For many developers in the multifamily industry the old saying bout them is true – if you give them land, they will build on it. While Marilynn Duker admits that she is a deal junkie at heart, as the president and COO of Shelter Development LLC, she doesn't let herself get talked into a riskier approach.
"When you are unwilling to be too aggressive on risk, occasionally you have to adjust your goals downward," she says. "That's a hard thing to make yourself do, especially for a developer who always wants to do the deal. We're entrepreneurial, but we're not cowboys."
But the company's self-governance has proven beneficial in its client relationships. "Our capital partners see that their money is not burning a hole in our pocket," she says. "We are prudent not only with our money but with theirs as well, and they really respect that."
The company – which is a division of The Shelter Group, a 25-year-old Baltimore-based firm that specializes in the management and development of multifamily and senior communities – hasn't let itself get talked into returns on paper that might prove difficult to achieve. For instance, when the company started its senior living business in the mid-'90s there were a number of venture capital groups that wanted to give it money. "The market was driven more by capital availability than by balancing risk and doing good deals," says Phil Golden, president and COO of Shelter Properties, the management division of The Shelter Group.
"We resisted that pressure and said we were going to do this our way," adds Duker. "We were going to have capital that allowed us to pick the markets and decide when to build and what the product ought to be." For example, after finishing due diligence on an acquisition in North Carolina, Shelter realized that the deal didn't make sense unless they could obtain a price reduction. It went back to its investment partner and told them that they shouldn't do the deal.
"It was the best deal we never did," she says. "It really said a lot to [the investment partners]. It gave them enormous confidence that we weren't going to rush right out and do deals just to do volume. We were going to be very careful and thoughtful about the investments we were making."
"When we first committed to invest in Shelter's first Senior Living Fund, the company had four different sites for four different assisted living communities," says Larry Akman, president of Akman Group Ltd., a Chevy Chase, Md.-based real estate investment company. "Many developers in their shoes would have gone ahead and built right away. Shelter decided not to build because three out of four of the areas would have been over built (with assisted living). It was too risky. Instead, the company looked elsewhere for sites, which resulted in us having ultra successful projects – even though we had to wait. All performed ahead of schedule." Akman's group subsequently increased its investment with Shelter.
As a result of the company's cautious entry into the senior market, it has had fewer starts than some of its competitors, but each one has been a successful project and has out performed its underwriting, says Duker.
"It goes back to your reputation," she explains. "It's everything. You have to balance the love of the deal with an approach that will be respected year in and year out by your lenders and your capital partners."