Exclusive Q&A: Decron CEO David Nagel Talks Trends In Multifamily And Giving Back

Decron Properties' focus may be multifamily properties, but when family patriarch Jack Nagel started the business more than 50 years ago, it was single-family homes. Now a family business spanning three generations, Decron Properties is looking to the future. We recently chatted with CEO David Nagel about the company, the multifamily industry and making time to be president of a high school.

Bisnow: Your company has a rich history. Tell us how Decron got started.

David Nagel: My father, who was a Holocaust survivor, came to America in the late '40s. He was actually in the watch business. On a vacation to California, he met my mother, sold the watch business and moved to California in 1955. They were building a small project in Anaheim that most know about called Disneyland. My father was intrigued and amazed by all the growth that was going on here in Southern Cali. They were building the freeways. The freeways didn’t exist yet at that time.

He was inspired by the California dream of quality housing. Through that inspiration, ultimately, he made a decision to go into the real estate business here in Southern California. The dream at that time was the American dream of everyone owning their own home, and he got involved and was very successful as a homebuilder.

He has his own war stories about how he grew that business. It didn’t happen automatically, but he was a very successful homebuilder. Originally, he focused in Anaheim, but subsequently focused in LA County, where the majority of his homes were built under the name Empress Homes. He probably built approximately 3,000 homes in the West SF Valley. (This was over 20 years in the '60s and '70s.)

Bisnow: When did you become part of the company?

David Nagel: I joined my father in 1981 after I graduated business school. I went to the Stern School of Business in NY at NYU and eventually got my MBA at USC focused on real estate finance at the Marshall School. We got out of being exclusively in single-family homes, and transitioned into multifamily properties and all types of income properties, including office buildings and both anchored and un-anchored retail shopping centers.

Today, we have 55 different communities we own and manage. What was different when my father was running the business without me is he would really go from housing tract to housing tract. He would buy a piece of land, develop the homes, sell them out and then go and involve himself in the next tract, not focused on building his portfolio. When I joined, he was no longer a one-man shop and became poised to grow.

Today we are a three-generation family business (pictured above) with two nephews who are VPs in the business, Zev Nagel and Daniel Nagel. Dad remains active in the business. He serves as chairman.

Bisnow: What is your company's strategy?

David Nagel: Our strategy today as we focus on our growth is to encourage new investments that generate stable and reliable cash flow, which means a focus on the multifamily end as opposed to being as diversified as we were where we had a more balanced portfolio. If you looked at our portfolio five years ago, it was balanced probably 50-50 between multifamily and commercial office and commercial retail. Today, our company has transitioned into being more focused on multifamily. The ratio's like 75% residential, 25% commercial. That focus has been inspired by the reliability of the cash flow that can be generated in multifamily as opposed to more choppiness in the lack of reliability of the cash flow in commercial, where much of it must be reinvested into leasing commissions and tenant improvements.

Secondly, is the uniqueness of where multifamily is today in Southern California. What I mean by that is the lack of supply of housing that we have in multifamily versus the oversupply of square footage that we have in general in office and retail. More specifically, our focus has been in vibrant, suburban neighborhoods. We are looking at areas that are job-centered markets, but not necessarily downtown; markets where there seems potential of an oversupply; markets where there are good jobs in the immediate surrounding area; and markets where there also are strong schools.

In my lifetime, it is unlikely that we will have affordable housing around areas that have good schools. So it’s important that the multifamily rental housing stock be of a quality that is still attractive to the renter so they can still live in these areas and live a comfortable lifestyle with nice amenities but are not required to come up with the large cash down payment so many lenders are requiring. People today don’t feel they have to own a single-family home. I think the trend today is flexibility. I think this speaks well for those interested in multifamily in these vibrant suburban markets.

Bisnow: What has fueled some of your recent transactions?

David Nagel: Since 2010, when we decided to shift our focus to multifamily, we’ve also increased our overall growth in being more aggressive in our acquisitions. We’ve acquired in excess of approximately 4,200 units since the start of 2011. That reflects acquisitions of approximately $800M, which includes our ability to raise equity in excess of $300M, all of which was reflected in 19 different communities we’ve acquired since the start of 2010.

Bisnow: Is your focus on Southern or Northern California?

David Nagel: California exclusively, but throughout California. We’ve been active in Northern, Southern and Central California as well. However, we have nothing right now in Central California. We sold that portfolio of 800 units.

Bisnow: What do you think the future of the multifamily industry looks like?

David Nagel: I think the future continues to be very bright. There continues to be an undersupply of quality housing, especially in the segment of multifamily where we are focused. This is the Class-B building in the A location. We are specifically looking at older product that is well-located, near schools, near jobs, but has been ignored. We are looking to take those properties back to their original quality levels, and that has created a sort of affordable, luxury product that we think is very much underserved. Our feeling is there still is a lot of opportunity left in that segment.

In general, as we all look at today’s economy and where we are in the cycle, I think we all worry about where the ceiling is on rent growth. If renters are continuing to contribute a larger and larger percentage of their income towards their rent payments, at some point, there is a ceiling where they just won’t pay more. At some point, they cannot afford more and will move to keep their expenses in line. The rule of thumb when I started in the business was no more than 25% of your income should be spent on your housing. Then, it was raised to 35%. Now we see those numbers being driven as high as 40%. At some point, you recognize there is only so much you can charge, but that’s why we like this affordable, luxurious product.

Our feeling is, as wages hit a ceiling, people may not be able to afford or want to afford that brand-new, Class-A apartment building in the urbanized downtown locations but would rather go into a vibrant suburban market which will still give them the same quality in amenities, and the same quality finishes inside the unit but just reflect a refurbished look. The unit is 20 years old, but reflects a newness and a freshness that we’re providing that seems equal or close enough to brand-new improvements.

Bisnow: Where do you think we are in the cycle? (David is pictured fly fishing in Sun Valley with his nephew Daniel.)

David Nagel: I have two thoughts. No. 1, real estate is a lagging index, because it typically is the last one to gain the benefit of improvements in a new cycle and the last one to get hurt at the end of a cycle. So I think real estate in general and, in particular, multifamily, we have the longest runway in comparison to most industries as the cycle ends. That keeps me bullish at least in the short-term. For the next 12 to 24 months, multifamily is in good shape. I also feel that Southern California was late to the party. Our rent growth did not start until much later than others, giving us more room to move from here. We are not choking as nearly as much as I described when I was talking about the percentage of rent to income earned. That concern of hitting the 40% number is not nearly as big of a concern here in Southern California as it is, for example, in Northern California.

Bisnow: What are some of your recent acquisitions?

David Nagel: In Thousand Oaks, we acquired a 391-unit portfolio comprised of two communities. Those two assets are a perfect reflection of what I was discussing earlier. They were very attractive to us because the supply of multifamily housing in Thousand Oaks, in particular, and Ventura County, in general, is extremely limited. In Thousand Oaks, I don’t believe they have constructed more than 400 units and five communities in the last 20 years. It's surrounded by great companies located in Thousand Oaks, companies like Amgen and Baxter Healthcare. Both of these communities are located within a block or two of Moorpark Avenue, a vibrant retail corridor, so you have great walkability.

At the end of 2015 (October), we acquired a project in Carlsbad near San Diego with similar demos to Thousand Oaks: great jobs, good schools, close to the beach. It reflected a community built in the '80s, needing improvements to all of the units and common areas. We are putting in quality amenities for all of our tenants whether it be enhanced gyms, outdoor living spaces with outdoor kitchens, barbecue areas and fire pits and outdoor fireplaces. We are adding pet parks for all of our communities. We’re providing enhanced recreation rooms with gaming areas. We’re creating great places to live where people will enjoy their lifestyle, and where people will get a lot of bang for their buck for their rent. People, ultimately, want a quality living environment at a competitive price and that’s what we provide in places like Carlsbad and Thousand Oaks.

Bisnow: What do you enjoy doing in your personal life?

David Nagel: I enjoy sports, in general (pictured with his wife, Marnie, in Cabo). I enjoy watching sports. I’m a big Lakers fan. I’m still a Raiders fan but welcome the Rams back to our great city. I’m a fan of all team sports from USC, my alma mater. And I enjoy participating in sports myself, whether it be golf, tennis or scuba diving.

I am very active in philanthropy in all of the communities that we invest in, and also I’m personally involved where I live in LA, as the president of a high school, YULA. It’s a 400-student high school, and that takes up a lot of my time. I believe it’s very important to give back to the community. I give back in the form of making sure that we have a great education provided to the students in the school. I give back in some form in all the communities where we develop. We do a significant amount of charitable work in Westchester and Playa del Rey, where we’ve been involved with everything including their fire departments, police departments and schools. We are the lead sponsor for the last 10 years for the July 4th Chamber of Commerce parade.

Bisnow: How do you have time to be president of a high school?

David Nagel: I do not have the time. I make the time. I think we all get so busy with work we forget what it’s all about when we’re done. If you determine your success in life, it shouldn’t only be measured by the fact that you created a great business or raised a great family. I think those two things, while they are probably the most important two things you should spend your time with, it’s not enough. The real mark in this world is doing all three. What you are going to do for your greater community will help define yourself to your family and your business peers.