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Monday, Jul 15, 2024

Waterford Property: Housing the Middle Class

The rapidly increasing cost of living in Orange County and other pockets throughout the U.S. has priced out middle-class workers, forcing them to flee to other regions and lengthen their commutes.

Fortunately, Waterford Property Co., a Newport Beach-based multifamily developer, has found success reviving areas’ middle-income segments with affordably priced apartment communities.

It’s currently the most active sponsor in the California Statewide Community Development Authority’s (CSCDA) middle-income housing program, according to company officials.

Waterford, founded in 2019 by John Drachman and Sean Rawson, has converted thousands of market rate apartment units across Southern California into middle-income rental communities, also known as workforce housing, which serves what Waterford describes as “essential workers.”

“I have friends that are firefighters, teachers, paramedics and nurses,” Drachman told the Business Journal.

“Sean and I have seen firsthand how the high cost of housing has pushed them out of OC and out of state.”

“We see our mission to help produce more housing for them,” Rawson added. “The greatness of our country is the middle

Drachman and Rawson were honored for their work last month at the Business Journal’s 23rd annual Excellence in Entrepreneurship Awards at the Irvine Marriott.

Their company’s portfolio—which is largely located in SoCal—currently counts over 5,000 rental units, in a mix of market rate, affordable and workforce housing properties, a handful of office projects as well as over 2,500 units in various stages of entitlements for development.

OC Kids

Drachman and Rawson both grew up in OC, in Irvine and Huntington Beach, respectively.

Drachman attended University of Arizona, double majoring in entrepreneurship and marketing. He earned his MBA and MRED degrees in 2009 from the University of Southern California.

Rawson graduated with a degree in government, history and economics from Claremont McKenna College. He received his MBA in 2010 from the University of California, Irvine.

The two met over a decade ago at the local chapter of the NAIOP Young Professionals Group. They “instantly connected” over shared entrepreneurial aspirations and backgrounds.

Policy, Acquisition Backgrounds

After undergrad, Rawson worked at real estate advisory firm The Concord Group.

“It was a fascinating entry into real estate,” he said. “It gave me a good, fundamental understanding of developing from the highest and best use standpoint.”

Rawson then spent a year in Sacramento, as an Assembly Policy Fellow—a program whose alumni include elected officials and chiefs of staff.

The experience gave Rawson a glimpse into policymaking and politics, a background he’d later lean on while collaborating with local and state governments to produce workforce housing with Waterford.

Drachman, on the other hand, spent his early career brokering office and industrial leases at Grubb & Ellis Co.

After graduating from USC in 2009, he entered into an “awful job market.”

His seven-month unemployment streak ended when Wil Smith of Irvine-based real estate investor, Greenlaw Partners, hired Drachman to work in acquisitions and asset management.

There, Drachman learned how to raise capital, identify development sites and profit off of value-add projects.

“I owe a lot to Wil for taking a chance on me,” Drachman said. “If it wasn’t for him and everything I learned at Greenlaw, I wouldn’t be in the position I am today.”

Waters Merging

Before they were business partners, Rawson and Drachman were office mates.

Shortly after starting their own businesses, the pair in 2014 began sharing a small, 850-square-foot office space in Irvine. Rawson used it as a base for his company, The Waterford Group. Drachman made it the home for his firm, Stillwater Investment Group.

The following year the two did their first of over 45 joint ventures together, acquiring a 14-unit multifamily project in Long Beach. Together, they had raised $1.2 million in capital to rehab the complex.

Element Campus

In addition to multifamily, Drachman also worked on office deals.

Among those is Aliso Viejo’s Element, a 160,000-square-foot office that’s now home to medical device maker Glaukos Corp. (NYSE: GKOS).

Drachman’s firm paid $36 million for the office campus in 2016 along with its investment partners. They sold it to Irvine-based IRA Capital LLC four years later for more than double their acquisition price: $73.5 million.

Five years after becoming office mates, Rawson and Drachman merged their companies, Stillwater and Waterford Group, to create Waterford Property Co. The name pays homage to their initial companies, but also to Rawson’s late mother, who collected Waterford Crystal pieces.

Rental Savings

Waterford currently has 1,050 units in Anaheim, which it acquired for more than $443 million through public-private partnerships with the city of Anaheim and the CSCDA.

Residents at those projects save, on a weighted average, $700 a month on rent, due to Waterford’s utilization of CSCDA’s workforce housing program, which allows developers to act as a project administrator while CSCDA acquires projects with long-term financing from major institutional bond investors. CSCDA then receives property tax exemptions which enables lower rents.

One of those projects is 1818 Platinum Triangle, an apartment complex Waterford converted from market rate to workforce housing. Tenants at the 265-unit property make up 61% to 120% of the area’s median income, like the residents at its other workforce housing communities.

The city in recent years noticed a sizable exodus of middle-class tenants, whose incomes ranged from $46,000 to $98,000, officials said.

Most were moving to Riverside and San Bernardino, according to Rawson.

“Once we worked with the city to convert those projects into workforce housing, we saw a huge influx of middle-income tenants return,” he said.

Branching Out

While Waterford aims to continue providing workforce housing throughout California, the company has also set its sights on other states.

Waterford last month acquired a 395-unit multifamily property in Dallas, along with Chicago-based private investment firm Vistria Group and Brooklyn-based investment firm Northern Liberties.

Financial terms of the acquisition, Waterford’s first in Texas, were undisclosed.

The trio of companies made the deal in partnership with the Dallas Housing Financing Corp., a city resource that offers property tax-exemptions in exchange for deed restricting rents.

Dallas, like Anaheim and other markets Waterford has been active in, has seen high departure rates among the middle class due to the rising cost of living and the lack of middle-income supply.

Increases in land prices and construction costs have deterred developers from building such housing, but public-private partnerships have made those projects possible, according to Rawson.

“Finding creative solutions to this is very important,” Drachman said. “The issue of high housing costs is personal to both Sean and myself.”

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Sonia Chung
Sonia Chung
Sonia Chung joined the Orange County Business Journal in 2021 as their Marketing Creative Director. In her role she creates all visual content as it relates to the marketing needs for the sales and events teams. Her responsibilities include the creation of marketing materials for six annual corporate events, weekly print advertisements, sales flyers in correspondence to the editorial calendar, social media graphics, PowerPoint presentation decks, e-blasts, and maintains the online presence for Orange County Business Journal’s corporate events.

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