David Schwartz, Value-Add Visionary

As the influential firm he co-founded turns 25, Waterton's CEO takes on one of the industry’s most visible roles.

For David Schwartz, 2020 is a milestone year on multiple fronts. The diversified firm he co-founded and still leads marks its 25th anniversary this May and manages a $5.6 billion coast-to-coast portfolio of multifamily and hospitality assets. At the end of January, Schwartz stepped into one of multifamily’s most visible roles when he assumed the chair of the National Multifamily Housing Council. It is a moment that Schwartz would have been hard-pressed to imagine a quarter century ago when he and his friend Peter Vilim launched the firm now known as Waterton.

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David Schwartz, NMHC chair and Waterton co-founder. Photo courtesy of Waterton

“He’s very smart and incredibly savvy financially,” said NMHC President Doug Bibby, who has known Schwartz for nearly 20 years and sees his calm and measured personality as the ideal demeanor for a leader. “In a world of social media, Instagrams, tweets, and blogs, he stands out as a person who thinks really carefully about what he says and does” (Bibby will step down next year after leading the industry association for nearly two decades.)

Gables Residential President & CEO Sue Ansel, a longtime acquaintance and Schwartz’s predecessor as NMHC chair, cites Schwartz’s knowledge and passion for the industry. Schwartz, she said, is a “great spokesperson” for multifamily. “Within his own organization, he has pushed the envelope with respect to moving his company and the industry forward, whether its hospitality or multifamily,” said Ansel. “He’s the right guy for the (NMHC) job.”

When he teamed up with Vilim to co-found Waterton in 1995, Schwartz was 31 and working at Equity Residential Properties Trust, which had gone public two years earlier. Sam Zell’s company was quickly buying up assets across the country, purchasing the properties at deeply discounted prices from the Resolution Trust Corp. and fixing them up.

“It was this cottage industry that fascinated me,” said Schwartz. He saw what could be possible with a value-add strategy and decided to approach Vilim with an idea. The night that Schwartz and Vilim decided to create the firm, he and Vilim famously dined on Pop-Tarts (brought by Vilim to their meetup in Chicago). “I said, ‘Pete, we should do this,’” Schwartz recalled. “He said, ‘I agree.’” And with that, Waterton was born.  

Buy, fix, sell, generate investor returns—that was really the vision, and now it’s so much bigger than that,” he said. Waterton’s goal is now to be the nation’s top investment manager and operator of multifamily properties.

Learning the ropes

As the company prepares to celebrate its 25th anniversary in May, Schwartz reflected on his real estate journey, which started in the Midwest in the early 1980s. Like many real estate professionals, Schwartz first got the bug for the industry from a friend’s recommendation. A fellow University of Illinois student landed an internship in the acquisition group of a Chicago-based company. Schwartz was drawn in by his friend’s accounts of jetting around to see properties and analyzing deals. “It sounded like an amazing opportunity,” said Schwartz.

After struggling to get a nibble from any of the major Chicago real estate firms, Schwartz got his breakthrough as an intern with AMLI, which then focused on commercial real estate. He was sent to Atlanta, where learned the ins and outs of the business—even having an opportunity to drive a Bobcat at a construction site.

Schwartz earned a bachelor’s degree in economics from the University of Illinois and joined AMLI as an office leasing broker and, in that capacity, he met Vilim. After two years of canvassing buildings for office tenants looking to move, Schwartz got the opportunity he was looking to work with Vilim’s team.

It was exciting to kind of be on the hunt, looking for deals,” Schwartz recalled of his early days in acquisitions. He credits mentoring by the firm’s leaders with helping him learn the nuts and bolts of a good deal. “Not just from a return standpoint, but what you look for in a physical property—what is a good floorplan vs. a bad floorplan,” said Schwartz.

Breaking out

Schwartz’s first acquisition, a Park Sheraton in Chicago, was relatively unusual for AMLI, which tended to buy mostly suburban assets. The bank had foreclosed on the high-rise property—which had fallen into distress and needed extensive renovations—and was looking to liquidate it. “That’s what got me interested in value-add, and that’s really where I cut my teeth on value-add,” said Schwartz. Vilim supported him in structuring the deal to make it a smart, economic buy.

In 1990, Schwartz earned an MBA from the University of Chicago’s Booth School of Business and was ready for his next move. He went to work for Sam Zell, who was on the cusp of launching an IPO and creating Equity Residential, which would become the largest apartment owner in the country. As a send-off to Schwartz, Vilim hosted a going-away party where he unveiled a cake with “Go to Zell” emblazoned across it. When Equity Residential went public in 1993, it was led by Doug Crocker, whom Schwartz credits as a mentor.

“Doug’s a brilliant guy who took this newly formed public company with 16,000 units and built it up very quickly from there,” said Schwartz.

As he watched Zell’s firm rapidly expanding by buying properties for bargain prices, fixing them up and selling them for a good price, he realized he wanted to do likewise with his old friend and former co-worker, Vilim. However, Schwartz said, “We didn’t hit the ground running.” During the year of Waterton’s launch in 1995, the partners got a single deal under contract, which took until March 1996 to close.

But soon enough, after finding their first capital source, Waterton started to get busy. By the late 1990’s, the company closed its first big portfolio deal, a 12-asset in Southeast Florida. While at first the partners took a lean-and-mean stance and outsourced as many services as possible, including property management and construction, by 1998 Schwartz and Vilim decided that a different approach was warranted. They decided to build their own property management company in order to have more control over every aspect of the business. “We believe our investor results improved as well as we started taking over operations, management and construction, and that’s a key aspect of Waterton’s philosophy: vertical integration,” Schwartz said.

In early 2017, Vilim stepped into the role of the firm’s vice chairman, aiming to spend more time focusing on his philanthropic work and championing causes, including working on ending homelessness and providing affordable housing.

New Pathways

Now, with a nationwide presence and a healthy appetite for acquisitions, Waterton is still focused on value-add properties. The firm is attracted to areas like the Sunbelt, where renter demand is high. Recent acquisitions include the $140 million purchase of a 994-unit community in Nashville from Starwood Capital Group in February and the purchase of a 456-unit community in Las Vegas for $104 million from Millennium Management.

“Our strategy globally doesn’t change that much at all,” said Schwartz. “We’re a value-add investor. We’re looking for ways to create value, whether operationally, physically or capital structure.”

Looking to the future, he hopes to continue initiatives at his firm that closely align with those of NMHC. Those include making sure the company’s talent is diverse, preparing for climate change, a proactive approach to innovation and technology.

Schwartz is also looking to expand into new investment categories. Waterton made a splash in senior living in January 2019 when it acquired a controlling interest in Pathway to Living, a Chicago-based senior housing owner and operator with 29 properties and more than 2,600 units. The deal was the culmination of a relationship that began four years earlier when Waterton had acquired a 50 percent stake in the vertically integrated operator.

“We thought that was important because of demographic shifts,” said Schwartz. “We need to be in apartment communities that cater toward an aging demographic. So many boomers will be in their 70’s and 80’s in these next 10 years. We want to be in that.” Additionally, co-living and short-term stays are two areas the firm is looking hard at.

As a new decade begins, Schwartz and his firm are still guided by their three-pronged mission: provide high-quality places to live, an attractive work environment and reliable returns. “It’s really those three things combined that makes the difference,” he said. “We weren’t looking to be a big company; big size wasn’t of interest. It was just finding good deals and generating good returns. I think you have to do all three to do this really well for a long period of time.”

And at the company’s 25th anniversary celebration in May, will Pop-Tarts be on the menu?

“That’s not a bad idea,” Schwartz laughed.

Read the March 2020 issue of MHN.