Drake generates investment opportunities through a combination of:
(i) referrals from licensed brokers with whom we have had prior dealings allowing Drake to become aware of prospective investments before this information is released to the general market
(ii) an extensive network of institutional lenders, loan officers, attorneys, high-yield analysts and portfolio managers, private equity and turnaround investors, investment bankers, and others specializing in opportunistic real estate finance, which have been developed based on the Drake/Aegis Companies’ strong reputation as a participant in the marketplace;
(iii) extensive inhouse analytical research. Some investments sourced through these approaches represent exclusive opportunities, providing us with strong competitive advantage over other asset investors.
Key elements of the Drake investment process include a systematic and structured process for
(i) identification of under-managed or otherwise undervalued properties utilizing both conventional proprietary sources of deal flow, and emphasizing specific quantitative and qualitative criteria, including expected spreads between fundamental and perceived market values;
(ii) Through analysis of the prospective investment, including a proprietary financial analysis model to arrive at cash flows and investment returns;
(iii) active monitoring of investments and collaboration with experienced industry veterans who assist Drake in their due diligence efforts. Through use of these tools and its management/advisory “bench”, Drake is often able to exercise a greater degree of discipline in both investment selection and on-site, day-to-day project management.
After identifying a potentially attractive investment opportunity, Drake conducts rigorous due diligence to identify the prospective risks and rewards of the investment. This analysis continues through the investment in the property, and typically includes review of rent surveys, potential legal issues, evaluation of management and operations, review of cash flow and earnings projections, and onsite evaluation of physical conditions and cost-beneficial renovations. Other important elements of the evaluation process include consideration of potential exit opportunities and timing.
Drake typically consults with vendors and consultants knowledgeable in multifamily housing and office property management to identify targets for cost reductions or other improvements which, if implemented, may result in sufficient operational improvement to yield additional profit on investment. The reliability of financial statements provided by distressed multifamily properties owners is increasingly suspect and accounting irregularities are almost commonplace. The availability to the General Partner of the management “bench” and our 3 decades of experience in real estate investment has been critical in performing due diligence and making realistic projections of performance for properties in which Company is contemplating an investment.
Drake invests in existing multifamily and select office properties where returns can be generated through physical improvement, re-positioning of the asset in the local rental market, and excellent management. Poorly run properties tend to suffer from similar mistakes, often on the cost side of the business. These include inadequate tenant selection and leasing practices; failure to invest in maintenance; poor service to tenants; uncontrolled direct costs that lower net operating income; and excessive overheads that reduce net margins. These overlooked value add generators are identified through a carefully structured due diligence process. Some of the typical issues are centralized utilities, obsolescence of kitchens, baths and fixtures, inadequate cash flow from high vacancy rates, low leasing standards, inadequate management and accounting. Additionally, renegotiation or replacement of mortgage financing at the appropriate moment in the project can yield major benefits.
Detailed repositioning plans elaborate on the initial analysis and plan prepared in the original property selection process. These include the detailed project objectives, designs, final budgets, timelines and construction work plans. The tenant and property management plans are dovetailed with the planned scope of work and schedule. Re-leasing programs coordinate with the project work plan, identify appropriate local advertising media and promotional techniques, and prepare to minimize vacancy loss while carrying the re-positioned property’s new product message to local renters.
At the portfolio level, Drake and its advisors work together to identify and pursue strategies for resolving a property’s financial or operating problems, creating a new property profile and maximizing profits from the investment. A key task is creating timely exit opportunities for the Partnership. All investors receive comprehensive monthly financial reporting on the portfolio properties’ performance, as well as an annual reporting package overseen by the Company’s independent CPAs and including IRS form K-1s and other information supporting investors filing of their tax returns.
Capital Improvements are also executed according to a structured process: The scope of work is based on strict budgets using directed buying of key materials. The work is completed according to a preset schedule by licensed, third-party construction firms which Drake partnered with used successfully in the past. On a monthly basis, a third-party construction auditing firm will review all work completed to date on the Property and prepare a report, with photographs, of their assessment of the amount and quality of work completed to date. This report evaluates both the contractor’s adherence to best construction standards and the percentage project completion as determined by the auditor. The General Contractor is paid monthly based on this audit report. Meanwhile the tenant management program creates and re-leases vacancies to accommodate work and build cash flow.
On small projects, property management is handled in-house by Drake Property Group. On larger projects, Drake works with a ‘best in class’ property management firm, appropriate for the scale of the asset.
An onsite manager is placed at each property to collect rents, handle tenant issues, clean and maintain the property, show units to be leased, and give access to renovation vendors.