DB Capital to Expand Out of State Citing ‘Additional Risk’ of Investing in California
December 30, 2021
Source:
Playa Vista-based real estate investment firm DB Capital Management is increasing its attention outside of California, lining up deals in other states where it views the risk as lower. The company is on track to close $100 million worth of deals this quarter and expects to have $100 million worth of exits.
As part of this strategy, DB Capital has acquired a 150-unit property in Austin, Texas. Dubbed Laurel Woods, it’s DB Capital’s sixth acquisition in the state. The company plans to rebrand the property, which includes 12 two-story buildings, as Summit at Westwood. It is also planning upgrades.
DB Capital first entered the Austin market in 2018 and now has just under 1,000 units in the market out of the company’s roughly 2,000-unit portfolio. The firm expects to close an additional 464 units in Texas by the end of the year.
DB Capital Chief Executive Brennen Degner said the company got its start doing “smaller, value-add rent-controlled deals in Los Angeles.”
Soon, however, it switched strategies because “it got to the point where there were a lot of things that weren’t working about investing in Los Angeles,” Degner said.
“Things weren’t really favorable in L.A. from our perspective, so we started to look at other markets,” he added.
DB Capital first looked at Salt Lake City before betting big on Texas.
Now, in addition to Salt Lake City and Austin, the company is looking at other lower-cost markets with a lot of tech talent migration, such as Denver. It previously invested in Portland, Ore., as well.
“We really found our footings in these markets where we see a lot of people migrating to,” Degner said.
Development in those areas is also important.
“We really like to be in areas where we can draft off of new development and ride the wave of that rent growth,” Degner added.
The company still has assets on L.A.’s Westside that it is actively trying to sell, Degner said, adding that the company has no plans at this time to buy in L.A.
“The political landscape in California creates so many uncontrollable factors, and we like to focus on being very good at the things that we can control,” he said. “Investing in California has added layers of additional risk that are outside of our control that we can’t reflect in our underwriting.”
He expects the company will be busy elsewhere, though.
DB Capital generally holds on to assets for three to five years, but the exact time frame depends on who the company’s capital partners are for a specific asset.
Degner said the company is focused on garden-style multifamily assets.
“We’re really location focused,” he said. “We try to find old, value-add assets in areas where it’s impossible to build anywhere close to our (standards). As construction costs go up, to build garden-style, the cost has gone up considerably.”
Degner added that the company is mainly purchasing properties built in the 1980s and ’90s, and it prefers properties with 200 units.
“We want economies of scale, but it’s not so big that we compete with groups with more capital,” Degner said.
These properties are generally in the $20 million to $60 million range.
Once DB Capital acquires a property, it allocates anywhere from $3,000 to $5,000 a unit for light renovations or up to $40,000 a unit for heavy value-add properties.
Looking forward, Degner said, the company is hoping to do two deals a quarter, totaling $70 million to $100 million and will be upgrading properties as it goes.
The company, which has six employees, also partners with a Dallas-based general contractor firm and owns Playa Vista-based Skyline Management Group Inc.
Degner said he has no plans to take the company away from apartment rentals, however.
“We’re going to keep heading down the same path,” he said. “Multifamily has been a very good asset class for us, and I don’t think it’s going anywhere. I’m a big proponent of trying to stay in your lane.”