Acquisitions Will Be Significant Part of Our Growth in Foreseeable Future
- Aug 19, 2010
Plymouth, Minn.–Armand E. Brachman is managing partner of Dominium Development & Acquisition. He is responsible for the coordination and implementation of new project development and acquisition for Dominium.
He has been with the company since 1979 and has extensive experience in working with various federal, state and local housing programs. He is currently involved in the development process including community and site identification, site control, municipal approvals, architectural programming, financing, construction management, marketing and management.
He talks to MHN about Dominium’s acquisition strategy and how development has taken a back seat in the firm’s growth plans in recent years.
MHN: What are Dominium’s growth and acquisition?
Brachman: We currently own a little over 15,000 units and fee manage about 5,000 units. Recently, much of our growth has been through acquisitions of existing properties as opposed to development, which in the past we were quite active in. Right now there are a lot of opportunities to acquire properties.
Prior to 2000, development represented 65 percent of our growth, but today it is down to 40 percent. If you take rehabilitation work out of that, new development is only 10 percent of what we are doing today. Development has gone from being a majority of what we do to minority. You are able to leverage equity much better by acquiring properties than building new ones. There are more acquisition opportunities available right now and we can build our portfolio much quicker by acquiring that building. Typically the development process takes about two to three years.
MHN: Will acquisition continue to be the growth strategy for the company in the future?
Brachman: Acquisitions will be a significant part of our growth in the foreseeable future. When the opportunities no longer exist, obviously there is nothing to acquire, but right now there is a tremendous opportunity to do that.
MHN: What kind of acquisitions is Dominium doing right now?
Brachman: We look at communities that are growing or seeing new jobs being added. In the Midwest, there are some small communities that aren’t seeing population growth. Those are the kinds of properties we would shy away from. We like communities with stable or growing population. If there is a trend of less people living in a town or if there is only one major employer, we would not go there.
We look for properties that have been taken back by financial institutions. Banks are not in the business of owning and operating assets so they are interested in disposing off those assets and in these cases everyone wants to move quickly. There is another group of sellers: those who realize that they do not have the financial resources to meet their financial obligations under the loan documents and they recognize that it may a while till the asset turns around, so they are inclined to sell it quickly before it defaults. We wont look at a property unless we think we can add value to it.
MHN: What kind of value does Dominium add?
Brachman: First off operations: Obviously, we want to be confident that we can improve operations; our company has good systems and procedures in place that allows us to do that. We look at properties that we think are mismanaged. Many times properties can be refinanced with more favorable terms, so if we can bring value to the operations along with restructuring value, those are the sorts of opportunities we are looking for.
MHN: What kind of rehab work does Dominium do?
Brachman: We do rehab of our existing portfolio—where the work is minimum and costs are the lowest. The goal is to keep the units up-to-date.
The second type is rehab of the properties that we acquire from third parties, and the cost per unit for these could be up to $70,000.
And the third category is historic rehabilitation where the construction cost can go up to $120,000 to $150,000, pretty much like new construction. We gut the building down to the shell and build new units.
MHN: How many properties will the company acquire in the next 12 months?
Brachman: In the next 12 months, we are looking at acquiring 2,000 units all across the U.S.—wherever the opportunities are.
MHN: What kind of homework does Dominium do before acquiring a property?
Brachman: We think about where community will be in the next 10-15 years; if there is crime; do a thorough analysis of the operations at the project. Before acquiring, we do not rely on the broker. We take a look at all the units in the building and go through them thoroughly to decide what aspects we would be interested in renovating.