On a recent August day, real estate investor Maxwell Drever strode through a scene of pandemonium on his 9-acre waterfront estate in Tiburon, as workers scrambled to set up for a charity garden party. He fielded phone calls about where to deliver supplies, shook hands with volunteers and offered a snack of almond butter to one of the exhibiting artists.
Drever, 71, has made a career of seeking opportunities in unusual places and times. At age 7, he set up a mushroom farm in the basement of his family’s Geneva, Ill., house – an enterprise his parents quashed when he started hauling in manure. So he started a business painting house numbers on curbs.
As an Oakland real estate agent in the 1960s, he noticed a glut of neglected apartment buildings. That spurred him to find nine partners to join him in putting up $5,000 each for a dilapidated triplex in Sausalito. He and one partner renovated the building, subdivided and sold the land, and the investors made a 400 percent return.
That launched his career of buying run-down apartment buildings in distressed markets nationwide, and reinvigorating them. At one point, he was Houston’s largest landlord.
He has sold off his portfolios a couple of times over the decades. Now, as chairman of Drever Capital Management, he has embarked on a new buying spree.
Drever pumps iron and swims almost daily in the chilly bay outside the 100-year-old boathouse that he’s converted into his office. His son Noah, 29, one of seven children ages 25 to 53, has followed him into the business as a managing director.
This interview has been edited for length and clarity.
Q: You are known as a contrarian investor. What’s an example?
In 2004, we told people to keep their powder dry (meaning don’t invest in real estate). We turned back $100 million in commitment (funds) to GE (Capital Real Estate); no one could believe we said we didn’t want their money. Most of my peers loaded up (on properties) and those things turned to mud. Now we’re buying what they overpaid for in that 2008 era.
Q: What are you buying now?
A: Right now we are targeting lenders with problem loans on multifamily buildings. It’s not the glamour part. This is supplying garden apartments to the nurses and schoolteachers and service people. We started doing it way back when, and didn’t even realize we were being socially responsible.
Q: Will you provide workforce housing in San Francisco or elsewhere in the Bay Area?
A: The housing need here is so critical, but prices in San Francisco have gone so crazy that you cannot develop workforce housing right now. You just can’t do it. We are not interested in competing in $3,000 rental apartments. We would go to the outlying parts of the Bay Area, challenged areas.
Q: Where specifically? Pittsburg, Antioch, Vallejo, Fairfield are areas that had huge bubble-fueled run-ups and now have been hard hit by the housing downturn.
A: All of those are of interest.
Q: But what about the core Bay Area? There are lots of service workers in San Francisco and Silicon Valley who need affordable housing. Don’t you want to be socially responsible in helping them?
A: Investment capital has no heart. Our first obligation is to maximize returns for our partners.
Q: What is the market like for purchasing distressed apartment buildings now?
A: We have closed at least a dozen transactions in the past year or so (in places like Clearwater, Fla.; Houston and San Antonio; Evanston, Ill.). This is the most opportunistic time I’ve ever seen in my life, for three reasons. One, there is such a shortage of housing. Two, a tremendous number of nonperforming loans were written in the heady, go-go years from 2005 to 2008. It is very difficult for owners to service those loans. When they come due, they can’t be refinanced because the properties are underwater. Three, interest rates are under 4 percent, which will probably last another year.
Q: What kind of discount do you seek?
A: For example, we just bought the loan on a senior housing facility in South Carolina for 50 cents on the dollar of what it cost them to build it in 2008.
Q: How much money do you have to spend?
A: The institutional war chest is topping out at $300 million; we have (investments from) some big life-insurance companies and pension funds. We just started a parallel fund for high-net-worth families and are shooting to raise $100 million to $300 million.
Q: What is demand like for rental units now?
A: Instead of homeownership, we have renters by necessity. We think this will continue on for another five years at least. The (pool of) Millennial/Gen Y renters is huge. There has been so much doubling up (grown children living with their parents) and now as the economy improves (and those children want their own places), it puts increasing pressure on housing.
Q: Describe the kind of housing you provide.
A: Our average rent across 10,000 units is $793. We provide really nice housing for that. Buying challenged apartment buildings is something many people shy away from, even in our industry. We (specialize in) turning problematic properties into well-run, attractive places to live; where people not only move in but stay. That’s where we make money: When people stay, it cuts your costs down.
Q: At one troubled complex, you offered prominent apartments at reduced rents to police officers so they’d park their patrol cars out front, deterring criminal activity. What are other ways you transform apartment complexes?
A: We always try to make the street scene look attractive. We spend significant money enhancing the entry to a property and we also fix up the inside of the apartments. They call it “Dreverizing” in the industry. By the time we’re done, it looks like a Four Seasons hotel. We create a resort atmosphere, which is unusual for workforce housing; a pool area with cabanas and a barbecue. My pool house out here has a barbecue set-up to die for. You go to one of our apartment projects, you’ll see the same set-up. That’s a real magnet. That’s why when families move in, they stay.
Q: What do you think of the growing interest by major investors in buying multiple foreclosed homes in certain cities, rehabbing them and renting them out, trying to treat these scattered homes as if they were a multiunit building?
A: I think it’s an excellent concept. I also think the best opportunities are gone in that arena. There’s an overload of investors looking for that product.
Q: What kinds of missteps have you made?
A: We bought a property in Austin, and the highway department came in (shortly afterward) and made the front into a construction staging area. It blocked our entrance entirely. It was supposed to be one year, but they were there for five years. It was a disaster. But we were able to work with the lender. The construction finally ended and we were able to restructure the loan and now it’s a solid asset. It turned out to be lemonade.
Q: What is your exit strategy? Do you sell entire buildings, do condo conversions, hold onto them for many years?
A: All of the above. In this cycle I could see a prolonged hold with long-term cash-flow benefits. But we’ve sold to REITS and done a lot of condo conversions that worked out really well.
Carolyn Said is a San Francisco Chronicle staff writer. E-mail: csaid@sfchronicle.com
Article source: http://www.sfgate.com/realestate/article/Maxwell-Drever-talks-real-estate-strategy-3787290.php