr: But there was. Over a five-year period ending in 2000, technology companies were driving 45 percent to 100 percent of the demand for office space. Late in this period, the rate of office leasing was twice as high as underlying job growth in some markets. That raised red flags, and we reacted.

Portfolio: CarrAmerica also completed a major transaction for its own stock with Security Capital in 2001.

Carr: That was contrary to the defensive posture we had adopted, but it made sense. We were a regional company until Security Capital bought into the business and enabled us to expand nationally. In December of 2001, Security Capital decided to sell our stock. We bought roughly one-third of their position. We were at very low leverage and had plenty of capital to effectuate the deal, which returned control of the company to the broader shareholding base.

Portfolio: How is business today?

Carr: My son is a high-school wrestler, and I think office companies and office markets are like wrestlers locked in combat. No one seems to be moving. But the companies are exerting all their strength to defend positions in an attempt to gain leverage. Companies that don’t make bad mistakes during this period will probably be able to start moving again within 12 to 24 months.

Portfolio: You mentioned your son. How many children do you have?

Carr: I’ve been married for 22 years, and we have three boys. One is 14 and the other two are 11.

Portfolio: Twins?

Carr: Yes. In fact, if you check the dates, you’ll see we went public in February of 1993, and the twins were born in July of 1991. So, a lot of family and personal events happened at the same time in my life.

Portfolio: What do you do to relax?

Carr: My family is my pastime. I spend most of my free time with my wife and kids. I’m deeply involved with my children’s schools and with the Episcopal church we attend. My wife and I also enjoy theater. Recently, we saw a production of “Richard III” at the Shakespeare Theater in Washington, D.C. It was set in modern times, and given the recent conflict in Iraq, it really resonated with me.

Portfolio: You have a reputation as being quite the sailor.

Carr: Our family spends summers on Nantucket, and we have a boat. You could describe me as an avid sailor, yes.

Portfolio: What are your favorite books?

Carr: I’m a voracious non-fiction reader. Right now, I’m reading “Bush at War,” by Bob Woodward, and “Crucible of War,” a history about the Seven Years War. The best book I’ve ever read was “The City in History,” by Louis Mumford. I think it is a seminal work on urban history.

Portfolio: That sounds like real estate history.

Carr: Well, maybe. I majored in urban studies in college and have always had an interest in cities and architecture. Mumford traces the city back to its earliest beginning. It’s fascinating.

Portfolio: Are there other activities you like to do?

Carr: What I’ve told you about accounts for 120 percent of my time. I’m not sure I can do anymore.