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Houston will get worse before it gets better, Camden execs say

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Houston will get worse before it gets better, Camden execs say

Houston'smultifamily market will likely continue to get worse before it gets better, executives saidin an April 29 earnings conference call, citing corporate layoffs and continuedlow oil prices.

Texasrepresents the company's top geographic exposure by state, with 28.9% of its totalapartment units, according to S&P Global Market Intelligence data. Houston wasCamden's weakest market in the first quarter, with revenue growth of 0.004%.

In thecall, Chairman and CEO Richard Campo said Houston had fared worse than it did aquarter earlier, and President D. Keith Oden predicted it would continue to slipinto the third quarter. The city is "a declining market," as the companyhas long forecast, he said.

The Houstonmarket has bedeviled landlords across property sectors in recent months. and , both officeREITs, said April 29 that they plan to mergeand spin off both companies' Houston assets into a new REIT. Cordoning off the Houstonassets will allow the new company to capitalize on that market's "eventualresurgence," Cousins President and CEO Larry Gellerstedt III said in a newsrelease.

In contrastwith the similarly weak Washington, D.C., market, where there are signs of a recovery,Houston's apartment sector "needs to stop getting worse before it can get better,"Oden said.

He added:"We're still seeing pretty substantial job losses in the energy sector. Obviously,the recovery in crude oil prices in the last 45 days has given people a little hope… that maybe the worst is over. But the reality is that at $45 a barrel, you'renot going to see much difference in activity. And you still have the Chevrons andExxons of the world who are still downsizing."

On thepositive side, multifamily construction lending has virtually ceased in the city,tamping down new supply, the executives said.

"Ifyou can get a construction loan, you are one lucky developer in Houston, Texas,today," Campo said. "And maybe it's a 40% construction loan and 60% equity,with the pristine developers getting that kind of deal. But other than that, it'sdone. You are not building a project in Houston, Texas, today."

Still,Camden executives said the employment picture is not pretty.

"Clearlythere's been a lot of layoffs so far," Campo said. "And the question whenyou talk to energy executives is, 'So where are you in the cycle?' And they're guardedlyoptimistic. But at the end of the day, I don't think we're out of the layoffs cycle.It might be less this year than it was last year, but it's going to continue untilyou have more stability in that oil price."

The risein oil prices to $45 per barrel from $35 per barrel "is really not a big difference-maker"for oil companies' hiring decisions, Oden added.

"Thething that they look at, that we have always looked at most carefully, is rig count,"he said. "And if you look at rig count, we're at a 30-year low on rig count,and it has not stopped falling. I mean, it's not falling precipitously, but everyweek, you get another five rigs taken out of the mix, and we're down from 1,800working rigs to somewhere around the 700 level. These are dramatic changes."