Private Equity Real Estate Investing
DJR Cos. creates its own opportunity. Capitalizing on a unique land development expertise, DJR intentionally targets undervalued and underutilized real estate to reposition and entitle. We adhere to a value creation strategy, not just one of value investing.
DJR integrates strategic macro-economic assessment with property-level analysis to make decisions at key points throughout each project, from site selection through final product choices. Add to this DJR’s distinguishing design capabilities which enable the company to intentionally seek out properties undervalued due to site development issues or poor existing concept designs. We love those sites. It’s where DJR creates so much of the value in its developments.
Investments are typically passive, private equity shares in projects or funds (or SPV’s) focused on relatively small, higher-velocity infill real estate development projects primarily in the greater San Diego region, DJR’s home market and one of diverse submarkets with unique coastal positioning and resilient economic drivers. Risk mitigation is sought through the firm’s characteristic developer expertise, delayed leveraging, reduced competition, target market analysis (and implementation), and diversification across multiple projects. Each project is under direct supervision of DJR Companies as sponsor and project manager.
DJR is a true operator with proven execution, not just a passive capital allocator.
-
DJR Cos. differentiates itself by capitalizing on a unique technical engineering expertise in the design, entitlement, and repositioning of real estate into a more profitable use, integrated with its financial modeling and market analysis expertise to determine highest use.
This expertise creates significant value by solving site development issues on the raw land or otherwise underutilized real estate that DJR targets (and others pass over), thus creating opportunity.
-
DJR Cos. intentionally seeks out smaller development sites with solvable development issues, or poor existing concept designs, so as not to compete on acquisition pricing with large public builders or master developers* who compete for “easier” sites. We target properties where DJR’s problem-solving capabilities can create the most value.
DJR Cos. pursues real estate development opportunities with total project value under $30M (dependent on market and any phasing), dove-tailing with our In-Demand Price Points and Positioning strategy.
*Or most other developers, for that matter!
-
DJR targets in-demand price points (the top of the bell curve) in areas with limited supply of relatively affordable market rate new housing stock, especially given favorable homebuyer demographic trends. As such, these projects move more quickly, entertaining a large pool of potential buyers. It’s part of a risk reducing, profit maximizing strategy with built-in backstops.
Targeting the right “top line” affects our bottom line.
-
Each project is programmed with relatively small to zero debt financing until later in the project timeline, typically when construction begins, to maintain investor equity positioning. This minimizes entitlement risk by ensuring a loan is not coming due (or at least not a serviceable one) during the period when time is most difficult to control, processing plans with the City. It also mitigates for recessions or even moderate downturns, allowing the project to move forward or pivot without debt payments requiring rash decision making.
(Of course, product choice and alternative exit or hold scenarios help account for downsides as well.)
-
Our vision is to spread investor capital across multiple projects, as opposed to one larger development with the same total capital commitment. Smaller projects face less opposition, thus are quicker to develop and offer returns, while providing diversification across submarkets with different buyer profiles as well as properties with differing risk profiles.
We can see dispersing capital out of a single (or series of) funds; although for now, DJR’s funds are raised on a per-project basis. Of course, our investors may (and often do) participate in several projects at a time.
Returns on DJR Cos. Projects
Avg. Annualized* Return:
22.8%
Avg. Cumulative Return:
59.9%
Avg. Equity Multiple:
1.93
Average investment horizon on these returns was about 2.62 years.
Why Real Estate Development?
In simple terms, it’s where the particular capabilities of DJR Cos. have the most potential to create value, and hopefully the most profit. We don’t believe one ought to only invest in existing fixed income, “core”, or value-add holdings.
Some may call our investments “opportunistic”, and the outsized targeted returns reflect that risk level. However, DJR Cos. sees its job as reducing that risk profile by means of the company’s unique development expertise. Invest in growth creation.
comprehensive Strategy & Vision
Whereas the company’s Project Management capabilities apply across asset type and size, DJR’s development goal is to opportunistically operate in the space between large development firms and single-unit flippers, focusing on smaller residential and mixed use real estate developments with expected values under $30M (depending on the market). DJR creates new supply for markets at in-demand price points, with a particular eye for properties with otherwise difficult site development issues, those through which DJR can create significant value. We also regard (relative) velocity to minimize risk.
DJR’s vision is to democratize investment in real estate development, moving towards a platform of open investment in high-yield value creation projects through project sponsors whose knowledge of the development process greatly reduces risk.
* This is a simple annualized return, taking the total cumulative return of each project and dividing it by the weighted average (as not every investor comes in at the exact same time) number of years per investment. If one were to use the compounding formula commonly used to calculate annualized returns on a stock portfolio, or the geometric average (essentially, or very close to, a compound annual growth rate), it would be approximately 19.7%. We just want to be clear, since semantics dictates that an “annualized” return may typically be thought of in terms of the latter compounding formula, even though the former simple calculation makes sense given the project-based, multi-year aspect of each single investment and no real re-investment of profits, which are typically distributed at the end of a project as sales occur. We, of course, re-invest from one project to the next.