Real estate plays: Camden Property vs. Essex Property Trust

On today's Good Buy or Goodbye segment, host Julie Hyman is joined by Wedbush Securities Managing Director of Equity Research Richard Anderson to discuss the top stock picks in the real estate sector.

Anderson recommends Camden Property Trust (CPT) as a stock for investors to buy. He acknowledges that the company has short-term exposure to excessive supply but notes, "supply is going to start to hockey stick down" in the coming years, which he says "will be a real good period of time" for the company. Given the region's job growth, he highlights Camden's location in the Sun Belt as a positive factor, meaning more people will move there.

On the other hand, Anderson says "goodbye" to Essex Property Trust (ESS). He notes that the company is primarily located on the West Coast, where most workers work from home, posing potential headwinds. Additionally, he points out that the company has limited white-collar growth in the area, and the available jobs do not attract "the types of people ... that might rent an apartment from Essex Property." Lastly, Anderson mentions that there is no visible "recovery opportunity" for the company.

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This post was written by Angel Smith

Video transcript

It's a big noisy universe of stocks out there.

Welcome to, goodbye or goodbye.

Our goal to help cut through that noise to navigate the best moves for your portfolio.

And today we're taking a look at real estate and which markets within the US are best position to grow in the months and years to come.

I'm joined by Richard Anderson.

We were security managing director, equity research.

Thanks for being here.

So talk reads here and let's start with your stock, you prefer, it's called Camden Property Trust.

And despite the name, the properties are not necessarily in New Jersey, for example, not C no, they are not in Camden.

So let's take a look here at what you like about this company.

And indeed, you look at short term exposure to excessive supply.

What does that mean?

So Camden is largely invested in the Sun Belt area of the United States, lots of new supply of multifamily housing coming online right now.

So in the present tense, Camden might be arguably uh you know, a difficult name to own.

But what we do know is supply is gonna start to hockey stick down in the months and and quarters and years ahead.

And if you're already long, that space as Camden is, that should be a real good uh period of time.

So in the present tense, uh it's easy to say, I'm not so sure about Camden in the future tense.

And in the very near term, I'd say this story really starts to pivot and to be clear, these are rental properties that they and when we look at the South, you're looking at growth now, we have seen growth already in the Sun Belt and you think we're going to continue to see that kind of growth.

Oh by all means, the jobs move to the Sun belt in migration trends to the Sun belt, there will be more in the way of capturing market share of new home uh home or household formations because people simply can't buy a home.

This is true of all of multifamily rental by the way to take market share away from the single family marketplace because it's simply not affordable.

So even in higher interest rate environment, like we're seeing today, multi family should be, you know, a reasonable place to invest.

Um And you know, we think that that'll, that'll be the story for the, you know, the months and the years to come.

Um Let's talk about the short part of the hockey stick when it comes to supply because, you know, after this ramp up, you think in generally in the market, there's gonna be tighter supply, right?

And that's good if you're a reed because you're, you're not facing the type of competition that you are now.

Of all this new supply coming along is essentially a competition for that, for that next renter.

And so for now, the reeds are having to cut rents or offer concessions to compete against that brand new development happening across the street as that goes away.

The the growth profile of Camden gets really exciting next year and that's why we like it interesting.

All right, we always like to talk about what a risk could be for a stock like this.

In this case, it's that you see a contraction where the jobs, job growth is falling.

That's true.

And, and so, and I to use an analogy like my friend Dan Ives does all the time.

Cholesterol is supply, but Lipitor is demand and demand comes in the form of jobs, uh demand for multi family housing.

And so to the extent we lose that, that sort of that edge of job growth to the just generally in the in the United States, but also moving into the sun belt.

That would be a problem to our thesis.

So we're not expecting that, but that's the risk.

OK?

Got you.

So let's get to the fact that you like le less that you don't like as much here.

And that's another read called Essex Property Trust.

Now, first of all, it's got a very different geographic uh, profile.

Right.

It's mostly, if not all on the west coast.

Yes.

All on the west coast.

85% in California.

15% in Seattle.

Got you.

And those folks are working from home a lot more.

That's, and that's part of our problem here.

Right.

So, Essex is a fine company.

Uh, it trades significantly higher than, than Camden does.

It's kind of the tech play in multifamily if I could say that 41% in Northern California, 15% in Seattle.

And so you have days like today with sales sales force and you know, things can get whipped around in terms of it being a read through.

And so I'm not a tech analyst, I wanna kind of focus on the real estate.

And so that's why I think Camden is perhaps a better call.

Essex is a different story entirely.

It's not a supply issue.

Yeah, let, let's talk about the job stuff a little bit more because as you talked about the growth in the sun belt, the flip side of that for this company is tech jobs.

And anybody who's looked at the headlines over the last year knows in a, in a lot of segments, there has not at least, hasn't been the growth in some cases, there's been cutting, right.

And so we know that with the, you know, tech layoffs and sort of the slowness to, to rehire, uh we know work from home is, is something that's a little bit more allowable, I guess.

Let's say it that way.

But people move out of California all the time too.

The job growth that we're seeing in California is largely government, low wage service, not the types of people that you might, might, you know, rent an apartment from essex property.

And so it's, it's a question mark.

Let's put it that way.

Are they higher end, uh, apartment properties?

Well, anyone in the reed space that, you know, owns sort of the cream of the crop is going to demand, you know, the, the best of the best in terms of their, their tenancy, they're very focused on credit and they don't wanna lose people, you know, for whatever reason.

So that's all right.

And then the last thing here is lacking major future recovery thesis, like what's gonna happen next?

Well, so we have this, we called it a hockey stick, right?

This law, this decline in supply that should benefit Camden.

That that is non existent with Essex, right?

I'll be wrong if, you know, we get some sort of major hiring trend in, in tech and everyone's going back to work and all that sort of stuff.

And, and you know, that that day comes, we may flip this, this thesis, but for now we don't see that recovery opportunity nearly as much as we see with Camden.

Yeah, and, and I guess again, like we talked about the downside risk for Camden, the upside risk for Essex is that you do see a big increase in A I related demand.

Right.

Right.

And so to the extent that that starts to sort of fill the void in terms of jobs that can the types of people that can live in a, in Essex property.

Uh Then, yeah, we, we the, our thesis may, you know, sort of pivot, but for now, I think there's a lot of questions, right?

You have a day like again today where there's a lot of questions in the market.

And Essex is, is sort of the the post to read if I could put it that way for that type of situation.

Do you um have positions in either of these?

Ok. Well, Bridge, thanks so much for being here.

Really interesting stuff.

Appreciate it.

Um So you're telling investors to buy Camden property on the other side, you say avoid Essex?

Thanks so much for being here.

Appreciate it.

And thank you for watching.

Goodbye or goodbye.

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