Commercial, Apartment Investor Waters Merge

STILLWATER, WATERFORD JOIN FORCES

John Drachman landed Orange County’s most in-demand tenant of 2018, when his Stillwater Investment Group convinced Glaukos Corp., a fast-growing medical device firm with a $2.2 billion valuation, to move its headquarters from San Clemente to Aliso Viejo.

Don’t expect the upstart Newport Beach-based commercial real estate investor—whose deal with Glaukos takes the No. 2 spot among OC’s largest office leases of 2019 (see page 20)—to be namechecked in next year’s Top Deals listing; at least not under the Stillwater name.

Stillwater and fellow OC-based real estate investor Waterford Group recently made it official and combined operations.

The two firms, led by Drachman and Sean Rawson, respectively, created the new entity after working on commercial and multifamily deals together for the past five years or so.

The company is now called Waterford Property Co., and is based in Newport Beach.

The merging of waters is being done not only to avoid name confusion and to streamline operations; the executives say the move builds on the collective $1 billion in projects the companies completed together in California and Arizona.

The duo has already worked on about 25 joint ventures over the past five years, primarily multifamily deals.

Drachman and Rawson launched their respective firms about five years ago—Drachman with the commercially-focused Stillwater and Rawson with the multifamily and land entitlement firm Waterford—and will continue to spearhead their areas of expertise within the new company.

“Sean and I really enjoyed being partners, and we wanted to formally bring together everything under one brand,” Drachman told the Business Journal. “We are trying to be the best in class from both sides.”

Side Biz to Main Biz

The execs, both of whom have their MBA in real estate finance, met nearly a decade ago through NAIOP’s Young Professionals Group, a year-long program for a small cohort of real estate professionals.

After various stints at prominent area development and property management firms, they left to launch their own real estate companies, and ended up sharing an office suite in an 850-square-foot office on Von Karman Avenue in Irvine.

Collaboration was inevitable.

About a year into business, the duo created a company to invest in value-add

multifamily assets called Waterford Residential.

“It started as a side business between John and I, and it morphed into $150 million in acquisitions together,” Rawson said.

About a year and a half ago, as business boomed, they started fielding questions from investors and clients regarding how the differently named companies were related.

That led to the inception of Waterford Property, which takes all their associated brands under one, slightly larger roof—the company has since upgraded to a 1,200-square-foot office at Gateway Plaza in Newport Beach.

With Drachman leading commercial efforts and Rawson spearheading residential, the new formal entity aims to put itself at the forefront of live/work/play development companies targeting various markets across the Western U.S., with an emphasis on Southern California.

This includes opportunistic acquisitions of existing commercial and residential projects and land assemblages needing to be entitled for different uses.

“As Southern California continues to evolve, the housing shortage grows. We continue to see acquisition opportunities for older office or industrial buildings to re-entitle them for residential and mixed-use projects,” Rawson said.

Since 2015, both firms have collectively acquired more than 1.5 million square feet of commercial properties and bought, developed and renovated more than 1,500 multifamily units in Southern California.

They have also raised over $200 million in equity from a mix of capital sources including private investors, family offices and institutional partners.

Growing their investor base is a primary goal for the new firm, the duo said.

Goals

Drachman and Rawson pointed to Irvine-based Sares Regis Group—an investor with separate apartment and commercial division and soon to be based in Newport Beach—as an example of the business model they’re looking to emulate.

“We want to be experts in the markets we are in. We have an inch-wide, mile-deep approach,” Drachman said. “We like coastal and infill markets in Southern California.”

Two acquisitions completed near the end of 2018 point to Waterford’s market focus: The $30 million purchase of Newport Beach’s 66-unit Dover Heights Apartment Homes and its $12 million buy of a largely vacant 36-unit multifamily property in San Pedro. It plans to reinvest about $1.7 million into that property.

In addition to focusing on more properties—it has a goal of $100 million in acquisitions this year—the firm plans to be a net seller of its tertiary assets.

Not including its team of consultants, the firm has five employees, including recent hire Yashaar Amin as partner and chief operating officer.

Phil Christian, who previously led asset management for the firm’s previous 25 joint ventures, will continue to oversee asset management and construction as vice president of the new company.

Busy 2018

Stillwater grabbed its share of headlines last November when Glaukos, a maker of eye stents used to offset the effects of glaucoma, said that it would lease the real estate company’s 160,000-square-foot Element campus in Aliso Viejo.

The company’s 13-year lease starts in May.

Element is a three-building campus that was last used by QLogic Corp.

Glaukos said in regulatory filings that it will keep its manufacturing facilities at the San Clemente location for the time being, and “intends to relocate its corporate administrative headquarters, along with certain laboratory, R&D and warehouse space” to the Aliso Viejo facility. It has subsequently bought excess land that could hold a fourth office at the campus.

Stillwater bought the office park in 2016 for $36 million in a venture with the Newport Beach office of CrossHarbor Capital Partners.

Stillwater and Waterford struck a deal last year for another office project near Angel Stadium: Orangewood Corporate Plaza, a two-building complex near the interchange of the Orange (57) Freeway and Orangewood Avenue, a few blocks from the baseball stadium.

Real estate investment trust PS Business Parks Inc. in Glendale sold the two-story, multitenant buildings for about $18.6 million in a deal brokered by CBRE Group Inc.