David Adelman got into real estate by losing a bet. The 13-year-old was playing basketball with a family friend, Alan Horwitz, a real estate veteran in Philadelphia, and thought he could win the game. He didn’t.
“I had to come down to his office every Saturday and sweep sawdust and stack lumber to get [my possessions] back,” Adelman says. He eventually did. And though he lost the bet, he won in the long run: At Horwitz’ office, he found a career. Adelman spent summers and weekends in the office or at one of Horwitz’ rental assets. He invested his Bar Mitzvah gift in a property in Philadelphia (which his company still owns).
“I just grew up in it,” says Adelman, who is now CEO of Campus Apartments, the company that Horwitz founded. “He taught me everything. I really became addicted to the business.”
Horwitz knew right away that his protégée would take the company in another direction. “I realized [Adelman would some day run the company] because of his ambition,” Horwitz says.
Since taking the helm of Campus at the ripe age of 25, Adelman has pushed a sleepy Philadelphia-based owner of duplexes near the University of Pennsylvania to a company with more than $1 billion worth of assets under management, totaling more than 20,800 beds in 17 states. Adelman, who is Multifamily Executive’s 2009 Executive of the Year, showed his financial savvy when he eschewed going public two years ago. Instead, the firm partnered with a sovereign wealth fund in Singapore and one of the biggest global owners of real estate in the world—a relationship that has cultivated $450 million worth of assets so far and propelled Campus to its perch as the largest privately-held student housing company in the country.
Today, even the inner workings of the company show a level of creativity unparalleled in student housing. Campus’ model is a scalable one, combining the best elements of its competitors—the large public firms and the small mom-and-pop shops. How does Adelman handle it all? With innovative financial structures, rock-solid partnerships, and an aggressive staff ripe with talent developed inside the company and recruited from outside. And there’s no wager to lose there.
Charting a New Path
Upon graduation from Ohio State University in 1994, Adelman went to work at Campus. By that time, Horwitz had built the company to about 50 employees and 150 properties by buying and holding sites around the University of Pennsylvania. Adelman took over the company in 1997 at the age of 25 and almost immediately began looking for opportunity. Unfortunately, he faced two challenges: earning the respect of both the employees (many who had originally trained him) as well as Penn.
Thankfully, the university came to him. With crime spiraling out of control in the neighborhood, Penn asked local stakeholders for a financial commitment and political support to start the University City District (UCD), a special services district to improve the safety and cleanliness around campus. Adelman became the largest private-sector supporter of the district, contributing $500,000 over 10 years to help Penn establish a $4.5 million operating budget for UCD.
“When most landlords in West Philadelphia were hunkering down, he was the only one who contributed to this,” says John Fry, a former executive vice president with Penn and current president of Franklin & Marshall, a smaller college in Lancaster, Pa.
The initiative worked. Crime rates fell, increasing property values. And it proved to Penn that Campus could be a responsible partner, one it could rely on to manage its off-campus housing. “They showed that they got the bigger picture as it related to the role of multifamily surrounding a campus,” says Craig Carnaroli, an executive vice president at Penn.
Horwitz was concerned the agreement may take Campus’ focus away from its own properties, but Adelman saw opportunity. “If we could do a good job at Penn and learn how to work with an institution of that size, other partnerships would follow and more universities would call us,” Adelman says.
And they certainly did. “Penn had a building that they wanted to knock down, but they didn’t have the capital to rebuild it,” Adelman recalls. “I suggested that we become partners. We figured it out and had the first public/private partnership in the country with a university as partner in the equity to build student housing.”
Adelman put together faculty condos and an extended-stay hotel at Penn in 2008 and 2009, respectively. He then took that public/private partnership know-how to other schools, including Emory in Atlanta and Franklin & Marshall, where Campus helped develop College Row, a five-story complex with 130 apartments and retail space that was featured in The New York Times in a story about the school’s leadership .
“When I sized up the residential side of it and realized we had to do a fair amount of development work, David was my first call,” Fry says. “I can’t tell you how incredible this project has turned out.”
Word of that success and the projects at Penn has spread. Adelman now fields calls from other colleges and universities looking for everything from classrooms to stadiums (though he can’t figure out how to get the fee structures to work). “We’re always exploring ways to be creative,” Adelman says. “We think the big opportunity in the future is helping schools whose housing stock needs to be renovated.”
As economic times have drained college budgets and more Gen Yers enter dorms, the pressure is growing on colleges and universities. That’s why Campus thinks its public/private partnerships, which help the school preserve its debt capacity and credit rating, are a growth area.
It also helps Campus. “For us to grow, we needed somebody else’s balance sheet,” says the firm’s chief investment officer Dan Bernstein. “That’s when we started to look for other funding sources and to bring in good talent from the industry. That was the scalable model we created.”
While Adelman was busy building his relationships with colleges and universities, he was simultaneously considering how to create a financial platform that would vault him onto the national scene. “It became clear that for us to grow as an organization, you have to figure out the next step from a capital standpoint,” he says. “We had gotten as big as we could with two guys running the business.”
At the time, his competitors—big firms such as American Campus Communities, Education Realty Trust, and what used to be GMH Communities Trust—were all going public. That was something Adelman thought hard about. “I didn’t think being public was the right move for us,” he says. “So I engaged Deutsche Bank, and they took us out on a road show, looking for an institutional joint venture partner.”
In 2006, they secured one: GIC Real Estate Pte Ltd., the Government of Singapore’s sovereign wealth fund and one of the biggest owners of real estate in the world. The relationship has been lucrative to date, generating $450 million worth of assets and launching Campus into the big leagues.
“We see sometimes that if you have equity partners that are really hands-on and want to be involved in every little decision, it becomes problematic for people to be responsive and proactive,” says Michael F. McRoberts, who has worked with Adelman in his role as vice president of Freddie Mac’s multifamily practice in McLean, Va. “I don’t think David gets burdened with that.”
Adelman says that the partnership gives him more flexibility than his competitors have in the public space. While most of those firms are limited to undergraduate student housing, Adelman says Campus’ partnership with GIC gives them the flexibility to do undergraduate, faculty, and graduate housing, as well as for-sale condos and mixed-use facilities.
And those projects can vary by school. “When you look at our projects, they are succinct solutions to each institution’s challenges,” says Mark Schundler, senior director of investments for Campus.
In addition to its partnership with GIC, Campus has secured a $200 million credit facility with Fannie Mae—a rare feat for a private company. “He locked up his financing through Fannie and did some forward-looking thinking to help him through this process and enable him to grow dramatically,” says Bradley A. Krouse a partner with Klehr, Harrison, Harvey, Branzburg & Ellers and Campus’ longtime attorney. “It reduced the uncertainty about the availability of debt to close on deals.”
Even with all of this dry powder available, Adelman remains conservative. He estimates that Campus could have had $4.5 billion in deals over the last three or four years, but things got too pricey for his firm, which generally uses 15-year, fixed-rate debt and has no maturities due until 2018. This position should help the company if the long-talked about distressed assets hit the market in 2010 and beyond.
“There will be a tidal wave of opportunity coming in distressed assets,” Campus’ COO Miles Orth says. “We really believe the wisest course of action is to sit on the sidelines and wait for opportunities to come to us.”
Ultimately, Adelman says none of these partnerships or financial springboards would have succeeded without a team of people capable of strong execution. He groomed homegrown talent such as CIO Bernstein, who started at the company during college. In other cases, he went outside to recruit people such as vice president of development Warren Burke from JPI and COO Orth from GMH.
“He has brought in the best talent in the industry along with keeping his homegrown internal personnel and meshing the two together in this mom-and-pop atmosphere,” attorney Krouse says. “It’s a big company, but it doesn’t have a corporate feel.”
Part of this is because Adelman stays close to the business. His office is located in the same building as one of Campus’ service centers, where students can come to lease apartments. “He’s in there [during underwriting] talking about what the other income is going to be and what his water expenses will be,” McRoberts says. “He’ll have a conversation with our underwriting team about that and then tell them the water numbers should be underwritten at a certain level. That is not something you normally get from an operator of his stature.”
Orth also credits Adelman with Campus’ culture. At GMH, Orth says Type As in different departments slugged it out for superiority in a highly competitive, intense environment. Campus has those same types of people, but their goals seem much more in harmony. “Everyone is running down the field together,” Orth says. “David is throwing the ball and people are catching it.”
Consider the student housing firm’s recent purchase of 14 properties from Dallas-based First Worthing, which added 16 properties and more than 250 employees to Campus’ operation. Before the closing, Adelman had staff conference calls with the incoming employees and sent a convoy of people from its headquarters to visit with them. On the day of closing, it had a senior manager at every property. “We took accountants and bookkeepers to visit properties,” Adelman says. “I want there to be a personal connection between account managers on site and who they’re working with at the corporate level. I spend a lot of money on that.”
That above-and-beyond attitude doesn’t stop once a property is folded into the Campus portfolio. Adelman makes surprise site visits, has lunches with maintenance folks, and uses those visits to identify the people in middle management who may have a future in the company. He has a weekly operations call, weekly calls with his regional managers, a monthly call with property managers, quarterly calls with his sites, and even twice-a-year calls with “keystones,” students who work on the Campus properties and show apartments.
Adelman realizes his property managers have control of huge assets worth millions of dollars. So he wants to train them well—his program includes trainers and corporate accountants going to each site and property managers going to headquarters—and he also seeks to provide them with the correct amount of freedom and restraint. For instance, corporate reviews property communications (via Facebook and Twitter posts), budget expenditures, capital improvements, and changes in rent policy.
Adelman even tries to empower on-site maintenance staff—often considered the people on the lowest rung of the scale. On each work order, they can see if a resident has renewed. Maintenance personnel can then ask why they haven’t renewed and report the answers to the property manager.
As quickly as Campus is growing, the economy has forced Adelman to slow down and make tough decisions. His construction and development group only completed one-and-a-half of the four projects slated from 2008 into 2009. So he had to lay people off. “You never want to let go of good people,” Adelman says.
380 Challenges Ahead
If you need proof that Adelman’s aggressive growth strategy, capital partnerships, and personnel tactics have worked, just look at the numbers. The company is at 97 percent occupancy nationally, while Education Realty Trust’s second quarter physical occupancy was 87.7 percent and American Campus Communities’ occupancy was 86 percent.
Though Campus offers some concessions, such as gift cards, the firm says its occupancy levels are the result of choice locations (read: close to campus). And the growth has been steady over the past decade, since Adelman took the helm. But Adelman says that adding units was never a goal, and in fact, he’s loathe to set unit targets for the future. “I have no magic number,” he says. “If you had asked five years ago how big I’d be, I’d give you a number half the size of where we currently are.”
Still, there are some questions as to who Campus will partner with as it moves forward. Adelman and his team are very happy with GIC, yet because of the economic climate, he continues to stay in contact with other institutions and funds. “People blow up that you never would have expected,” Adelman says. “So we’re fortunate that we have a lot of relationships. I have a responsibility to the company and the people working for me that I make sure all of our eggs aren’t in one basket.”
And there’s always the option of going public. With money starting to flow from the private to public sphere, the time may soon be ripe for Adelman to consider an IPO. And with his systems up to institutional level after the GIC partnership, the path may not be that difficult. “We get asked the question all the time: ‘When are you going public?,’” Adelman says. “To me, that’s a function of when it makes sense, if it ever does.”
Regardless of what Adelman decides to do, his lieutenants are carefully weighing each opportunity before choosing the best course of action. “He’s extremely ambitious and sees the field well,” Bernstein says. “He has a very keen eye as to where we can improve as a company.”
When its Internet partner failed, Campus didn't buckle. It bought the firm and launched a new division
In 1998, as the tech bubble was inflating, Campus Apartments’ CEO David Adelman invested $2 million in Skyway Partners, a firm that installed wiring in buildings, hoping to bring Internet access to his student housing properties. When Skyway failed in 1999, Adelman took control and launched Campus Technologies.
“I created this tech group out of necessity because I was given the keys to this company,” Adelman says. “I could either shut it down or try to make a go of it.”
The division helps Campus in two ways. First, it provides tech infrastructure for Campus’ residents, giving them high-speed Internet, digital TV, and voice-over IP telephone. The firm also interacts with its residents through a Web portal that provides roommate matching services and maintenance requests.
“One question was, ‘How can we attract kids who want to live outside university housing?’” says Campus chief investment officer Dan Bernstein. “One of the things was to make sure they didn’t feel any sense of loss, in terms of the services that were provided, by moving out of the residence hall.”
The company also has an IP phone network on every owned and managed property that allows it to integrate its entire portfolio and reduce its phone call costs to under $4,000. “Technology has been a way to add to the bottom line,” Adelman says. “It also makes life easier.”
Tech Footprint When its Internet partner failed, Campus didn’t buckle. It bought the firm and launched a new division.