Carr Empire's Changing Skyline
After Sale, Iconic Family of Developers Ponders Its Next Move

By Dana Hedgpeth
Washington Post Staff Writer
Monday, November 20, 2006

This spring, homegrown CarrAmerica Realty Corp. sat at the pinnacle of its industry, owning, developing and managing a vast portfolio of office buildings. It was a Washington institution, tracing its roots back half a century, when Oliver T. Carr Jr. began building Montgomery County houses.

The original Oliver Carr Co. was the biggest and best real estate developer in town in the late 1980s, burnishing a reputation for commitment to the community. It had ventured into downtown after the 1968 riots, when others hesitated, putting up office buildings and growing along with its city.

Earlier this year, CarrAmerica owned and managed 26.3 million square feet in 12 markets across the country. It had 650 employees, including about 300 in the Washington area. Its stock was trading around $30 per share.

Over the summer, it sold to out-of-towners, and today CarrAmerica, as a stand-alone entity, is no more.

"The company is completely and irrevocably changed," said Thomas A. Carr, former chairman and chief executive of CarrAmerica, who stepped down this summer.

A unit of Blackstone Group L.P., a New York-based private investment firm, paid $5.6 billion, or $44.75 per share, for CarrAmerica's real estate empire, with properties in the District, Maryland and Virginia suburbs, and along the West Coast. At the time of the deal, the new owners said they'd use CarrAmerica as a "platform for future investments," although they didn't spell out how.

Four weeks later, Blackstone moved to sell CarrAmerica's 26 buildings in the Washington region to Tishman Speyer Properties, based in New York, a transaction that has yet to close. By then, about 100 local employees had been let go -- workers in accounting, human resources and information technology.

Neither entity will say what their plans are for the buildings in the Washington region, or the West Coast. Some in the industry say Tishman is likely to spruce up some of the older, Washington-area buildings.

As for the onetime CarrAmerica corporate headquarters on K Street NW, callers are still greeted with "Thank you for calling CarrAmerica." But Carr family members are no longer running the company. The employees who remain in the D.C. region work for a different owner, with another owner set to take over.

"Change is always painful, and going through the change has been difficult," Thomas Carr said recently. "The company carried the family name, and the family legacy was the icing on the cake. There was a tremendous amount of pride."

Blackstone, one of the largest private equity funds in the world, typically buys public companies with little money down and lots of borrowing, restructuring them and selling for a nice profit. Earlier this year, it also bought MeriStar Hospitality Corp., a hotel real estate investment company, in a $2.6 billion deal.

Blackstone saw the CarrAmerica deal as a short-term commodity play, say local real estate experts, speculating that Blackstone didn't want to keep CarrAmerica's entire portfolio and therefore sold off the most liquid assets -- the D.C. portfolio -- for which investors were willing to pay top dollar. Blackstone could use those profits to pay down debt on the West Coast buildings it bought from CarrAmerica. Some said Blackstone is likely to hang onto CarrAmerica's California assets, as it expects that market to continue to improve, and consider selling later.

Though their business disappeared with astonishing speed, the Carrs insist they will be heard from again.

"The Carr family is not defined by a group of buildings," said Thomas Carr, who has not specified the family's next move. "The Carrs are going to remain extremely active in this real estate community."

Since the 1880s, when Solomon Carr came to the District from England and started building houses west of the U.S. Capitol, the Carr name has been associated with Washington real estate, and the family has nimbly traversed the ever-changing market, building in the suburbs as families flocked there for housing and putting up office buildings in the city ahead of others.

"I don't feel sad," said Oliver T. Carr Jr., 81, the patriarch of the family. "We had a great time. We made it great. We feel lucky to have had a terrific experience."

Today, he is running an executive office business, leasing temporary space to companies in the District and Maryland and Virginia suburbs.

One of his four sons, Robert O. Carr, had been talking to developer Douglas Jemal about joining forces, but says, "I won't talk about my future until it's firm."

Oliver T. Carr III, another son of Oliver Jr., recently sold his company, Columbia Equity Trust Inc., to a private real estate investment fund. Richard W. Carr, another son, plans to continue running Oliver Carr Co., a private real estate holding firm controlled by his father.

CarrAmerica was considered at one point the largest private landlord in the District, known for building several large office buildings along Pennsylvania Avenue NW and for refurbishing the landmark Willard hotel and building an office complex there. It built 1800 M Street NW; the mammoth International Square in the 1800 block of I Street NW; and Terrell Place at Seventh and E streets NW, near the Verizon Center.

"They were the top of the heap," said John E. "Chip" Akridge III, a competing developer. "They were the best."

The patriarch Oliver Carr Jr. prided himself on creating a "Carr culture," valuing his employees, many of whom stayed for decades. He received honors and awards from the local business community but didn't seek publicity. "The biggest thrill for me relates to the people," he said. "It's the culture of the people, not the boxy office buildings we build. It's the relationships with people."

The company had its difficult times. Housing advocates criticized it for initially opposing a D.C. requirement that residences be a part of new downtown projects. Preservationists complained when CarrAmerica tore down the 185-year-old Rhodes Tavern to make way for its Metropolitan Square office building at 15th and F streets NW. And workforce advocates once picketed in front of Carr's home because of the low wages they said his company paid custodians.

In the early '90s, Carr's business nearly collapsed as a major real estate recession hit; the company restructured after defaulting on tens of millions of dollars in loans on properties.

The General Services Administration, which handles real estate transactions for the federal government, cut its demand for space, sapping the local market.

To save itself and raise much-needed capital, the company went public in 1993 and became a real estate investment trust, known as a REIT; CarrAmerica did not have to pay corporate taxes as long as it paid out 95 percent of its taxable income to investors.

When its stock weakened, the company received a cash infusion in the mid-1990s from a company affiliated with Security Capital Group Inc., which was run by William D. Sanders. He invested $250 million in exchange for a 40 percent stake in CarrAmerica, which later bought him out.

By the late '90s, CarrAmerica was expanding rapidly, buying more than $2 billion worth of buildings in suburban markets, including San Francisco, Dallas, Austin, Chicago, Atlanta and Southern Florida.

In 2000, Oliver Carr Jr. stepped aside after four decades at the helm. Thomas Carr, who had been president and chief executive, replaced him as chairman. Two years later, Philip L. Hawkins became president -- the first time someone outside of the Carr family held the position.

"It was no longer this regional, family-influenced company," Thomas Carr said. "It became this modern, publicly held company with properties nationwide."

In 2002, the company sold its buildings and interests in Atlanta, Dallas, Chicago and Denver, as it changed its strategy and invested in newer, high-quality buildings in cities. Its properties in San Francisco and San Jose were hit hard with rising vacancies and dropping rents after the technology bubble burst. It sold some and held onto others, hoping for a turnaround that is just now coming.

And then, just as it was planning $1.5 billion in development, suitors began to appear.

"All of a sudden there was this arrival of private equity on the scene," Thomas Carr said. "It was something I hadn't anticipated. The notion of a private player coming in and doing a deal of this magnitude was out of left field."

One company asked whether it could make a quick offer. Carr said he had two conditions: a compelling price and a quick turnaround. That deal didn't materialize, though other buyers were circling.

"Blackstone moved in like an eagle or hawk," Oliver Carr Jr. said, "and grabbed the company."

Thomas Carr said the board picked Blackstone for one reason: the highest price.

"It was really that complicated," he said jokingly. "How could you get that much money to shareholders without taking this offer? I had a fiduciary responsibility as CEO to put the offer on the table. It was the right thing to do."

Although there was some surprise internally and among local real estate executives at how quickly Blackstone flipped the company's D.C. assets, Thomas Carr said, "Blackstone didn't change their stripes" as the deal went along. "They did what they said they were going to do."

Still, the local real estate industry is feeling a loss as the CarrAmerica name disappears.

"We're losing some of the soul," said Raymond A. Ritchey, executive vice president of Boston Properties Inc., "when some of the long-term iconic names cease to exist in our industry."