Drever Pulls Off Miraculous MF Turnaround

DALLAS—Call it a turnaround of mass proportion. Drever Capital Management just sold Honey Creek, a 656-unit workforce housing community in North Dallas, after a $3.7 million, seven-year redesign and repositioning that saw the occupancy rise from 80% to 94%.

B.H. Management acquired the three-story, 22-acre multifamily community that sits at 11611 Ferguson Road off Interstate 635. ARA's Brian J. O'Boyle Sr., Brian Murphy, Brian O' Boyle Jr., and Jakob Andersen represented the seller. Financial terms of the deal were not disclosed.

“At 656 units, Honey Creek is a monster of a property,” Noah Drever, senior managing director of Drever, tells GlobeSt.com. “In multifamily housing, size is a multiplier of your potential profit, but it is also a multiplier of your potential problems.”

Drever had plenty of problems with Honey Creek, which primary serves families with workforce incomes. Drever acquired the asset in 2007, when the surrounding area was already experiencing the pressures of economic distress, such as crime and low rent rates.

“The recession just exacerbated the situation across the spectrum,” Drever says. “Occupancy significantly dropped to the low end of the 80% range. At Honey Creek, 80% occupancy means 131 units vacant. Vacancy creates additional costs, reduces operating efficiency, reduces revenue, and increases security issues.”

During its seven-year ownership, Drever upgraded the apartments, adding wood-styled plank flooring, black kitchen appliances, and a two-tone interior paint palette. Drever also expanded and re-designed the pool sun deck area complete with gas BBQ grills covered by a wood trellis and resort-style furnishings.

What's more, a new children's playscape was installed, the leasing office and clubroom were modernized, a resident computer equipped business center was added, along with a new camera-equipped security system, privacy access gates, and reserved parking. Drever even initiated an after-school reading program and donated several apartment units to local police officers for onsite crime prevention.

“We dug deep into our pockets and did what we had to do to weather the storm,” Drever says. “We stayed hands on. We watched every dollar coming in and going out like a hawk. We maintained our rental criteria and did not modify our screening process just to get heads on beds. We wanted Honey Creek to be a place for hardworking people to proudly call home, so we stayed vigilant in attracting residents who would take care of the community and treat it as their own.”

In 2013, Honey Creek had its best performing year with revenues up 10% over the prior year, net operating income gaining 19%. Meanwhile, resident turnover was reduced 14%.

“Some of our competitors eased up on their rental standards and started to rent to residents who have a negative rental history or serious criminal background, or at least they elected not to look as hard at who they were renting to pre-recession,” Drever says. “We know that costs more money than it brings in, and we had an obligation to our residents, investors and lender to conduct business responsibly.”

Drever says the lender, Freddie Mac, was instrumental in helping the firm overcome these and other challenges by providing an additional two years of interest only. That made it possible for Drever to use cash flow to stay current with vendors and necessary capital expenditures. Drever paid Freddie Mac in full without any debt relief beyond a one year extension and two years of interest only.

O'Boyle says the improving Northeast Dallas market and Honey Creek's transformation from class C to class B generated a “healthy amount of attention and bids from institutional buyers nationwide.” He also called the turnaround “remarkable.”

“When the market imploded in 2008 and occupancy dropped, Drever Capital stood tall and did not give back the keys,” O'Boyle says. “Instead, they stepped in with strong property management and creative improvements, stabilized the community and significantly improved its financial performance. In those worst of times, I'm convinced anyone else would have lost that property.”