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Davis's Deep Pockets

Davis's Deep Pockets
The Davis Cos.? Jonathan Davis runs a 35-year-old development, management and investment firm that, he says, "feels like a start up." After decades of focusing on building and operating, starting in late ?08, he raised a $230M investment fund plus $100M of co-investment capital. He plans to buy $1B in CRE debt and equity, paying about half of pre-recession prices.
Jonathan and Jordan Warshaw
Yesterday, we snapped Jonathan and Jordan Warshaw, VP of development and acquisitions. Jonathan says in 20 months, with a preference for properties facing foreclosure, they've bought debt or equity in 1,000 residential units, 1M SF of offices, and $50M of CMBS. The face value—or previous purchase price—of the assets is about $375M. The company invested $60M in equity leveraged with 65-70% debt. Still focused on the Northeast, Davis is acquiring debt nationally and started shopping for failed multifamily and CRE in South Florida. Some results: in '09, it made 63% onits $30M CMBS portfolio,and in a JV recently took title to Prime Center in Colorado Springs for $28M; the prior owner had invested $45M.
Quazi Sadruzzaman, an investment analyst and Duncan Gilkey
We snapped Quazi Sadruzzaman, an investment analyst and Duncan Gilkey, head of leasing and asset management talking over Davis? 5M SF portfolio of offices, life science, light industrial and healthcare CRE. The market may be soft, but they're 99% leased. As a landlord, Jonathan says, ?We front run the market.? When vacancies are 20%, Jonathan tells us, ?we're not afraid to lower rents, increase tenant benefits, and sign early lease extensions.? Indeed when one tenant, Verizon, drafted a lease elsewhere, ?we were able to pull it out of the fire and keep them with us.? (What's the leasing equivalent of offering free nights and weekends?)
Stephen Davis and Jean Della Piana
Stephen Davis and Jean Della Piana handle legal issues, from acquisitions to leases, and help implement Jonathan?s strategy of ?going where the capital isn't.? The company searches for well-located but underperforming properties buffeted by the wrenching economy. Usually, Jonathan tells us, the owners paid too much and couldn't compete on rents, concessions, TI or broker fees, and had to let the asset go. Lenders have sold them CRE that's two-thirds leased. Sometimes Davis buys debt then negotiates a purchase in lieu of foreclosure; on occasion they buy at auction. As for the risk of buying into a market where values are down 50% from peak: if there isn't a double-dip recession, Jonathan says it's not about if they'll do well but about how well they'll do.