By Allison Landa

Constance B. Moore began her career with BRE Properties, Inc. (NYSE: BRE) nearly three decades ago and, after a career-long tour of the REIT industry, has returned to take the reins as the company's president and chief executive officer. Recently, Portfolio caught up with this self-described "old broad of REITs" to get her perspective on where the industry has been and where it's headed.

Portfolio: You've spent your entire career in the REIT industry. How did you get started?
Moore: I started with BRE in 1977. At the time it was called BankAmerica Realty, an externally managed REIT run by Bank of America. I was at BRE from 1977 to 1983, then left and went to Consolidated Capital. I then went and worked with Peter Bedford, and was most recently with Security Capital Group in Santa Fe, N.M. My whole life's been real estate, and only REITs and REIT-related positions.

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AGE: 49 FAMILY: Married, one stepdaughter and two grandchildren. EDUCATION: B.A., Real Estate, San Jose State University; M.B.A., University of California, Berkeley. EARLY CAREER: Started with BRE in 1977 after graduating from San Jose State. Has had a REIT-focused career that has included stints at Consolidated Capital, Bedford Properties and Security Capital. CORPORATE PROFILE: Now chief executive officer at BRE Properties, an apartment-focused REIT with 89 properties and just shy of 25,000 units. The 850-employee company currently has an $840 million development pipeline, with slightly more than 3,400 units under construction. Most of BRE's holdings—75 percent—are focused in California. BRE has 13 apartment communities in San Diego, 10 in the San Francisco Bay Area, and 10 in Sacramento, as well as holdings in Los Angeles, Orange County, and the Inland Empire. PROFESSIONAL ACTIVITIES: Moore is a member of the National Association of Real Estate Investment Trusts' Board of Governors, the Urban Land Institute, the California Housing Council, and the Multi-Family Leadership Board of the National Association of Home Builders.

Portfolio: Was this REIT-centric career path intentional?
Moore: I would love to say it was all pre-planned. My undergraduate degree was in real estate, but it really was more an instance of, "We're going to teach you the basics, but you're going to get on-the-job training." REITs were coming out of the 1975 real estate crisis, and all my professors were saying, "Don't go, REITs won't be around much longer." I said, "I'll do it for a couple of years."

I really didn't know about REITs because no one wanted to discuss them or consider the REIT industry as a serious industry.

Portfolio: You graduated into a troubled real estate environment. How did you put the idea of learning on the job to work under those conditions?
Moore: BRE was really unfocused and undisciplined, very typical of late 1960s, early 1970s REITs. Thirty percent of our portfolio was non-earning, so you might say I was given a battlefield commission.

It was great training because you learned about what could go wrong, unlike today. Everything's so frothy these days. I started out with a giant workout portfolio. I remember my first assignment was a condo project we had in Memphis. We'd done a construction loan and later foreclosed. My boss said, "We're going to lose $6 million on this deal. That's okay. We just want you to develop a budget and control the costs." In 1977, $6 million was a lot of money.

Portfolio: Not today.
Moore: But I'm not sure today's not riskier, even though it doesn't seem that way. If you look at the multifamily market, it's very competitive. Valuations have increased to a point where it's difficult to justify, especially when you consider your cost of capital.

Fundamentals, in general, are weak, but valuations continue to escalate. You're really trying to find those unique assets that will allow you to buy, improve, or reposition to get the kind of returns you want.

Portfolio: So what's your take on the housing-bubble debate and how does it impact multifamily REITs like BRE?
Moore: When I look at housing prices in our markets, particularly in California, they're still escalating. But rents have declined in our markets, so the rent-buy decision is even more extreme than before. I do think on the high end there may be some softness, and it may level out . However, I don't see a wholesale correction, especially in our California markets.

Portfolio: You called the rent-buy decision more extreme than before. Can you elaborate on that?
Moore: Obviously this sounds a little self-serving, but I think in this country, the view is that everyone should be a homeowner. We're taking really good renters and making them poor homeowners. Everyone wants to achieve the "American Dream," but should they be foreclosed out of their homes, it will be a very sad day.

Portfolio: So you would encourage more people to rent?
Moore: Public policy needs to be more balanced. Apartments provide people a great deal of flexibility, particularly in California, where living in a Class A or B apartment provides a much higher standard of living than your typical $600,000 house.

Portfolio: When you began with BRE in 1977, the company had only two apartment properties. Today, your portfolio consists entirely of apartments. Could you describe the evolution of the company's portfolio?
Moore: Seventy five percent of our portfolio today is in the state of California: close to 50 percent in Southern California and 25 percent in Northern California. We also have holdings in Seattle, Denver and Phoenix. We're a little bit eclectic in that the average age of properties in our portfolio is 13 years. In Southern California, the average is 22 years, which mirrors the housing stock in California.

We have a large development pipeline, $840 million, so that's going to bring down our average age. The great thing about California is that it's so hard to build here. The supply is so constrained that once you get something, it provides the opportunity for sustained rent growth, which for BRE is central to our business model.

Portfolio: How would you characterize the projects in development?
Moore: Today we're focused on in-fill development, close to public transportation. There is no question that development is more risky than just acquiring existing assets. It's more time-consuming, particularly in California, where from the time you identify a site, it takes anywhere from 24 months to 36 months to entitle it. We're doing deals today that will stabilize in 2009 to 2011.

However, the difficulty of development is one thing we like about being here in California. You don't find a lot of merchant builders coming in this market because it's not so easy to build. You have to have fortitude to build through cycles. There are going to be times when you open a community and the market is a little soft, and other times when the market is just screaming, but you can't stop and start a development program. You've got to have the guts to just keep building through cycles.

Portfolio: What are BRE's typical funding sources?
Moore: We like to say we have an embarrassment of riches. We have access to several sources of capital including the equity markets, although we're pretty stingy with equity, as well as both the corporate debt and preferred markets. We use our warehouse line of credit to fund our development pipeline and once a development stabilizes, we'll match fund with either debt or equity.

Portfolio: In now heading BRE, your career has come full circle. What's been the biggest change in the apartment sector and the company itself since you were last at BRE?
Moore: I left BRE the first time in 1983, a full 10 years before the modern REIT era began. REITs in those days were truly a "collection" of assets. We had neither geographic focus nor property-type focus. We had assets from Hawaii to New York.

Until the 1986 tax law change, REITs couldn't manage their own assets, which meant that REITs for the most part were small and generally not very active in acquiring new assets. They were certainly not involved in new development. Access to capital was limited. The shareholder base was largely retail investors. Today, we're over 70 percent institutional investors.

BRE has gone from 20 associates to more than 800. Today we are 100 percent apartment-focused on the West Coast, with 75 percent of our net operating income (NOI) coming from California. We manage all of our own assets and have built close to a $900 million development pipeline. Our access to capital has improved substantially.

Portfolio: Much attention has been given to the implications of Sarbanes-Oxley, and BRE is one of many companies that have had to adjust some of its accounting practices. How do you feel Sarbanes-Oxley (SOX) is working, and is it proving beneficial to shareholders? 
Moore: There certainly have been some benefits to SOX, as we call it, but I'm not sure these benefits are supported by the additional costs. Most public companies are seeing anywhere from 100 percent to 300 percent increases in their base audit costs. SOX is now a way of life for all public companies; we have incorporated the processes into everything we do. I do think SOX has made companies, and particularly their boards of directors, more conservative, which could impact the competitiveness of American business. Having the right control environment is certainly important, and the abuses of the past must be eliminated, but we may have gone a bit too far.

Portfolio: Looking ahead for the next six months to a year, what issues that could impact your company's performance concern you most?
Moore: Our expectations for the next six to 12 months depend on continued job growth and improving fundamentals in our markets. Until recently, California has not participated in a meaningful way in the nation's job growth picture. In 2004 we added about 250,000 jobs, mostly in Southern California. We're beginning to see some job growth creep into the Northern California market, and if this continues we should see improved operations from our portfolio.

BRE has a roughly $900 million devolvement pipeline. Commodity prices continue to increase, and while we believe we have these increases imbedded into our underwriting, continued pressure is something we worry about.

As long as there continues to be large amounts of liquidity in this market, it is difficult for BRE to compete on the acquisition front. Condo converters as well as "for-sale multifamily developers" have bid up the cost for existing assets as well as land for new development. We continue to be challenged to identify properties and assets that will meet our return thresholds. 

And as always, identifying and retaining key associates is a challenge for any organization, but particularly for multifamily owners here in the West. It's our associates who make it all happen, and we know that associates with tenure make a huge difference in our operations.