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- [00:03]
Jay Parsons
Welcome. It's episode number 81 of the Rent Roll, your podcast on all things rental housing, apartments, single family rentals and Build to Rent. Today we're going to talk to a guy who named his business after the ship that carried his family into the new world back in the 1620s. And and his family stumbled into the apartment business via some land they had what was rural Virginia, partnering with a big name developer to build some apartments there. And many years later it was start well, it went from I should say a passive income stream to many years later a sizable portfolio. And it's a great story. You're going to enjoy the conversation with Dwight Dutton, the founder and CEO of Bonaventure. So today our theme is Under Loved Markets and I'm going to give you an example. I've made the case for a long time now that Virginia beach is a market that doesn't get the love it deserves. And we're going to get and part of the reason I have Dwight on today is we're going to get Dwight's take on Virginia beach and similar markets because he's active in that one among others. But the short of it is this, and this isn't all about Virginia beach, by the way. If you don't care about the Tidewater area, Norfolk, Hampton Roads, et cetera, that's okay. But here's really it's not about that. It's really about this. This is an example of market that in this case it's bigger than people think. It maybe doesn't have the rapid population growth or job growth that some investors want to see. It's often incorrectly viewed just through one or in this case just the military. And that perception could have a huge impact on capital. Markets like that tend to see very little institutional investment activity or acquisitions from bigger national players. And yet they tend to perform. And by perform I don't mean that Virginia beach and markets like that are always dominating the list of rent growth leaders. They're not necessarily the markets the biggest upside, but they're those sneaky, kind of sneakily consistent markets that fly under the radar and just you look over longer periods of time and they tend to be outperformers. And so for those of you like sports, I'm going to give you an example from baseball. Baseball fans, hopefully some of you are out there think of like a Jose Ramirez type player, the Cleveland third baseman. He's never won the most valuable player award, but in a 13 year career he's finished in the top 10 for MVP voting eight different times, including four times in the top five. So he's not necessarily the biggest name in the sport. I'm guessing a lot of you probably don't never even heard his name before. And especially if you're, if you're not a real big baseball fan, not from Cleveland, or don't play a lot of fantasy baseball, you may have even heard of Jose Ramirez. But he's probably the best third baseman in his generation. And more than likely he's going to be in the hall of Fame in Cooperstown one of these days. So you may see his plaque if you ever go visit Cooperstown in many years from now. So what we're talking about today are Jose Ramirez type markets. Not the biggest names, but the consistent top performers. Under loved, underappreciated, under ranked. Okay, so let's give a shout out to our sponsors before we jump in. First and foremost, big thank you to jpi, a leading apartment developer with a stated purpose to transform building, enhance communities and improve lives. Check them out@jpi.com JPI is in the cutting edge of some really exciting innovations in apartment development and construction. Also, big thank you to Madera Residential, a leading apartment owner and operator based in Texas. Check them out@maderaresidential.com and also to Funnel, our interview sponsor, check them out@funnel leasing.com all right, as always, kick it off with a section we call here's a chart. And today we got one chart for you. It's a busy one and you don't have to be watching the screen to see this one. I'm really just going to talk you through it. It's on our theme today of underloved markets. And I'm not just, I'm not going to, you know, spend 20 minutes just talking about all the underloved markets. Because, you know, at the end of the day, when I brought this up in the introduction, when I, when I say under loved, underappreciated, underranked, a lot of this is going to is beauty is in the eye of the beholder, right? It's an, there's an art to this. Everyone has their own secret sauce. Everyone looks for different things. Everyone looks for different values and attributes, et cetera. And that's okay. But what we're going to do today is we define under loved. I'm going to keep it pretty simple. What I've done here is I'm going to look at markets that are outside the top 30 in the NCREIF property index. And by that, what I mean is let me back up a Little bit. Ncreif, the National Council for Real Estate Investment Fiduciaries, that's a mouthful there. But you know, their membership includes the who's, who's among institutional investors and they have this database of all the properties that they do these blind aggregations to be able to track performance of these investments over time, these markets, I should say. So the database is a pretty good proxy for institutional investment and we're going to weed out the top 30 markets. The markets have the greatest number of apartment properties in their databases, which are generally some of the biggest MSAs. And we're going to look at where NCREIF has a pretty low presence. So that we're going to use as a proxy for lower institutional presence, a proxy for less national interest. Meaning these markets tend to be more for people who are companies that are regional and local players and therefore not especially favored among institutions. But of course just being sub institute or low institutional presence, that alone is not a good enough threshold. We also want to find markets that actually perform well, good risk adjusted returns, which we'll define simply as this over the past 10 years. We want to filter to markets that saw above average rent growth and below average volatility. So basically a signal to noise ratio. Now obviously there's a lot of things that'll go into actually making an investment decision, identifying better markets. You got to factor in, you know, obviously the cost side as well and opportunity and liquidity, et cetera, et cetera. But we're again, we're going to keep it simple and then we're going to narrow to the top 150 markets and size and of course top 150, that's a pretty big group. It includes a lot of tertiary markets that many institutions won't necessarily bother with due to smaller size. That's okay, that's, you know, size could also be part of what makes a market under loved. So the chart I'm going to be showing you that this, this one on your screen, if it was looking IT maps out 10 year average rent growth on the Y axis versus the 10 year rent volatility on the X axis and which we're measuring simply is through standard deviations and we got a clustering of markets in that top left and those markets in that little green box. Again, if you can't see, it's okay, you don't need to log into YouTube just to watch that part of it. But what it shows you are just dots. Those are the markets that are the above average rent growth, below average volatility. Okay. And so in that grouping, and there's too many to actually put them all on the screen here, but we got places like Grand Rapids, which is probably among tertiary markets, one of the more favored for those who like to invest in the Midwest, Omaha, Dayton, Lincoln, Detroit, Cincinnati, Columbus, Kansas City. We also got some markets in the Northeast that have a similar profile, lower growth markets with low institutional presence. Places like Providence, Rochester, Syracuse, Springfield, Massachusetts, Worcester, Massachusetts, among others. Harrisburg, Penn is one of those as well. And then we got some on the west coast, Tacoma, Washington, Fresno, California, Stockton, California, Salem, Oregon, and then maybe one of the bigger names is the Ventura, Oxnard area north of la. And, and, and guess what, for those of you look in the south and the Sun Belt, you may be. Well, we're probably not included on this. Yes you are. We got some above average rent growth and actually low volatility markets in the. Well, some of them you might expect like a Lexington, Kentucky, which technically is in the south according to census geography, regional definitions, but is a lot like the Midwest in a lot of ways. But we also get Richmond and Virginia Beach, Fayetteville, Arkansas and two South Carolina markets, Greenville and Columbia and Greenville certainly grown a ton over this last decade and also added a lot of supply. So kind of surprised to see this one on the list given the supply growth there. And so again, when you look at these kind of markets, these are lower volatility markets. They're also necessarily again the biggest rent growth markets. But these particular ones, they've been above average rent growth, below average volatility among markets that are not in the top 30 kind of favored grouping. So today's another day. Talk about the big top 30. But obviously we have varying degrees of stability in those top 30 as well with higher volatility and you know, places like the Bay Area and in Austin and parts of Florida and you know, you have lower volatility and you know, comparatively speaking in again, some of the Midwest markets, some of the larger Sunbelt markets and some of the Mid Atlantic markets as well. So again, just one way to look at this. And by the way, if you're curious, what are the most volatile markets? Well, those are the ultimate boom bust markets. The markets that you better time it to get it right or just have a longer term play, of course. And that list is going to surprise nobody. Number one, the most volatile. Drum roll please. Midland, Odessa, Texas, oil town. You know, got to get that one right. It could, it gets, it gets really good in good times, really tough and bad times. And number two, three and four are all in southwest Florida. So Naples, Fort Myers, Sarasota, again, when they're hot, they're hot. When they're cold, they're cold. Okay. So anyway, that's just a one way to measure kind of under loved, underranked markets. It's not the only way to do it. Obviously a lot of other variables really want to look at if you want to take a deeper dive in this. But just something to think about is everybody's kind of looking for the next thing and maybe thinking, hey, you know, the Midwest and maybe, you know, we've missed that window. I'm not sure you have. Let's say if you think of that, if that's how you think you might just, you know, try, try to find new ways to look for markets that, that have, that may not have the job growth, population growth, the historic rent growth and the kind of. The big coastal markets always rank high because there's low supply and certain lists and whatnot cities have. It's one way to look at it, say just over time for a longer term investor. Which of these markets tend to be relatively consistent in getting some rent growth without seeing a big drop offs. And that's, and that's one way to look at it. All right, let's move on. We're going to talk more about this approach with today's guest. We get with our conversation with Dwight and talk about some of the markets he likes, including some surprises that he'll mentioned, he'll mention later that kind of fall out of favor. And, and so I think you'll enjoy that conversation with him in a bit as well as hearing the Bonaventure story. All right, next up, it's time for rental housing trivia.
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Dwight Dutton
Foreign.
- [11:37]
Jay Parsons
Is presented by Authentic. If you had a property that's underperforming and you can't quite figure out why, check out their multi family leasing and marketing audit. They'll dig into your pipeline, your leasing funnel and your comps and tell you exactly where things are breaking down. Plus strategies on how to fix it. Listeners of the pod get 50% off. So head to authentic FF and click on the banner to learn more and claim the offer. All right, so today's question is which market ranks number one over the past 10 years for the least volatility in rent change according to RealPage data. So the least volatility in rent change over the last 10 years. I'll give you five choices. Is it Cleveland, Minneapolis, Philadelphia, St. Louis or Virginia Beach? So give that some thought and we'll answer that in a bit Next up, good question. All right, so Good question is going to be presented by Inside the Deal, a CRE podcast by Brickadia. It's a commercial real estate podcast, takes you behind the headline and into the heart of the transaction. Hosted by Brickadia's EVP and head of production, Ernie Kate, each episode pullback pulls back the curtain on a real deal, unpacking the situation, the challenges, the creative solutions, and the outcomes achieved. You'll hear directly from Bradia producers. They share what really happened behind the scenes, the roadblocks they hit, how they navigate the market, and the strategy that ultimately got the deal across the finish line. So if you work in CRE or just want to understand how complex deals actually get done, this is where you'll find the stories, lessons, and perspectives you won't see in a press release. So follow Inside the Deal, a CRE podcast, Abercadia, wherever you get your podcasts. Okay, so good question is where we answer a question that we get from events or from social media and email? And. And it's a good enough question or some I get enough that I want to answer here for a broader audience. So today's question is why don't institutional investors like the Midwest markets if those Midwest markets are so consistent? So I get this one a lot. So I, I thought it'd be good to address this on this episode since it. It falls in this category of underloved markets. And obviously we've given some love to the Midwest on this podcast, but I don't think I've really answered this question. So why don't we see more institutional investment and more national players going into these Midwest markets? And let me try to answer that as best I can. And pretty quickly, number one, remember that we talk about national institutional investors. We're talking about a lot of different groups, a lot of different strategies and different fund requirements, et cetera, et cetera. And some of them do like the Midwest. Now, it's true, though, that most are not investing much there, and I think that's changing to some degree, not dramatically, but we are seeing more capital come in the Midwest predominantly to bigger markets like Kansas City, Columbus, Indianapolis, some parts of Chicago. That one's lost a little bit of favor for tax policy reasons, among other things. Number two, though, investors. I think another factor in this, though, is for the investors that don't invest a lot in the Midwest, whether they're institutional investors or smaller investors. Remember, it's not just about the rent numbers. And this is something I think a lot of times like the, you know, The Monday morning quarterbacks on social media don't fully understand when they're being cynical about things is that it's not just about the rent. They have to, you know, investors have to factor in a lot of different things. You know, policy is one of those things. Policy risk liquidity is another one. If they need to sell, can they find a buyer? And the national and institutional investors in particular, they tend to bias toward markets where their peers are also operating in because they perceive that if there's other institutions there that gives them some surety of clothes if they need to sell quickly. Now, right or wrong, that's the perception. And then they also have to look at scalability. Can they achieve scale in a given market? You know, scale allows you to operate more efficiently to distribute costs among a greater number of properties. And in most of the Midwest there's still, and by the way, that's true, a lot of these under loved markets I just mentioned earlier as well. In a lot of these places there's, there's a relatively low amount of existing supply of what we'd call institutional grade apartments. And by institutional grade apartments, I mean markets that are going to be generally in their buy box are going to be apartments that have been built in the last three decades or so, have at least 200 plus units in a good neighborhood. And the exact buy box could vary obviously by institution or by buyer, but that's generally some fairly good rules of thumb. So that means it's a more limited supply. And regardless of the upside there, that lack of supply makes it harder to achieve scale and operational efficiencies and that's going to in turn limit investment activity. And one more thing I'll point out too, and I kind of alluded to this earlier, is that I think there's also some perception that yeah, it would have been great to invest in the Midwest and markets like it five years ago, but maybe we've missed that window. And sure, the Midwest is going to be steady, but given that supply is now dropping off and we're also well past the COVID issue, supply's dropping off, Covid issues are gone. So now the coastal markets and the Sunbelt markets, that could be where the opportunities are in the next cycle. Now I'm not saying it's right or wrong. I think it's obviously more nuanced than that we're going to get into that today. But that could certainly be the perception among some investors. And again, there can be other reasons as well. It's going to vary by group, but those are some of the big ones why we don't see more institutions more active in the Midwest, even with all the success that they've had, the region's had over these last few years, obviously, no mystery. So there you go. Next up in the news. Okay, we've got two topics that are on the policy side this week. We'll try to cover these pretty quickly. Number one, it's a new research paper from a former US Solicitor General arguing that the Road to Housing act is, quote, constitutionally flawed thrice over. Now remember, the Road to Housing act is of course, the legislation that effectively bans most mid sized and larger investors from buying or building single family rentals. In this paper, it's called the 21st Century Road to Housing Act, a triple threat to the Constitution. It's written by Paul Clement, who served as the solicitor General under the second President Bush, as well as Andrew Lawrence and Mitchell Polacki. Now it's not an easy read. It's full a lot of legalese, as you expect from this type of document. But it but I'll summarize this as best I can. It boils down to three key arguments. Number one, the authors say it violates the Constitution's takings clause by forcing investors to sell most houses that they build or buy after seven years. Number two, they argue it violates the equal protections enshrined in the fifth Amendment, discriminating against a particular group of people, in this case those owning three Amphiti plus homes. And number three, they argue it's federal overreach into issues the Constitution grants to local control, not to the federal government. So if you want to dive deeper into this, give it a read. It was published in tandem with the Real Estate Roundtable and you could find it on their website if you want to dig in more. Now one more policy headline for you. The White House Council of Economic Advisors just put out their 2026 economic report of the President. Now I've obviously been very critical of the President's support of the Road to Housing act and the balancing of rental supply. But I also want to give credit where credit is due. And there's a really good section on housing in this report that emphasizes the need for more housing, including rental supply. And now a lot of talks about homeownership. But if you dig into this, there's a lot of talk about rental supply and the need for more of it. And it says to build more housing we need to do some things, such as curtail artificial mandates that restrict housing supply, such as green energy, building requirements, esthetic requirements, discriminatory labor rules, and rent scanner protections of providing greater flexibility in consumer choice and stronger private property rights. And it also goes on to call out rent control and inclusionary zoning as supply killers. And they are. So again, give that a read if you want to get more details. And then next up, it's time for our newest segment, Good News. And that's to highlight the good news happening across the rental housing space, because again, there's plenty of good news happening too, even if it doesn't get as much attention. And as always, good News is brought to you by my friends at Apartment Life Life. Apartment Life coordinators help owners care for residents by connecting them in meaningful relationships. And this in turn benefits everybody from the residents to the on site staff to the community's bottom line. So if you're not already, if you're owner operating apartments, you're not already partnering with Apartment Life, check them out@apartmentlife.org all right, so this week's good news comes from Woodhaven Apartment Homes and the church at Viera in Melbourne, Florida. Now, within this church's group, within this church, excuse me, there's a group of men and women in their 70s and 80s who make it their mission to bless their neighbors. So they partnered with Apartment Life at Woodhaven Apartment Homes to create personalized gift baskets for the on site management team there. The group thoughtfully curated gifts for each person on staff. And Pete Kelly at Apartment Life told me about one guy here, a maintenance technician originally from Puerto Rico. So he got this gift and it included a hard to find Puerto Rican baseball cap from back home and just brought the guy to tears to get such a special gift. So how thoughtful that was. Love to see it and love hearing good news like this. So if you've got good news to share, send it to infoayparsons.com and we may feature it on a future podcast. All right, let's get back to today's trivia question presented by Authentic. We asked which market ranks number one over the past 10 years for least volatile change in rents? Was it Cleveland, Minneapolis, Philadelphia, St. Louis or Virginia Beach? If you guessed B, Minneapolis, you got it right. Now, I may have led some of you off, off the trail a little bit. When I talked about Virginia beach earlier on the podcast, I would have made that easy for you guys. Obviously all of these are pretty low volatility markets, but Minneapolis was by far actually the least volatile market over the last 10 years. Now, consistency doesn't mean better performance, though. It really doesn't get much rent growth in Minneapolis. They also don't cut rents very much. It's averaged about 2.6% rent growth over the past decade, which ranks 141st out of the 150 largest markets. It's ranged anywhere from negative 2 to plus 5% over the past decade, but typically in low single digits. Now, you compare that to a San Francisco, which has ranged from negative 20 to plus 13. Now, by the way, I probably should have mentioned this earlier, but if you're looking more for just, you know, risk adjusted returns or, you know, coefficient of variation, your leaders over the past 10 years would be Providence, Portland, Maine, Rochester, New York, Springfield, Massachusetts, and Grand Rapids, Michigan. So that'd be the balance of rent growth plus low volatility would give you those 5 as outperformance by that metric. All right, next up, it's time for today's interview. As always, it's sponsored by funnel, the AI and CRM software trusted by four of the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your property, centralize operations and automate everyday tasks, visit funnelleleasing.com so our guest today, I told you earlier, he named his company after the ship that brought his ancestors to what became America back in the 1600s, the Bonaventure. His family ended up with some land in a rural part of Virginia and over time they've turned that one piece of property into a pretty sizable apartment portfolio. So we'll hear that story and we'll dive deeper into markets and strategies for long term investing with today's guest, Dwight Dunn, the founder and CEO of Bonaventure.
- [24:01]
Interviewer (possibly Jay Parsons or a co-host)
All right, now we enter the interview portion of today's podcast. And I'm honored to welcome in the head of Bonaventure, Dwight Dutton. So, Dwight, thank you so much for being with us today.
- [24:10]
Dwight Dutton
Hey, thanks for having me, Jay. Oh, it's longtime friend, first time caller.
- [24:15]
Interviewer (possibly Jay Parsons or a co-host)
Well, thanks for making time. So I always love those who have a real family story in this business because so many of us, I think in multifamily especially, we stumble into it and you, you've got kind of a unique story. And so I understand your family first got into real estate investing with one of the big names of Mid Atlantic Development, Charles E. Smith. Back in 1962, they developed apartments on your family land in Virginia. So tell us about that deal, that site and the family origins in multifamily.
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Dwight Dutton
Yeah, I think to your point, there's no, you know, kindergartner when goes around the class, what do you want to be when you grow up? And no one says, I want to own apartments or I want to be a leasing agent. But here we find ourselves. And I think for people who make it a career, they stumble in it and are very thankful. I'm very thankful that my family stumbled into it almost 70 years ago. And basically the summary of the story was our family owned a little farm in what was then a rural Fairfax County, Virginia, which is now one of the wealthiest counties in the country. But at the time, it was very much a rural suburb of Washington, D.C. it had been annexed to the city of Alexandria, zoned for apartments, and cut in half by the highway. And consequently the value of the land had skyrocketed and was worth $200,000. My dad and grandfather were not wealthy. They didn't have a lot of cash. But that $200,000, the tax bill was more than they could handle. And so they were going to be forced to sell it. But they had a moment of clarity, said, you know, if we can hold on to this and find a partner, maybe we can participate in the long term value creation of being an apartment owner and a landlord.
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Interviewer (possibly Jay Parsons or a co-host)
Wow.
- [25:57]
Dwight Dutton
So he called everyone and found a couple developers and turned out that was Bob Kogod, who is Charles E. Smith's son in law. And they built an apartment complex. And for 40 years we collected checks. Eventually Charles E. Smith Co. Was formed and they went on to develop, basically they invented Washington real estate. Fast forward 40 years. It had been great for our family. It had kept up with inflation and a little bit more. Every 10 years there'd be a refinance and you'd get a slug of capital. And it provided a great upper middle class income for our family. But Charles E. Smith had gone on to become this huge, massive conglomerate. And what but our family's only jewel was just kind of an afterthought, as Charles E. Smith had just gone on to become enormous. And 40 years later, our property was not getting the stewardship that we needed for our only nest egg. And we went to a meeting and walked out after having been told it was a C class property in a C class location that need $5 million of capital improvements and you'd get no return. And that was in 1999. And between the conference room and the elevator, my dad and I had the shortest, craziest conversation I think I've ever heard of, which was, this is a problem. Yes, we don't have $5 million. My dad said, what do you think we should do? And I'm 25 years old with zero real estate experience. And I said I'm just going to buy him out. Which was an insane comment for a 378 unit apartment complex with no real estate experience. 25 years old. And my dad said something even more insane. He said, okay. And so I spent the next nine months figuring out how to become a real estate investor. Convinced Fannie Mae that was a good idea to lend a kid with no experience $18 million, let me start a property management firm. And somehow those thousands problems that could have derailed the whole thing, none of them did. And a lot of it is luck in hindsight. At the time I just thought, well I got this and poof. I was an apartment landlord. And at the time I thought it was just going to be a one off deal, leverage a cash flow. But I fell in love. Jay. I think I have undiagnosed ADHD and I got to do a little bit of everything every day. Lease apartments, fix the toilet, be a financier, etc. And so that was the birth of Bonaventure.
- [28:33]
Interviewer (possibly Jay Parsons or a co-host)
Wow. Yeah, they get you in the weeds. So what's the status of that property today?
- [28:38]
Dwight Dutton
So the status of that property is we still have all the capital, but it's been transformed that we closed on that in February of 2000. In 2006 we converted it to condos during the massive condo boom and we paid a $23 million valuation and it ultimately had a sellout of 105 million DOL. And so we then 1031 exchanged capital and that just started the flywheel. And you know, from that moment forward, it's always been about, you know, everything we acquire. We have this long term perspective. Our hold period is sometime between a long time and forever. But if the market, if the market is willing to overpay, we're certainly sellers at a price. But when we do that, we wanted to do it in a tax thoughtful way. And so we've done about a billion 3 of tax advantage transactions with our account and now a roster of about 500 families that work with us.
- [29:39]
Interviewer (possibly Jay Parsons or a co-host)
Wow. So, so I didn't realize this, so I knew that I heard about this first property. But you're saying that one property that you end up converting to condos ended up being essentially seed money for an entire portfolio that you've grown across the mid Atlantic?
- [29:54]
Dwight Dutton
Yeah, I mean if you think about the value of getting lucky and flipping heads a few times early in a compounding cycle that's gone on for 25 years, it is A massive trajectory changer. And then we've had several more experiences like that where, you know, the second property we bought in Richmond from Home Properties in 2002, we held that for 18 years and had a 21 IRR or something.
- [30:20]
Interviewer (possibly Jay Parsons or a co-host)
Wow.
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Dwight Dutton
When you just compound at high rates of return for a long period of time, it really changes the trajectory. And then when we do liquidate, we figure out how do we keep as much of that as possible and not give our LP Uncle Sam anything that he doesn't absolutely have to get. And I think that's become a cornerstone of Bonaventure is that long term tax efficient compounding where we try to get our net returns as close to our gross returns as possible. Because we work with our family and lots of other families who are taxpayers versus institutions or fund managers who really don't care about the gross versus the net because it's not their money or they're a non taxable investor.
- [31:04]
Interviewer (possibly Jay Parsons or a co-host)
Yeah. So one more part about the origin story then. So at what point you mentioned the second property in Richmond, you know, at what point you say, hey, we're going to grow this thing. And obviously you've got a very refined strategy now, but what was the initial strategy when you're like, hey, we're going to go raise some money and we're going to go grow? Like, what were you, what were you all trying to do?
- [31:21]
Dwight Dutton
I mean, I think so. You actually nailed the way we articulated the strategy, which was, we're going to grow, we're going to raise some money, let's go. But that was the external verbiage where I didn't really have the nomenclature to say what I wanted Bonaventure to be. Obviously, in retrospect, what we became is actually what I wanted it to be. I just didn't know how to describe it. And what I wanted to do was create a platform of businesses that could ensure that we got the outcomes. Because everybody's rich in Excel. Like, nobody ever sent you a teaser deck on a terrible deal. All the deals look amazing in Excel, but making money in real life is very difficult. And I wanted to build a platform that could get sustainable and repeatable outcomes. And that's what Bonaventure has become. And so when I was out saying, let's raise some money and do some deals, I was really saying, but I want to do it in a way that it's not just an agglomeration of deals. I wanted to build a platform. And Bonaventure, for instance, the very first decision I had to come up with is what do you name this? I could have named it Dwight Dunton Real Estate but I said I wanted something meaningful. Bonaventure is the name of the ship my first ancestor came to America on in the 1620s. And so is an intentional way about saying this is going to be more than about me. It's going to be more than about a couple of deals. It's going to be about repeatably and sustainably delivering outperformance.
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Interviewer (possibly Jay Parsons or a co-host)
Yeah, I love the origin of the name story. That's, that's fantastic. So before we go further and everything you're doing, tell us, let's just tell us about the platform today. Number of units, what markets you're in, you know, vintages, classes. I mean how would the portfolio.
- [32:59]
Dwight Dutton
Yep. So the portfolio today is about 10,000 units. Our, our family and the principals of the company are the largest investors. We have about $600 million worth of our capital in that we have about $3 billion of, of gross asset value. And the business is really five related businesses that are all about ensuring that the business plan comes through. We obviously have our investment management business that works with families to help them build long term wealth to afford their dreams, whatever they define those to be. We have our property management affiliate which is Vest Residential, headquartered in Charlotte. Their job is to deliver outperformance on our properties, but also a handful of other private capital owners that are long term holders that want a management company that acts like an in house platform without the headaches. We have our development business which is a really unique business. We work with families to take their existing land and we build apartment complexes, basically flipping the script of the Dunton family. And we use HUD for financing those. And so we became one of the largest HUD borrowers as a result from that business. And then we have an Internet service provider that provides an amazing experience for residents, property owners and property staff for providing best in class Internet service in MDU environment called Internet Subway. And then the last one and the newest one is Wilmington holdings, which is an insurance company. Because insurance has been such a wild card, we didn't want to leave one of our largest line items to just be market performers. We wanted to be able to drive outcomes.
- [34:38]
Interviewer (possibly Jay Parsons or a co-host)
Yeah, no, that's great. You got some diversification there. You're rounded and out. So another thing you've done that. I'm just fascinated by the world of private REITs because they don't get a lot of attention. In 2021 you launched Bonaventure Multimillion income Trust. What was the advantage of going that route? And for those of us who don't understand that world very well, how is it different to operate a private REIT versus a traditional investment fund?
- [35:01]
Jay Parsons
Yeah.
- [35:02]
Dwight Dutton
So first, I'll take your second question first. A REIT is simply a tax election that usually a corporation makes which says, hey, we will pass through all of our 90% of our earnings to shareholders and distributions in return for not having any taxes at the corporate level. And you got to comply with some ownership requirements and so on. But the advantage of that is, is you can have a 1099 rather than a K1 for owning real estate and not having double taxation. And so for a lot of individuals and investors, that's a really convenient way to start participating and becoming an investor in real estate. So the difference is there's a bunch of tax regulations in order to keep your REIT compliance, which are different than if you just had a partnership llc. But the motivation for us was really a recognition of one constraint and one opportunity. The constraint was that our existing investor base had made a ton of money with us. And some of them were very much said, keep going. If you sell a property, I'm staying in, I'll be in for the next one. Because I believe in Bonaventure's judgment. Other people are like, I believe in Bonaventure judgment, but my life has changed and I need to take some chips off the table because I'm retiring. We didn't have a convenient way to let people pick and choose. And I felt like a complete failure because our whole reason for being is to help families to afford their dreams. And so if you're rich on paper, but you can't access that wealth, are you really wealthy? And I had to fix that. The second thing was that we realized that While I have 10,000 people's names in my phone, there were millions of families that could benefit from what we did. And how do we connect with those families? And it was through working through their wealth advisors, RIAs and IDs. And so those two things came together, which was if we rolled up a bunch of our properties into a reit, it would give our current shareholders that needed liquidity the opportunity to get off. But then all of those new families working through their registered investment advisors would have an easy way to access institutional quality real estate with institutional leadership. And that was the birth of Bonaventure Multifamily Income Trust. That was my Covid project.
- [37:22]
Interviewer (possibly Jay Parsons or a co-host)
Yeah, that was a heck of a project. So I guess related question then, besides Earnings calls like, what's the big difference between a private REIT and a public REIT?
- [37:31]
Dwight Dutton
Oh, private REITs and public REITs own the same assets. The biggest difference is the public REITs values change every single day. And most of the time it has nothing to do with the earning potential of the real estate. You know, there's been all kinds of market volatility over the last month. I'm not sure that fundamentally the values of the properties in those REITs changed. The private REIT you have, you don't get the market to price it every day, which is actually in many respects a benefit for those owners because the prices are set each month or quarter or annually, depending on who the sponsor is, and it reflects the liquidation value of that real estate. So you can, you know, for a lot of investors, if they were to own a townhouse, they're not marking it to market every single day, waking up and seeing what Zillow changed the value of it. But if you own the public reit, you might do that. And for a lot of people, the volatility is not what they're looking for. They're willing to trade the instant liquidity for being able to know that the value of their investment is, is based exclusively on the value of the real estate versus a mixture of real estate value plus what might be happening halfway around the world.
- [38:46]
Interviewer (possibly Jay Parsons or a co-host)
Yeah, I agree. I've had many debates with people who want to argue that the public market is a rational measure of values for private sector real estate. And I very much agree with you.
- [38:56]
Jay Parsons
I think it's a horrible measure.
- [38:57]
Interviewer (possibly Jay Parsons or a co-host)
So a lot of things you can't control.
- [39:00]
Dwight Dutton
I totally agree with you. Because if you look over the cycle, there'll be times when a bunch of companies come public and there'll be other times where a bunch of these mega wealth management firms take private. That's arbitraging the mispricing of the public markets relative to the intrinsic private market values.
- [39:17]
Interviewer (possibly Jay Parsons or a co-host)
Yeah. Why don't you think we see more private REITs than we do? I mean, obviously you're not the only one. There's others out there, but why don't more do it?
- [39:27]
Dwight Dutton
Yeah, well, I think as soon as you get into that business, you've added a second line of business. Before we did that, we were exclusively real estate investors. Now we're wealth managers. And it requires an additional adjacency to build out that skill set. And it's not cheap. And also there's not a lot of firms that were built with the long term perspective that we were Born with most people that are real estate sponsors. They're about how quickly can I earn my promote and clip my lottery ticket? And since we're using our own capital, that really wasn't important to us. And so we've tended to go to vehicles, programs and wrappers that are consistent with our thesis of long term compounding. And Areita is a perfect vehicle for that.
- [40:13]
Interviewer (possibly Jay Parsons or a co-host)
Yeah, no, it sounds like it sounds like that for sure. All right, so let's get more into the strategy with you. And now you've done acquisitions, you've done development. What's the focus today? And then more broadly, I'd love to get your take on the great build versus buy debate.
- [40:29]
Dwight Dutton
Yeah, well, you're right, we've done it all. And I think that our strategy evolves with the business cycle and the liquidity cycle. I think you do a great job of reporting on the stats and statistics. I think our macro lens is housing production is broken. And if you can accept that as the business cycle evolves, sometimes it's the best time to build them. Other times it buy deals below replacement costs. Sometimes it's buy older deals that you can fix up and other times buy great deals that have a bad balance sheet and fix it. And we've done all this today. I would say that we are buying 30 year old deals that we can do value add because we believe that the development cycle has been largely shut. And if somebody wants granite in the future, they're not going to get it from a new building, but we can deliver it in 15 days by doing a value add kind of fix fixer upper in the unit. We're also selectively doing development if we can make the economics work in a market that has no supply overhang. And so we haven't gotten a shovel in the ground in two and a half years, but we're about to put one in the ground next month.
- [41:38]
Interviewer (possibly Jay Parsons or a co-host)
So by the way, where's that going to be?
- [41:41]
Dwight Dutton
That one is going to be in boring Chesapeake, Virginia. And I, I think you do a great job of reporting on the best growing markets are the ones that have had no supply. And we've been big believers that it don't look at the headlines which is this company set up shop or this many people move there, look at below that and say what's the supply pipeline? And we've been attracted to these boring markets where there's just very little supply growth and we've constantly just gotten consistent rent growth. You had a great graph comparing Austin, San Francisco and the Midwest on there. And Midwest is like the poster child for boring, but it's just been up and to the right for years.
- [42:23]
Interviewer (possibly Jay Parsons or a co-host)
Virginia beach is that whole Virginia Beach, Norfolk area. It's. It's probably the biggest, you know, Southern MSA that's gotten almost no supply in the last, you know, five, ten years.
- [42:32]
Dwight Dutton
You're so right. Maybe we can edit this from your podcast so that we don't tell the whole world. We're happy to keep our little secret, but absolutely, that is our. Actually our biggest market for that very reason, which is you have. Have huge amount of government spending from the military installations driving that economy. You have the Chesapeake Bay and Atlantic Ocean preventing you from having development in two quadrants. And then you didn't have institutional capital showing up to ruin it. So it is the best market we know of, and we've got thousands of units there.
- [43:05]
Interviewer (possibly Jay Parsons or a co-host)
Well, I'll just tell you real quick. I think the perception for those listening you know this, Dwight, is that I think the institutional guys, they see it as. I think they maybe don't even get in the weeds enough that they see it as the military market, and they see risk associated with that. But I like the market. I think that it's an oversimplified view to look at it in just that way.
- [43:25]
Dwight Dutton
It is, and I will shed some light on it for those oversimplifiers. It is not a Midwest Air Force base that a congressman can get in a fight with another one and close and reopen somewhere else. There's the largest natural inland port in the world. It is the only place we can pull our aircraft carriers in. It is the shipyard that in Newport News that is building our nuclear submarines and all of the new boats that we need to have in order to change our U.S. military. So, like, there are. Those assets are irreplaceable. And then when you add on top of that that a bunch of people then retire, you have effectively three earner households. The husband, wife, and the military pension. Yeah, it's great. Yeah. And then the last part is that we're really interested in is senior housing. The demographics of 10,000 people turning 65 every day. That will be on a relentless march for the next decade. And you look at the supply, demand characteristics of it. There's been virtually no supply since COVID started in terms of new shovels, but yet demand has exploded. And so we love that business. We have a small business that we're really focused on growing.
- [44:38]
Interviewer (possibly Jay Parsons or a co-host)
Yeah. So senior living is obviously a huge umbrella. So within that is this independent living. Is it care facilities?
- [44:44]
Dwight Dutton
Yeah, it's the end. It's independent living, which is basically an apartment complex with a dining room and then lots of programming for activities and then a continuum of care where you have that independent living. But you also then have an assisted living component because those two together get you higher rental rates because people can stay and age in place. We're not you the full medical practice of like a SNF which is a specialized nursing facility. So it's that kind of niche of independent living or continuum of independent living with assisted living.
- [45:22]
Interviewer (possibly Jay Parsons or a co-host)
Yeah, makes sense. All right, so let's talk about debt. And you have a lot of I was doing some research for our conversation. You have a lot in your website and your collateral about this. You know, I think you call it like debt fortress. And I want to read some stats here for those listening. 93% fixed at approximately 3.9% average rate with an 18 year average maturity. And obviously you mentioned longer term investment horizons, so obviously those are attractive stats once rates shot up like they did. And obviously, as you well know, a lot of the industry was looking at doing floating rate debt. And so how much has that strategy insulated your company from the rate shock issues that we're seeing today?
- [46:03]
Dwight Dutton
100% it is. You know, we've been through probably three massive liquidity cycles in our company's history and all of them we were fine because of our long term fixed rate debt perspective. And it was simple. I used to watch Alan Greenspan testify on Capitol Hill and I'd watch for three hours intently and have no idea what way interest rates were going. So we just said, well if he doesn't know and it's his job job, let's just take that off the table and go fixed. And we gave up a little bit of return sometimes. But what we did was we protected our downside, which was we weren't going to have a bank call us during a liquidity crisis and say give us 10 million bucks or have a loan mature and not be able to roll it over. Because the people that lost money in real estate were the ones that got margined out at the bottom of the liquidity cycle. The next buyer rode the value back up. I mean you look at Sam Zell, that's how he made all his money. There was a liquidity crisis. He got assets for virtually free. And a couple years the liquidity had come back to the market and made a ton of money. That's how people get lose a fortune and make a fortune. And we skipped all that with fixed rate debt. So when 2021 came around and interest rates were at like 2% or one and three quarters. If you floated, we made a simple decision which was it's possible rates could go down like 20 basis points more, but the room to run on the upside was like 500 basis points. So let's make that value trade. Maybe we're wrong, but if we're right, we'll be very happy. And so we mortgaged everything we could and went as long as possible.
- [47:37]
Interviewer (possibly Jay Parsons or a co-host)
Wow. Wow.
- [47:39]
Jay Parsons
So is that, is that, is that
- [47:41]
Interviewer (possibly Jay Parsons or a co-host)
positioned you pretty well? I mean, I know a lot of groups doing, you know, capital calls and trying to play defense right now. I mean, are you all in a position to, Are you being more offensive?
- [47:50]
Dwight Dutton
Right, we're on offensive. Yeah, we're on offense. Between having virtually no maturities and in being in these boring markets with consistent noi growth, we can turn our attention to finding those opportunities out in the marketplace. And so, you know, we bought a 1987 deal in Virginia beach two weeks ago. We've got a deal under contract in Indianapolis. We've got a deal, a 2021 vintage deal. That is a beautiful deal, but it's got a bad balance sheet and we're buying it way below replacement costs and working with an owner because he has a tax problem. So, like, we're very much offensive and leaning into all of the areas that we think there's value to be captured in today's environment.
- [48:34]
Interviewer (possibly Jay Parsons or a co-host)
Yeah. So I know you've covered a lot of already. You talked about, you know, senior living, talked about, you know, looking at under, maybe underappreciated markets. But just, I guess if we could zoom out a little bit, you know, what do you see as the next chapter for multifamily? What is the opportunity and what's the. As you're building your platform, like, you know, what do you, what's the buy build box? How do you structure those deals for the next cycle?
- [48:56]
Dwight Dutton
Yep. I think, I think what we need to do is lever ourselves to as many outcomes as possible. I think there is a very real likelihood that the overregulation of multi family picks up speed. It's a pendulum, it's a political process. And I think owning assets where it's inadvertently going to shut down, development is going to increase rent growth. And as long as we say if they capped us at 5%, would we be okay? Yeah, I'd be okay with that. So we want to look for those assets. Alternatively, if the economy picks up speed and demand continues to increase, those assets are going to perform or the Last thing is, if the economy softens, do we own assets that are resilient and do we have resilient balance sheets? So we look for all those outcomes and try to find investments and structure them where we are levered to win in multiple different futures because everything is possible, it's just probability. And so today we are continuing to buy assets where we can assume fixed rate debt that was put on a couple years ago when rates were cheap. We're buying value add opportunities that are cheap on a price per pound to have the ability to deploy marginal capital so we can outperform the submarket. And we're buying great assets with broken balance sheets to right size those and we think those are all resilient in a lot of different potential futures.
- [50:28]
Interviewer (possibly Jay Parsons or a co-host)
Yeah. So interesting. So you're saying that obviously a lot of capital is very nervous about regulatory risk right now. So you're saying that, that, that you maybe lean into some of those markets if you could find places where supplies can come down so much, you think you could actually do okay.
- [50:42]
Dwight Dutton
Yeah. I mean you look at suburban Maryland compared to Northern Virginia outside of Washington D.C. they're like equidistant from the nation's capital. Suburban Maryland is trading 100 basis points wide of the same asset across the river. And so, I don't know, is 100 basis points the right discount for an environment that's already implemented rent control and is very anti landlord versus Northern Virginia that historically has been very pro landlord? I don't know. But at some point, yeah, I'll get paid to deal with the regulations if I'm being paid enough.
- [51:17]
Interviewer (possibly Jay Parsons or a co-host)
Yeah. And to your point, for those listening who don't know this area, it's like Montgomery County, Maryland is one of the wealthiest counties in the country and yet it has rent control that the vast majority of the renter base does not need and obviously is destructive in the long run anyway. So you're saying at some point, like those demographics, they still need housing. Right. And so maybe there's a way to make that work is what you're saying.
- [51:42]
Dwight Dutton
Yep. And so, you know, we just go back to understanding the rules of the game better than everyone else. We don't have to like them, we just have to understand them and then play by them. And so that's what we're focused on. And I think the same thing is true about becoming one of the largest borrowers from hud. Every time I say that, people go like, oh, hud. It's horrible. There's so many rules. That's true. But it is an amazing outcome because you just quoted statistics which are 3% interest rates that my kids will be paying off when I'm long gone. That is an amazing outcome. And yeah, there were some rules we had to follow to get that loan, but that's a great outcome. And so I think that's the key thing is understand what the rules are. Do the research. Don't just go with the headlines.
- [52:23]
Interviewer (possibly Jay Parsons or a co-host)
Yeah, that's great advice. Well, Dwight, this has been fascinating. Thank you for letting me pick your brain and best of luck as you enter this next chapter.
- [52:32]
Dwight Dutton
All right. Hey, Jay, thanks so much for having me.
- [52:53]
Jay Parsons
And that's wrap on episode number 81 of the rent Roll. Big thanks to Dwight for being our guest today. Thank you also to our sponsors to jpi, Madera, Funnel, Brocadia, Authentic and Apartment Life. And thank you to all of you for spending part of your day with us. We'll see you next time.
- [53:10]
Dwight Dutton
Sam.