Don Faye likes barriers.
What Faye, the president of Presidio Residential Capital, means is that his real estate investment firm prefers markets where land supply is governed by physical or jurisdictional restrictions, such as San Diego, which is hemmed in by water and desert, or Seattle with its urban growth boundary.
Those kinds of markets in the western U.S. are where San Diego-based Presidio—which has provided more than $500 million in joint-venture equity and loans to builders since 2000—is focusing its investment. Through mid-August this year, the company invested $64.3 million in 23 residential projects. Three of those transactions were in Boise, Idaho, a market to which Presidio has gravitated because, says Faye, “there are no publics there.”
Like many of its private equity competitors, such as IHP, Resmark, and Hearthstone, Presidio relies on local builder and developer partners—whom Faye refers to as “ ‘A’ sponsors”—with strong relationships with landowners to find choice finished-lot locations for horizontal and vertical construction. “It’s tough to go into a market on your own and be successful,” says Faye.
So in Seattle, where Presidio is about to close its fifth project deal this year, Faye partners with Don White, who owns Tukwila, Wash.-based Summit Homes, which has been building homes in the Northwest for more than 15 years. Summit currently sells homes in four communities in Washington, and in June entered the Las Vegas market through a merger with the three-year-old Adaven Homes.
Eight of Presidio’s transactions this year have been in California’s Central Coastal area, where it teams with Gary Grossman of Pismo Beach-based Coastal Community Builders, “who is well known and knows everybody,” says Faye. Grossman says he and Faye first got together in 2012 and have worked on projects ranging from 30 to 500 homesites. Grossman says his company is breaking ground on seven projects in October, all of which are being funded by Presidio. “Don is a brilliant man, and Presidio has a great strategy,” says Grossman. “I'm conservative and cautious, and focused on numbers and demographics, and so is Don.”
Presidio, says Faye, is close to closing on property it would buy with another builder in Sacramento that will start off as 86 infill home sites “but could go to 300.” In Denver, Faye is looking at property for the construction of 1,200 to 1,400 homes.
Presidio isn’t afraid to go it alone on land and projects if circumstances warrant, either. In California’s Central Valley, Presidio recently launched its own home building operation, San Joaquin Valley Homes, which controls about 1,500 lots and is “capitalizing on an underserved market where all of the publics have left,” says Faye. This builder currently is active in four subdivisions, and Faye expects that number to increase to 10 within a year.
Presidio also is on the prowl for raw land to develop. In Seattle, Faye tells BUILDER that he was about to close on an entitlement deal “with a big land player” that he did not identify. In that same market, Presidio is developing a mixed-use master planned community on land it has under option.
“Opportunistic” has become a catchphrase for investment firms to describe their acquisition strategies, and Faye is no different. “Last week, I looked at an eight-lot entitlement/development deal in an upscale part of the [San Francisco] Bay Area. We’re also looking at possible build-outs.”
Presidio and its investor partner—whom Faye did not identify but says he’s been working with for 15 years—jointly own about 2,000 previously distressed lots in California. That investor partner, says Faye, had been providing about 80% of the capital needs for San Diego-based builder/developer The Corky McMillin Cos. But as McMillin has curtailed its development activity lately, Faye and this investor have detoured toward “the more traditional JV route” with local development partners.
Faye says that while public builders have driven up the price of land, “we’ve seen some stabilization, which is a good and healthy thing for the economy.” Through the remainder of this year, Faye says his company expects to close five to seven large transactions for which it would put up $20 million or more on each.
“The next 18 months will be a high-quality time for investing in land,” he says. He also admits, though, “I can’t see beyond the next three or four years.”
John Caulfield is a senior editor for BUILDER.