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Drake focuses on improvements with local partners to smaller properties in up-and-coming markets
Key Takeaways
- Nicolas Ibanez, president and co-founder of Drake Real Estate Partners, describes his firm's value-add real estate strategy.
- Drake has returned an average of 18% net IRR to investors over their first three funds, with a lot of this coming from income-generation, meaning it may be suitable for both growth and income investors.
- They focus on systematic value-investing in tertiary markets (like Salt Lake), and partner with local operators who know the market well and are incentivized along with the firm to find and develop good investments.
- They are making improvements to existing properties - things like adding pet parks or washers and dryers - which mitigates the risk of an investment going to zero while providing upside.
- They are making investments that are smaller in check size than most of the big real estate institutional players - which opens up a broad, less efficient swath of the market and can help drive returns higher.
- They are the primary investors in their own strategies - creating a huge alignment of interests.
Transcript
My name is Nicholas Ibanez. I'm the president and co-founder of Drake Real Estate Partners, where a real estate private equity investment firm based out of New York City.
Our investment strategy is relying upon four key pillars that altogether make it a highly differentiated strategy. Number one, we're a value-based investment philosophy, which means that we seek to acquire assets at steep discounts to replacement costs. Basically, what we do is we have a proprietary ranking of all of the tertiary and secondary markets that we track on a quarterly basis, and we rank those markets by cap rates. Also, rank how much competition for capital there is for each market or each city. And then, we apply a ranking around how attractive each individual market is based on job growth, population growth, industry diversity, and political risk. And from there, we want to go very deep and understand, okay, but what are those assets in what property types and what locations, and what is the specific case for that given property in terms of what is the value add? In the case of multifamily, for example, that would mean that we're improving the amenities, the gym. We're adding a pet park, putting washers and dryers in every unit. This is typically the market that we're in. We encounter properties that have been neglected over time, over years, without any investment. And we can come in and with relatively simple initiatives, reposition and upgrade the property as a result.
Number two, we focus on a niche sector within the broader real estate universe. We span across say, five to 20 to $25 million of equity per transaction that we've been able to test time after time vintage after vintage is a very large source of competitive advantage for us because we're flying below the radar screen of the larger private equity managers out there. And therefore where we're harvesting and accessing a universe of properties that is actually significantly larger than what the larger managers can tap into. And also a segment of the market that is less professionally managed. We've decided to focus on where we think our approach can be most successful, and that is from a geographical standpoint in secondary and tertiary markets. Raleigh, North Carolina has been a very large market for us, historically speaking, Nashville and Denver, Salt Lake City, those are really interesting markets where we have invested in for the last ten years, really. Now we're also moving towards even more up-and-coming markets like Tucson, Arizona, Columbia, South Carolina, Tuscaloosa, Alabama. Markets that are inherently less competed. There's substantially less money flowing into buying real estate and we think that we can be there early.
Third, implement a strategy with a robust network of local operating partners that are highly aligned with our success highly local, and exclusive to property types and geographies. They live and breathe those markets like no one else. They really can differentiate between the northeast corner and the southwest corner in any given property type, and that is a source of tremendous value for us. They invest a significant, a minority, but significant portion of the equity requirements in any given investment with us. So they're extremely aligned with the success and the performance of the investment that we end up making.
And number four, alignment of interests in the sense that we are the main investors in our own strategy. We think like investors and we're compensated as true investors as opposed to asset gatherers.
Important disclosures
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