Investment Objective

Drake will acquire four to five multifamily and office properties over the next two years. Acquisitions will be investment-grade, income producing rental properties that are well-leased, with potential to provide enhanced returns due to factors where Drake can use its extensive experience and resources to reposition the asset to obtain higher rents and increase the property value. These assets will be undervalued and undermanaged, typically with some level of deferred capital improvements required, in established supply-constrained California locations. Drake will have opportunities to renew or replace tenants and operate the building more effectively so as to maximize returns. In order to reposition or re-brand the asset, some capital expenditures are usually required, which typically include usual upkeep, updating office lobbies, kitchens, baths, lighting and flooring, refreshment of the common spaces and landscaping, and/or building system upgrades where such improvements can be part of the higher tenant retention and attainment of higher rental returns. Properties in need of major redevelopment will not be considered within the scope of this program. Drake intends to own, maintain, manage, renovate, lease out and operate properties as investments. Properties that Drake considers “under-managed” typically include:

  • Those facing operating difficulties.
  • Those with deferred maintenance and subsequent under market rents.
  • Those which are or have been engaged in other extraordinary transactions, such as debt restructuring, reorganization and liquidation outside of bankruptcy.
  • Those facing liquidity issues.

Investment Size & Capitalization

When fully invested, Drake's affiliates will have acquired properties with a total initial market capitalization of approximately $80 million. Initial projects one expected to be capitalized with $15 million to $30 million of Investor equity, 10% to 30% of Sponsor equity, and total debt of 50% to 65%. Drake expects to use third-party mortgage financing on a case-by-case basis.

Investment Market

The San Francisco Bay Area

The San Francisco Bay Area is recognized both nationally and internationally as one of the most desirable places to live and work. From the San Francisco financial center and cultural pursuits, to the technology hub of San Jose’s Silicon Valley, the Bay Area population continues to grow at a consistently strong rate, attracting new commerce and resident. The San Francisco Bay Area is a major financial and insurance center, an international port and gateway to Silicon Valley. The Bay Area handles nearly 30% of all West Coast trade. It is home to Apple Computers, Hewlett-Packard and the Gap corporate headquarters. One of the most diverse regions in the United States, it represents an eclectic mix of ethnicities, age groups, and income levels.

Population

The San Francisco Bay area is the sixth largest combined metropolitan are in the United States, with nearly 7.2 million citizens. The bulk of the population is represented by baby boomers between the ages of 45 and 64, with an average median household income of $100,827 a year, nearly double the national average of $65,910. With educational attainment well above the national average, the Bay Area’s workforce is among the best and brightest, as 41% hold a bachelor’s degree, compared to 27% nationwide. The area is home to some of the finest universities in the world including UC Berkeley and San Francisco State.

Greater Los Angeles Area

Los Angeles – Riverside – Orange County

The greater Los Angeles area is an economic powerhouse, ranking as the third largest metropolitan economy in the world, behind the greater Tokyo area and the New York metropolitan area. Comprised of 200 cities, Los Angeles is the second largest city in the U. S. and the center of a five county metropolitan area including, Los Angeles, Orange, San Bernardino, Riverside, and Ventura. Despite the recent economic downturn, the area has historically had a low unemployment rate, and has been among the state’s employment growth leaders. Leading employers include the motion picture industry, aircraft, foreign trade, manufacturing, entrepreneurial activity and design, high tech, and services (including: computer, multimedia, engineering and management and tourism).

Population

An intriguing study in ethnic diversity, Los Angeles has the largest Hispanic population of the nation, a major Asian community, and considerable ethnic range from almost every nation. The area is home to some of the finest universities in the world including UCLA, Cal Tech and Cal Poly and the region is home to 5 campuses of California State University.

Frequently Asked Questions (FAQ's) :

What is the term of these investments ?
The term of Drake’s investments is expected to span approximately five to six years. Equity will be fully invested within approximately 24 months, hence with individual assets are expected to be held for four to five years.
What is the exit strategy ?
Individual assets and/or portfolio will be sold at times determined by Drake’s Investment Committee to yield optimal value. There will also be distributions due to refinancing.
What are the return targets ?
Drake is targeting investments that will yield leveraged internal rate of return of 18% or greater on invested capital compounded annually over each asset’s expected five year investment period. Moderate leverage will be utilized – 50% to 60% of the all-in acquisition cost. Stabilized cash-on-cash returns are targeted at 10%-12%/year using 50% first mortgage debt-to-all-in-costs. All returns are calculated on a pretax basis.
How is governance of the investments managed ?
The sponsor is solely responsible for the investment decisions, and for the day-to-day management of assets, including oversight of leasing, capital expenditures, financing and dispositions. Asset management and investment pipeline meetings are held weekly. Drake’s investment decisions are governed by their Investment Committee which is composed of company Principals and the CFO. [Resumes are included in the “Sponsor” section of this document]. The Investment Committee holds formal monthly meetings plus ad hoc meetings for acquisitions or whenever necessary for financings, dispositions, or other significant matters of operations.
How are distributions handled ?
Sponsor and the Investor, as equity partners, will share pari passu all net operating and capital event distributions available after debt service and principle payments due to first lender(s) up to a predetermined hurdle, above which Sponsor shall earn a promoted interest based on the performance of the investment.

“ This is really about transforming a property to create a green and healthful community, an exciting place for people to be. Drake hires the best people and they listen to them. They have the confidence and experience to take an innovative approach to urban exteriors.”

Ken Lowney, AIA LEED AP

Partner, Lowney Architecture,

Oakland, CA