Broadtree Spotlight: 203 Atlanta Homes

In 2014, Broadtree Homes purchased 203 homes from The Dominion Group, a single-family operator based in Baltimore, Maryland. Broadtree completed the acquisition over four closings through the last six months of the year from June 2014 to December 2014. Broadtree gained a presence in a market targeted for its population and household formation growth as well as job creation.

This transformative transaction began in the latter part of 2013 when Broadtree shifted strategic gears of buying homes in singular transactions to buying portfolios of stabilized homes. In addition to seeking a portfolio, Broadtree sought to partner with a group that had vast experience in single-family housing for rent.

Up to that point, Broadtree had acquired 98 homes in singular transactions. For varied reasons, Broadtree had to go through this process to learn how to underwrite successfully and to acquire more complicated deals, such as portfolios, that involved many moving parts.

Along with CEO Amy Tait, as Director of Acquisitions at Broadtree I was first introduced to Fred Lewis, CEO and Jack Bevier, Partner, of the Dominion Group through a mutual acquaintance in the single-family housing for rent industry. I had several phone conversations with Fred in November and December 2013 regarding the sale of Dominion’s portfolio of 180 homes. During the course of those discussions, we both came to realize that there were potential synergies between the organizations. Dominion saw that it could bring to the table 13 years of experience acquiring, renovating and managing single-family homes for rent. Broadtree saw that it could contribute Wall Street experience, the ability to raise equity and a high level of sophistication in investment real estate because of its experienced leadership that founded Home Properties, Inc. (NYSE: HME)* and Broadstone Net Lease, a triple net lease privately held REIT with more than a billion of dollars of assets under management.

After talks progressed and both parties saw not only a deal begin to take shape but also a partnership, in January 2014 I paid a visit to The Dominion Group headquarters in Baltimore to meet the principals, take a tour of the group’s offices and to discuss its operations. From there, Fred, Jack and I flew to Atlanta for a whirlwind windshield tour of 48 homes in one day! This was made possible by the polar vortex that dumped 3” of snow in the Atlanta MSA the previous week and paralyzed the city. With traces of snow on the ground (and the roads clear relative to Upstate New York standards) the governor of Georgia requested all those affected by the weather to stay home and off of the roads. This allowed the three of us to drive, unconstrained by traffic, through the various counties that make up the Atlanta MSA and view many more homes than otherwise could have been seen.

From this, I came away impressed with the home selection, the quality of the renovations and The Dominion Group in general and conveyed as much to Amy upon my return to Rochester, NY.

Shortly after this recap, Amy and I made plans to visit The Dominion Group’s offices in Baltimore. Amy wanted to tour the offices and talk to both Fred and Jack face to face not only about the acquisition but also about how the two firms could work together. What came of the meeting was the outlines of a deal and a handshake to seal it. The deal agreed upon that day would have Broadtree purchasing 180 homes from Dominion for $14MM. An important component of the deal was that Dominion would take ownership shares, as part of the $14MM, in the Broadtree Homes investment offering. Amy and Fred saw this deal as a way for two entities to create a partnership that brought differing strengths to a union with aligned interests and “skin in the game.” What excited both parties is that The Dominion Group would do what it does best: use its expertise to manage the properties, and help Broadtree to expand its foothold in Atlanta and open new markets.

In March 2014, with a letter of intent on the cusp of execution, Broadtree hosted the Dominion folks at its offices in Rochester, NY. Included were Fred Lewis, Jack Bevier and Mark Blannard, CFO, from Dominion. Also included in the meeting was Paul Sveen, CEO of Pantelan, a single-family housing consultancy group based in Englewood, CO. Broadtree engaged Pantelan to assist with the Dominion transaction.

Once the principals of the respective firms executed a purchase and sale agreement, due diligence began in earnest. Teams from Broadtree and Pantelan began by visiting Dominion offices in Baltimore. A day was spent reviewing policies and procedures and operations with a general understanding of the manner in which Dominion conducts business.

From Baltimore, the teams from Broadtree, Pantelan and Dominion traveled to Atlanta and began the first of three trips to the Atlanta market to perform interior and exterior inspections of the homes in the portfolio. Over the course of three days, 70 homes were reviewed. In subsequent follow-up trips, Broadtree inspected the remaining homes plus a few additional homes that were not included in the original 180 home portfolio. In addition to physical inspections, members of the Broadtree and Pantelan teams conducted reviews of existing leases, tenant ledgers, aging reports, inspection reports, and renovation budgets.

At the end of June, Broadtree closed the first of four tranches with June’s closing having the largest number of homes at 127. From there, Broadtree closed 28 homes in July, 23 homes at the end of September and 25 homes in December. Broadtree purchased homes in the fourth closing that weren’t included in the initial deal.

Upon the close of the first transaction, Fred Lewis, Principal and Founder of The Dominion Group said:

“It’s a great portfolio. We hand-picked each property and renovated them with a long-term approach to ownership. We’re happy to be at the helm for property management and like the fact that we continue to participate in the future performance of the portfolio as shareholders in Broadtree Homes.”

Amy Tait, CEO of Broadstone Real Estate said:

“We are delighted to have found a partner with a long term track record and approach to this business – one that fits with our company’s culture and outlook on the single family industry.”

The Dominion Group transaction serves as a template for Broadtree’s growth strategy going forward.

As Director of Acquisitions at Broadtree, I seek stabilized portfolios of single-family rental homes to acquire and also seeks partners, like The Dominion Group, that want to grow with Broadtree. Amy summed it up nicely when she said recently: “We believe that our strategy of consolidating stabilized portfolios of renovated and leased homes is the model for the future of this industry as a core asset class.” Broadtree wants to be a long-term partner for regional operators and the leadership at Broadtree believes that this model going forward benefits all involved as the single-family rental industry continues to mature and evolve.

*Broadstone Real Estate is currently unaffiliated with Home Properties.

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