Cutting the big check was the first step. Now the heavy lifting begins.
The Davis Cos., the Boston-based firm that last month paid $37.35 million for a massive portfolio of Richmond apartment buildings, is now pushing forward with a hefty renovation plan that is likely to take 12 to 18 months.
For its first acquisition in the Richmond market, the company is tasked with upgrading 29 apartment buildings, consisting of 440 units that were previously owned by disgraced local developer Billy G. Jefferson and went through a drawn-out bankruptcy auction.
The long-neglected properties are in various stages of disrepair, but with a 30 percent vacancy rate, the owners have already started shuffling residents around for renovations. Tenants are transferring to other units or breaking leases to make way for work in the next few weeks.
Davis Cos. hired Bonaventure Realty Group as a third-party manager to oversee the properties, and local real estate developer Spy Rock is heading up the renovations.
BizSense recently caught up with Davis Cos. Managing Director Quentin Reynolds to talk about the purchase, the renovations and allowing the properties to move on from the Jefferson saga.
Richmond BizSense: What is the Davis Cos.?
Quentin Reynolds: The Davis Cos. is an approximately 40-year-old real estate company based in Boston. We’re an operator, developer and owner led by the founder Jon Davis, who is still the CEO of the company. And we transitioned into the private equity fund business in 2008, and we are currently investing out of our second fund, called Davis Investments Ventures II, which is a $400 million real estate private equity fund.
RBS: What made the company want to come to Richmond?
QR: I grew up in Richmond and lived in the Fan, and my father still has a house in the Fan. And I knew about the real estate, I knew about Billy Jefferson and was in Richmond a fair amount this fall and always liked the real estate – always thought it was unique. An assemblage of that much product within the Boulevard and the Fan is truly unique. So that was one part of it. It fits into a lot of things that we do as a company here, in terms of complicated transactions, or distressed deals, or real estate that needs a significant amount of redevelopment or development. I think we just believe it is good quality, well-located real estate that needs some attention, some capital and improved management.
RBS: How neglected are these properties, really, and what’s the worst thing you’ve seen in them so far?
QR: There are 29 buildings, so it really varies across the properties. In some ways, they were worse than I expected, and in some ways they were better than I expected. (Jefferson) did invest a fair amount of capital into the properties, and we feel like we were in a pretty good position with the work that had been done.
Honestly, there are just more generalized problems. They really just need to be cleaned, and some need some basic operational improvements. We’re certainly trying to address that. Then there are different levels of things we need to do over time, but I don’t know if there was any one thing that jumped out at me as a glaring issue. I think the trustee had been doing a good job and the receiver was only in for a short period of time, and they were somewhat constrained, but these are assets that need focus and attention.
We really do need to work building by building, unit by unit. They’re very consistent, but they’re very different properties. With the Fan portfolio there are locations that can attract higher rents, and there are ones that have a slightly different price point, and we just have to work through that.
RBS: What’s the plan for the renovations?
QR: We’re working away on that. There’s a big team at River City Court (an apartment complex near Carytown) trying to centralize operations there, and Bonaventure is on-site working through it. This will be a staged thing. We’re starting with the most obvious, the things you can do the most quickly that are very important, and to really get our hands around this. It’s big, it’s complicated, it’s a hairy process. Bonaventure did a fantastic job of being able to be in a position to actually take this thing over. So right now we’re trying to get control, get stabilized, fix the things you need to fix right away, and then once that’s done, be smart and considerate as we work through whatever the plan will be.
RBS: These properties are very well known after the saga of the bankruptcy and auction. Do you think that hurt their value?
QR: I think the trustee did a very god job and ran a very good, competitive process. We got pushed on price and timing and underwriting just like every other transaction. I think they did a great job with what they had, and we paid a fair but a very competitive price. Do I think they’ve lost value? I don’t know, maybe – but then again, we need to put a lot into them as well.
RBS: What’s the biggest risk of buying a portfolio like this at auction versus a traditional sale?
QR: It’s a process that’s a little harder to maneuver through. Ultimately, you have to move relatively quickly. They ran a very good process and had a lot of information available, but you need to be able to move quickly. In this kind of portfolio, with the bankruptcy, you have a fair amount of risk around the diligence work and pursuit cost, with the potential of not ultimately being the buyer.
The rest of it is just a different form of the same kind of risk that we do all the time, which is just analyzing the real estate and analyzing what it’s worth today and the amount of capital you need to invest in it.
RBS: The former landlord did not have the best reputation around town. How is Davis planning to counteract that and establish a better relationship with the tenants?
QR: We’ve got a lot of experience and expertise doing this, but I think having a local operator and developer through SpyRock and Bonaventure, you’re able to bring a professional team in. I think for us it’s important to have the right team in place and try to be working very hard to be a good owner and a good landlord. I have no doubt there will be hiccups along the road – there always are. We’re stepping into what is a complicated situation, but I think we’re very focused on fixing that. You create a good reputation by what you do, and that’s our view. We’ll do some other things, some PR and some branding, but most importantly it’s trying to operate these in the best way that we can.
RBS: Do you all plan to buy other Richmond properties in the future?
QR: We would love to. We like the market. I think this started out as an acquisition of opportunity, but we really like the city. For me, when I look at Richmond, I think it’s just a great place and has a very exciting future. Again, I’m biased, and I just invested a lot of capital in the city, but we like the place, and we made ourselves comfortable there. We try to find places where we think we can be compensated for the risk that we have to take to do things and make a good return on capital that we’re in business to create for our investors.
Editor’s note: In a separate interview, Taylor Williams of Spy Rock said the work on the properties will include renovations to the units and the buildings’ exterior. Most of the substantial improvements will be made to River City Court, which will get some added amenities and upgrades.
The developers are also planning to rebrand the properties, creating a new website, logos and signage through a local marketing firm. And they will also consider the possibility of selling some of the properties that do not fit in with the rest of the portfolio.
Davis Co made three good decisions: buying the properties, and then hiring Spyrock and Bonaventure, two excellent firms working locally. As a neighbor of River City Court, I’m happy to see he work beginning in earnest there. It was neglected for so long. I also look forward to seeing what they do to the Lord Fairfax on Franklin Street. That building has some beautiful touches that need to be preserved. we look forward to having Davis as part of the local Multi-family development community.