Real Estate Riffs: Dwight Dunton, CEO of Bonaventure

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John: What's your take on the market right now?

Dwight: I think psychology of investing is people want to buy more when it's high and they're scared to death when it's low when they should actually be doing the buying. So, people want to buy high and sell low, and you should do the opposite.

John: Hello everybody, and welcome to CCLC's very first podcast named Real Estate Riffs. And I'm thankful to be joined by Dwight Dunton, who is the founder and CEO of Bonaventure. Bonaventure is an integrated alternative asset management company with a focus on multifamily development, acquisitions, operations, and finance. What's interesting is you started the company, Dwight, when you were 25 years old, correct?

Dwight: Yep.

John: And I saw that you're celebrating your 25th year anniversary of Bonaventure. So officially half your life.

Dwight: It is.

John: And every day that passes will be more than half of your life with this company.

Dwight: Wow, that's exciting and, both exciting and a little concerning.

John: Yeah. Now I did notice you say you started with nothing more than a desk, a vision and a bathrobe. Did you not have anything else you could wear that day?

Dwight: Well, literally I rented an apartment in the building I was buying, and my second bedroom was my war room, and I spent nine months putting together a deal there and had no real estate experience. Like there were days where I would get up with good intentions to hit the gym and it'd be 10 o'clock at night and I'd look down and I was still wearing my bathrobe.

John: Yeah, that's great. That's great. Now, as you know, CCLC, we're celebrating, not that this is a competition, but we're celebrating our 135th year this year.

Dwight: Sounds like a competition. You just dropped that.

John: No, it's not. You know, you got plenty of runway. So, CCLC is largely owned by family members, and we have a diverse group of shareholders, but predominantly they're family members that go back to the original founder of the company in 1890. Now, Bonaventure has a little bit of a family history as well, right? Do you want to talk about that a little bit?

Dwight: Yeah, so I guess if we're really starting at the beginning, our family starts in the 1960s, so we get another 40 years of runway; we're catching you real fast. By the end of the show, we'll have passed 130 years. But I think my father and grandfather owned some land in what was rural Fairfax County, couldn't afford the real estate taxes when it got cut in half by 395 and annexed to the city. And instead of selling, they found a Bonaventure of 1960 that-- a partner that basically built an apartment building. And for the next 40 years, we were passive owners and we enjoyed the value creation of being in the right place at the right time and multifamily investing. And in 2000, I put together a deal to basically do a leverage buyout of our partner who had become a huge conglomerate. Our family's treasure was not getting the stewardship that we had hoped for.

John: Yeah. Well, that's great.  That's great history. And I think you and I have known each other now for probably close to 20 years. So, when we were first getting together and hanging out and talking shop, you were still kind of a young company, and you've grown it quite substantially since then.

Dwight: Well, thank you. But we've also matured too in that time, you and me.

John: Yes, we've matured quite a bit, I think.

John: Let's pivot a little bit and talk about the current commercial real estate market. You know, we've got a number of things going on. There's geopolitical concerns. There's a bit of a unstable government here in terms of what's happening next and things going on with tariffs. Interest rates remain relatively high compared to what you and I are used to in our real estate careers.

Dwight: This is the best time to be deploying capital in the last five or six years. And it's not without its pitfalls as you laid out. I mean, it depends on when you say commercial real estate, that's a wide spectrum. And so is it office buildings? Is it apartments? Is it self-storage? Is it data centers?

John: Yeah, and I think there does seem to be a large mixed bag in terms of the asset classes and where there's opportunity and where there's not. Like you might say there's a lot of buying opportunity in office, especially when you hear people talk about $30 per square foot. And not too long ago, people were building in downtown DC for over $1,000 a foot when you throw in TIs and leasing commission. But in some cases, when I look at some of those opportunities, it almost feels like you're buying a liability, not necessarily an asset. So, I think there's got to be some movement in the office world before you start to see groups like us who are a bit more conservative jump into that space. We like multifamily quite a bit, which is why I wanted to have you here today and we're looking at some multifamily opportunities. Some are development and some are existing assets. Do you view the return spectrum being relative to risk on par with what you were used to 10 years ago? Or do you think there's more opportunity buying today than developing?

Dwight: I think first of all, we're risk adjusted investors. And so, you talk about those office buildings that are literally being given away. If we knew office, some of those would look really interesting, some of them probably are value traps. They're cheap because they're worthless. They're basically wrecking ball fodder. You're buying the land. But in terms of multifamily, development has been pretty much dead for the last two years. Can't stick a shovel in the ground and make the numbers work. And so, we found a lot more opportunities and acquisitions. And I think some of that, there's a conversation like, oh, there's so much distress. I haven't seen broad distress. I've seen some discomfort and that's produced some opportunities for us. I expect that to continue as people, have broken capital stacks and you look at the whole infrastructure of multifamily investing and it's a bunch of people who are sponsors who get promote lottery tickets. And if they don't scratch off, they just need to sell those assets, reset the basis and do it again. And I think that's where the opportunity is right now. You have a whole vintage of 2020, 21, 22 where those sponsors are like, “we got to reset the clock so we can redeploy and get another lottery ticket because the ones we already have aren't worth anything.”

John: Yeah. And I think it's a big problem across the country with the lack of new construction. I know some markets are overheated, but around here, you know, we have a lot. We're sitting in Montgomery County. We have a lot of assets in Montgomery County. And you mentioned earlier, as we were talking before we started, there might be declared a national housing emergency, and I think some of that is being caused by local jurisdictions who are imposing restrictions on developers. It's a big conversation here in Montgomery County where rent control is now in place. So, while your real estate taxes can go up and your operating expenses can go up, you're now constricted on your income side, which I think is further hurting the market in terms of new development and putting a shovel in the ground. So, it's already a big challenge just because of cost and interest rates being higher. You just can't add other elements. And so, it'll be interesting to see at what point, when we talk about the housing shortage, at what point jurisdictions start to use more tools to spur development and get more creative with what they're offering?

Dwight: Yeah, I mean, the housing finance and construction ecosystem is totally broken. It's basically a giant pile of band-aids that have piled up over the last 100 years, I think, since the advent of building codes. And building codes were put in place because people were living in unsafe housing. And ever since that moment, housing costs have outpaced inflation. And you add to that local zoning codes that you mentioned, and then you've got government finance, you've got set aside housing. And every time there's a dislocation in the market, there's another regulatory solve, which creates a different dislocation. And so, a pile of band-aids that need to be ripped off. You know, I think for our society, we've decided that housing is important for everyone. I agree. We are a wealthy country. The flip side to it is developers, we're not making a ton of money. Like the margins are really low. If we were, there'd be a ton of shovels going in the ground and no one can make the numbers work right now.

John: Right. And I think, again, I started in real estate in the late 90s. And so, I've been in the business for quite some time. I feel like we've gone from an industry where there was a lot of opportunity;
there wasn't as much transparency in data available as there is today,
there's significantly a big increase in the amount of information available to developers and I think that has hindered your ability to get that truly off market deal or to find a gem that no one else is looking at because I feel like everybody's looking at everything. And so, the returns relative to the risk, I feel like, have kind of really come in over the last two decades. And we're even looking now at starting development with return on cost 100 basis points over rates. Whereas I feel like 20 years ago, it had to be at least 200 basis points. And now your developer promotes where you were hoping to get a 5x plus you're now hoping to maybe get a 2X on your capital going into a deal. And at the same time, the amount of risk in the projects is either the same or slightly more, right? Because I think there's just more, you know, we've faced with the COVID and the pandemic, and then we were hit with supply chain issues. Now we've got tariff issues and people can't predict where cost of materials is going to go. And so, I feel like as an industry, our returns have come in while risk remains the same.

Dwight: Well, I think the problem is we are all in our little development real estate bubble. But our little industry sits on the entire buffet of the investing universe. So, think about walking up to the Sizzler buffet and we're just like the nicest macaroni and cheese, but what we don't realize is there's steak and lobster and there's all these other things in the capital markets that the capital can choose from. And so, you're right, returns have compressed. Numbers don't make sense. Risks are higher for all the reasons you said. And yet at the same time, there's all these other things that are happening where capital can be deployed. And so, we're saying, no, come eat our macaroni and cheese, even though it's been sitting there for three days and there's a little crust on top. But like still, we're selling the same macaroni and cheese. And something needs to change if we're going to attract capital. Because you can, you know, if the AI situation is really as transformative as people are saying it is, like the returns across all industries are going to go through the roof if you can pick and choose who's going to deploy AI and change their business model. And whereas we're like, no, we're building to a 650 return on costs and we can borrow at 550, come fund our deal. And that just doesn't hunt.

John: Yea. Great. I think you just inspired me to name our first podcast, Macaroni and Cheese. That could be the tagline for episode one.

John: Why don't we pivot a little bit and talk about deal structures? You know, you and I have talked a little bit about some of your investment offerings. They seem to align well with CCLC where, you know, most of the assets when we sell it's been an asset that we've owned for decades, if not some we've owned for 100 years. And so, we're almost always forced into some form of a 1031. I've never been a big fan of a 1031 because I feel like it's already, you know, it's such a competitive buying market right now. You want to leverage every tool you can. And if you're in the 1031 world, sellers know that you've got some pressure and you're going to have to transact. So, you lose a bit of your, your leverage on pricing and purchase power. So, talk a little bit, if you want, about your investments and how you take your family history and use that to help structure investments for other families.

Dwight: Well, I think everybody, doesn't matter what you're investing in, everybody has the same silent partner. It's Uncle Sam. He is all of our business partners, whether we like it or not. And if your company had owned Coca-Cola stock for the last 100 years, you'd have made a huge gain. And if you said it's time to sell, there's no options to defer taxes. We're fortunate that in the real estate industry that we happen to be in, there's a ton of tools in the tax code between 1031 exchanges, accelerated depreciation, bonus depreciation, deductibility of interest. So, there are a ton of tools to minimize taxes. So, I agree with you, they're hard to execute, but at least they're available versus if you were in some other industry, you'd have no choice other than hand your silent partner some big paydays when you sell an asset. But to your point, executing 1031 exchanges and being able to sell the previous asset high and redeploy low is really difficult. It is a tight turnaround time. And so, for us, my dad, he was probably more aggressive than most of saying he doesn't want to pay his silent partner, Uncle Sam. And so, he always said on the rare occasions that we sold an asset, like, let's not pay taxes. And so, we developed a deep understanding of all the tools in the tax code for deferring taxes, including 1031 exchanges, upright transactions, deferred sales trusts, the list goes on and on. But we're fortunate, it's just hard. And we help our clients, our family, to take the maximum tools available and use them.

John: And how much capital do you think you'll put to work, say, next year in 2026? Are you raising capital now? Are you looking for investors?

Dwight: So, our investment, if you think about investing not just on a risk spectrum, but on a duration spectrum, we are longer term investors than most. And so, I think it puts us in a smaller window of sponsors. Most people are like; “I got to be out in three or five years so I can hit that IRR so I can earn that promote.” We're total return investors and our investment horizon is between five years and forever. And so, I think we do really well because it's a smaller pool of competitive set. If you're an investor and you're making a decade or longer decision, we're one of the few standouts. But I think next year, probably 300 to $400 million across all of the tools that we have in the various vehicles.

John: Yeah, that's great. Yeah, I find it very appealing. Again, talking from the CCLC perspective, traditionally, our company has sold an asset and then simply buys an asset, right? And when you're in a market like Washington, DC and you have cap rate compression over time, you realize you're not really growing your company by doing that. You're helping to just sustain your current status. And when you go through these cycles, oftentimes you find that you're not even sustaining your capital. So, one of the thoughts that I have is as we sell assets to look for multiple opportunities to work more with other sponsors like yourself. And that way we're deploying more capital into several different deals instead of simply buying one. And in that world, we can be a little bit more opportunistic, and we can find some higher returns and start to look at a more traditional portfolio management tool. So that's one thing that we as a 135-year-old family office will look to be doing more of.

Dwight: Yeah, I think that that's a great strategy. I think you can have your direct deals where you've got an inside track, but those are hard to come by. But if you align yourself with a handful of quality sponsors, they're also always on the market looking for those opportunities and if you can deploy capital with sponsors and some of them direct, I think that's what will help you to continue to grow the business because ultimately values track NOI and you have to grow your NOI per share. I mean, that's the bottom line. Anybody that wants to be around for a while, not just do a deal, but build a platform, you have to grow your NOI per unit of investment.

John: Yeah. Now, one thing that's most important to growing a company is having the right team, right, and having the right operating structure in place. So, I'd like to talk a little bit about you and I taking a bike ride a little over five years ago. I think it was in the spring of 2020.
And you said “you've got to try EOS. I've been using it with my company now.” I think at the time, maybe you said three years, and you started talking about rocks and traction, and you were really stoked and fired up about where you were just in the first quarter alone. And so, I took your advice. I met our mutual friend, Ben Berman, and Ben's great. Shout out to Ben. Can you tell us a little bit about how you were introduced to EOS and how it inspired you?

Dwight: Yeah, when you're a company of 1, it's super easy to keep control of all the employees. It was just me. And over time, we got to the point where I literally ran out of hours in the day because I could not have personal agency over everything happening in the company. And I would read whatever business book anyone would give me over the weekend, voraciously trying to find the solution and whether it's good to great or blink or whatever, I was like, Monday morning, let's go, we're gonna do this. And by noon, so many fires had cropped up, I had just like forgotten about the book that I spent the whole weekend reading. So, I was really looking, I was desperately looking for the solution. And EOS is a simple framework. It is basically an operating system. It's a recipe book. If you do these things every week, every month, every quarter, every year, the business is gonna move ahead. It's gonna create alignment. It's going to clarify people's roles. It's going to set goals that everyone's bought into because they're part of it. And it's really, really simple approach. It's challenging to do, but it helps you get traction, which is the name of the book: “Traction.” And it's been transformative because now it doesn't matter the level of the company. We all speak the same language as to what we're trying to do in this quarter. I mean, when we talk about problems, we're “IDSing” them. When we talk about a meeting, it's a “level 10.” And we're growing and we bring new people in, and their mind is blown when they sit through our first meeting. They're like, “I have no idea how much time I wasted at my prior company because we just talk about the same things over and over again. And here you guys got more done in an hour than I had gotten done in the last six months in my last role.” It's powerful.

John: Yeah, very powerful. And every company has a leader with a different style, but I think EOS really helps break it down. And one of the things that I think is so key is EOS speaks to everyone in the company. It's not for the senior management team and others just hear about it. Everybody is fully on board. And what it does, it allows everyone within the organization to know exactly what their role is. And I've been with a lot of different companies, and you have people that are, they kind of come in, they do what they think they need to get done. They're not really sure if they're doing the right thing or not. And that's just not inspiring at all for anybody. And I feel like if someone's going to come in and show up every day, you ought to give them the reason that they're there and empower them to be creative and to sort of take their role as seriously as they can. But more importantly, when you look back, we always go at the end of every year, we look back at what we've accomplished. I've worked with other companies where you start January 1st and everybody gets together and they've got all these great inspiring goals, right? “This is what we're gonna do this year.” Well, by March 1st, they're lost, they're gone. No one's paying attention to them because something new and shiny appeared in one news article and whoever in leadership decided, “let's pivot to that now, right?” And then you pivot again in June, you pivot again. And so, when you look back at the end of the year, you've really accomplished nothing that you set out to. You're just kind of running around. So, EOS, I feel like lays out what we're trying to do. We have a 10-year strategy. We always talk about the three-year vision. And so, every time we think about our yearly plan, everything ties into our long-term objectives. So, we always know exactly what we're doing and why we're doing it.

Dwight: It's funny because you mentioned about shiny objects. I think as much as EOS has helped me as a leader. EOS has also helped the company being saved from me because I am that visionary leader. I'm that cat who will chase the flashlight around the office, be like, “whoa, whoa, whoa.” And it helps keep me anchored and it really forces me to say, “What is the organizational stress I'm going to put on by coming up with this new idea or so on?” And so I have to really, really cultivate my ideas before I bring them to the team because I know we've all agreed to this plan and my ideas have to be additive to achieving the plan versus previously, like I never been a bad idea I didn't want to pursue. And I can still do that now in my role. I just insulate the company from that until I get it to the point where it's like, okay, this is consistent with our plan. This is going to be additive and it's not going to distract people.

John: So, what would the-- if you were not in commercial real estate, what would Dwight the cat chasing anything around find himself doing other than commercial real estate?

Dwight: I think I'd be the person that writes the description for wines. Like I read them and I don't know anything about wine, but it just seems like the easiest job now with ChatGPT. You can talk about the moss, the peat, the smokiness, the hue of the sky, all infused in this liquid. And I'm like, “that's a great job” because it's all about creativity and personal taste. And like literally I have seen the sommelier in a restaurant talk somebody into tasting something in the wine. And I'm like, “that's my job.” I could do that. What would you be doing?

John: I think now I probably would have a different answer every year because I feel like every year you go through different phases of life and different aspirations. But I think where I am right now, I might be a cattle rancher. Thousands of acres of land.

Dwight: Yeah, stakes are an all-time high. You'd be rich. You'd be like riding a horse each morning.

John: Oh yeah. Maybe I'd call it the Dunton Ranch.

Dwight: Yeah, those are our distant cousins apparently.

John: I don't think I'd be very good at it, but if I were to picture myself sitting out there, I'm on the porch of a cabin, my horse is tied up, and I'm sipping on a coffee, getting ready to start the day.

Dwight: And take somebody to the train station that night.

John: Maybe, or maybe Dwight, I could be sitting in my hot tub. Because all ranchers love doing some tubbing.

Dwight: Yes, some tubbing with a Ziggarita.

John: With A Ziggarita. That's right.

Dwight: For those of you that come on this show, ask him to make you a Ziggarita. It's A John Ziggenheim special twist to the margarita. It's delish.

John: It is delish. And it's patented as well. Ziggarita.com still exists. Dwight, thank you very much for joining me today. It's been a great conversation and we'll talk again soon.

Dwight: Yeah, great honor to be your first guest. Thank you.

John: Thank you everybody.