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Bonaventure's Messenger Place, a 94-unit property in Manassas

Why Longer Hold Times, Lower Risk Are Key for CRE Investment Firm Bonaventure

Company CEO Dwight Dunton talks about risk management, UPREIT structure and focusing on high-net-worth investors.

It was Dwight Dunton’s grandfather who demonstrated the true value of investing in real estate. In the 1950s, he contributed land to a joint venture for a new apartment complex in Alexandria, Va.—an investment that generated a steady stream of “mailbox checks” over a 40-year period.

In 1999, when the majority partner in the JV wanted to sell the property, 25-year-old Dunton decided to buy out the partner and form his own multifamily investment firm called Bonaventure. Reflecting on that decision, he describes his younger self as “blissfully ignorant” of the challenges associated with owning and managing an apartment building.

“Sometimes not knowing stops you from stopping before you start,” Dunton says.

As founder and CEO, Dunton has built Bonaventure into an integrated alternative asset management company that employs more than 300 people and specializes in multifamily design, development, construction, asset management and property management. The Alexandria, Va.-based firm manages more than 6,000 apartment units across 31 communities, primarily in the Mid-Atlantic and Southeast.

Since its founding, Bonaventure has completed more than $2.3 billion in total development and acquisitions, including $540 million in HUD loans. It has grown into one of the top 15 most experienced HUD developers in the nation.

In 2021 alone, Bonaventure has completed nine multifamily transactions totaling 3,872 apartment units with a price tag of $408 million. This activity includes expanding its development pipeline with the addition of six properties under construction or in process of certificate of occupancy, five of which are in Virginia and one in North Carolina.

Bonaventure also acquired two multifamily communities in Virginia totaling roughly $78 million: Magnolia Run, a 200-unit property in Virginia Beach, and Messenger Place, a 94-unit property in Manassas.

Today, there are currently 11 properties under construction or about to completed, along with the 35 named deals across various stages of the development process.

Last September, Bonaventure launched its first private REIT. The investment vehicle, which invests in core plus, stabilized multifamily properties, now owns 10 properties totaling $416 million.

We recently talked to Dunton about the firm’s current plans, the advantages of launching an NAV REIT and overall investment strategy.

This Q&A has been edited for length, style and clarity.

WMRE: What is Bonaventure’s investment strategy?

Dwight-Dunton.jpgDwight Dunton: We’re focused on the development, acquisition, and property management of multifamily communities in the Mid-Atlantic and Southeastern regions. Most of our assets are class-A, with a handful of Bs. The average age of the properties in our portfolio is less than 10 years.

We’ve created a vertically integrated platform that includes our own general contractor and architect. We feel that being vertically integrated allows us to generate better returns because we can better manage risk.

We’re long-term owners, and our investment strategy is consistent with that. We cycled out of older properties when we felt like people were paying aggressive prices and cycled into much newer properties with lower capex. Those newer assets have outperformed due to the strength of the economy and the job market.

And, as we continue to grow, we’re going to have naturally occurring ROI opportunities without having to go out and look for them. We’ll be able to do our own value-add strategies that will be better than building from scratch or buying.

WMRE: What was Bonaventure’s original vision and mission? Has that changed over time?

Dwight Dunton: When I founded Bonaventure, I wanted to do a few things: 1) build a sustainable business in an unsustainable industry, 2) build a people company that just happens to own real estate, and 3) build an investment platform that is focused on risk management.

When it comes to building a sustainable business in an unsustainable industry, I think most real estate investors aren’t really businesses—they’re just a conglomeration of deals. They never really make that transition to being a formal business and that, to me, doesn’t seem like a recipe for long-term success. It works great in boom markets, and potentially wipes you out in bust markets.

Thinking about people—it’s a very competitive business with a ton of capital chasing pure opportunities. So what’s the distinguishing factor between our investments and the building across the street? It’s the people who take an investment from average to exceptional. That’s why we’re focused on being a people company.

And finally, regarding risk management—a lot of people focus on how they can generate massive IRR, which to me implies they’re injecting massive amounts of risk into the transaction to take an asset that has a 5 percent yield and somehow squeeze out high teens to low 20s IRR. We really wanted to focus on how to get better, risk-adjusted returns.

WMRE: What markets does Bonaventure target for acquisition and development?

Dwight Dunton: We’ve always had a Southeast focus, mostly in secondary markets. If it’s a primary market like Washington D.C., we’re interested in the suburbs. We’re looking at providing people with a good value, and in suburbs and secondary markets, they get more space at a lower price point relative to area median income. That makes it a much more durable investment for us.

Our investment thesis is to (hopefully) pick markets and submarkets that do a little better than average. We want to own a great apartment complex in a car-centric suburb that’s going to do well throughout many different points of the economic cycle.

Our markets include Chesapeake, Norfolk, Virginia Beach, Richmond, Hampton, Williamsburg and Alexandria in Virginia, among others. We also operate in other states, including Maryland, North Carolina, South Carolina, Georgia, Alabama.

WMRE: Please tell us about Bonaventure’s development activity.

Dwight Dunton: Depending on where we are in a particular economic cycle, we’ve migrated between more development or more acquisition. Over the past several years, we’ve been more heavily weighted to development. I believe our development business, on its own, is in the top 10 in the nation as far as construction starts. It’s supported by our in-house services.

We have a 350-unit development project breaking ground soon in Huntsville, Ala. The site also has acreage for a potential second phase. It’s a perfect example of our strategy: the Southeast is our path of growth, and Huntsville is outperforming other markets on a relative basis. We could build that same complex in another Southeastern city, and it would generally benefit from macro trends, but Huntsville is going to do a little better, which will shift the odds a few percent in our favor.

WMRE: What type of investors does Bonaventure target? Do you anticipate your investor base will change in the near future?

Dwight Dunton: The core of our business is providing excess returns, and all types of investors are looking for that. However, we’ve always focused on individuals and high-net-worth investors because frankly, that’s where we came from. That’s our roots.

When I started this business, I think most people would have described it as a family office. As we built our capabilities for our own needs, we figured out that we were doing something that is valuable to other people. When we talk to individuals and family offices, our perspective really resonates with them.

I’ve thought about the fund route. There’s no bad investment strategy, and there’s no bad investment vehicle. For us though, funds aren’t a good fit for our strategy. They’re set up to invest and harvest, and then do it again and again. That’s not our natural inclination.

Maybe in the future there will be an opportunity for us to create a vehicle that provides excess returns for the institutional market. Never say never, you know? But right now, I’m very happy focusing on individuals; it’s easy for us to connect with those investors because our story is their story.

WMRE: How does Bonaventure raise equity and attract new investors? What kind of investor outreach do you conduct?

Dwight Dunton: To me, the most valuable way to grow our business is to exceed customer expectations. Regardless of the type of customer—a resident in our apartment communities, an investor, or an RIA—it’s all about delivering that “wow” experience. Ultimately, our goal is for all our customers to become raving fans and tell other people about us. Word of mouth and referrals are more powerful than any other kind of marketing we could ever do. We’ve known most of our existing investors for years.

We’re seeing a lot of crossover investment from growth investors who are looking to get more entrepreneurial returns through the development activity and core investors who are looking for less risk. I think it’s simply because the underlying fundamentals of the apartment sector are on fire right now.

We have an IR team that handles investor outreach. We also have a cloud-based investor platform so investors can log into the portal and see all the reports in real time. We’re also increasing the frequency of our communications and the variety of mediums. For example, we’re doing a series of video chats, producing more whitepapers and providing more updates on monthly investments.

WMRE: Bonaventure is actively seeking to establish relationships with RIAs and wealth managers. Can you tell us a little more about that initiative?

Dwight Dunton: We’re really concerned with the end-savers—people who are saving for retirement. We are providing opportunities that allow people to directly connect to the sticks and bricks, rather than having to go through all these intermediary channels that, in my opinion, sometimes don’t always provide the value that their slice of the returns pie costs.

We are interested in accessing these long-term investors in the most cost-efficient manner, which led us to focus on the RIA channel. We chose this channel because of the fiduciary standards RIAs hold themselves to and how that aligned with our model.

We’re in the process of building out our network of RIAs, letting them know about Bonaventure and educating them about the investment class.

WMRE: What is the most common way that Bonaventure structures deals, e.g. LPs, GPs, JVs, or something else?

Dwight Dunton: Historically, we’ve structured our development and acquisition deals as LPs. We would do one-off equity raises for each deal, and we would be the largest investor in each deal. We invest side-by-side in every venture with our investors.

Now, with the launch of our private REIT, the acquisition process is different. The UPREIT acquisition process requires much more buyer and seller collaboration because it calls for due diligence on the property while the seller is doing due diligence on us. This is to ensure each party is comfortable with the other parties’ assets before the transaction is made. This acquisition process is much more intimate because the UPREIT transaction is the beginning of the relationship compared with the normal purchase and sale you go separate ways.

WMRE: What is the range of returns that you have achieved on your investments?

Dwight Dunton: Bonaventure has historically produced mid-teens IRR over a variety of hold periods.

WMRE: What is your average hold period? Does it range from deal to deal or is it standard?

Dwight Dunton: We’ve always been super long-term investors. For example, the first apartment community that our family invested in, we owned it for 45 years, and the first property Bonaventure bought in 2001, we liquidated most of it in 2018.

If somebody gave us two options: three three-year investments that each produce a 17 percent IRR, but you must pay taxes three times, or one investment for 14 or 15 years, but it compounds the whole time, tax free, we would rather do the one investment that has fewer opportunities to make an investment thesis mistake, and we’re not paying taxes multiple times, so you get a greater after-tax return.

We are one of the largest HUD borrowers, and those loans are 35 or 40 years fully amortizing. I hope that I’m around to see some of the last payments.

WMRE: Bonaventure recently launched a private, perpetual NAV REIT? Can you tell us why you decided to go that direction?

Dwight Dunton: We wanted to find new ways for individuals to access what we do, and we spent 18 months figuring that out. The REIT gives us the option to allow people to invest differently.

Real estate has been dominated by investors with very short time horizons who want to generate a really high IRR and have a capital event to realize that return. To us, that means there’s a systematic overabundance of capital in new shorter cycle opportunities and underappreciated in the longer term.

Our REIT invests in core plus multifamily assets for long-term holds. We have a proprietary approach to procuring assets for the REIT that hopefully insulate us: our REIT can acquire stabilized deals from the Bonaventure development pipeline and its portfolio.

The introduction of the private REIT also gives us the ability to offer an UPREIT structure, which has helped expand our acquisition pipeline. For owners looking to sell their multifamily assets, we can provide them with a tax-advantaged mechanism that allows them to trade ownership in their property (or properties) for interests in a limited partnership that owns a diversified and growing portfolio of properties.

Bonaventure has already completed its ninth UPREIT transaction: a strategic partnership with Richmond, Va.-based SNP Properties LLC to acquire ownership interest in Richmond’s Vida East Apartments, a 178-unit, class-A property.

WMRE: What role does technology play at Bonaventure, specifically as it relates to communicating with investors, raising money, managing your properties and sourcing acquisitions?

Dwight Dunton: We have a team that focuses on building out our data warehouse and data visualization, which allows us to connect data from various platforms and visualize insights to inform our investment decisions.

Historically, real estate investment and property management has been behind the technology curve, and we have been pushing the use of technology in all facets of our business. Recently, there has been a proliferation of proptech solutions that attack individual problems and opportunities.

Our industry has gone from a data drought to, in some cases, drowning in data. As a result, we have created a data warehouse that connects all our data sources to drive actionable results. For example, real time insight into leasing trends, collection trends and trade out rents to identify outliers rather than historically having to wait for financials 15 days after the period is closed to identity issues.

Another example is our site selection where we are scraping a variety of different databases for job trends, permit applications, existing zoning, comprehensive plans and so on. We identify a macro market then we turn those submarkets into polygons and scrape the databases to identify all the properties and property owners within those areas, and we start trying to secure one of those parcels.

WMRE: What differentiates Bonaventure’s from other investment firms?

Dwight Dunton: I think our attitude about risk differentiates us. We focus on the risk, not just the reward. We’re willing to give up a little upside to protect against the downside. We don’t have to make all the money; we just have to make money.

Another differentiator is the UPREIT structure that we can offer through our REIT. We’re part of a very limited field of firms that can offer it, which puts us in a very competitive position to acquire properties from sponsors that want to crystallize their promote or want to dissolve a partnership. The UPREIT transaction solves those problems.

Secondly, our services platform is a differentiator. Not only do we use it ourselves, but we provide the same services to other developers to help them turbocharge their performance.

We really think of ourselves as performance-enhancing drugs for other developers. For instance, if somebody has a great site, we have a prototype building, and they can deliver that at a better value than if they hired an architect. With our general contracting group, we spent years getting every unnecessary cost out of the construction process and focusing on things that provide value to the consumer and to us.

By providing our best-in-class services to other owners and developers, we expect some of those transactions to turn into acquisition opportunities.

WMRE: What plans do you have for Bonaventure in 2022?

Dwight Dunton: We expect to continue working our long-term plan to become an integrated alternative asset manager that creates industry-leading performance in all aspects of our business. More specifically, this year we plan to complete $500 million in acquisitions while becoming a top 10 developer based on construction starts.

WMRE: What is the biggest success that the company has experienced? What is the biggest failure?

Dwight Dunton: It’s not really a failure, but more of a lesson learned. When we really got into development in 2006, I was seeing every parcel of land turned into condominiums. I thought, “Prices can’t go up forever. They’ve got to come back down. We’re in a housing bubble.” I was right in the end, but wrong because it went on for two more years. That’s a lesson I learned—sometimes the psychology of markets is more important than the fundamentals.

Our biggest success is our company culture. Every time we finish a project, we do something called “Sunshining and Daylighting” where we do a 360-degree view that celebrates our success and acknowledges what could have been better. That process allows us to learn from the things that we discovered along the way.

Our company culture allowed us to navigate COVID. As an organization, we’ve done exceptionally well getting through the pandemic. I cannot express how appreciative I am to the Bonaventure team. Our people not only helped our company survive, but because of their dedication, we’re thriving.

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