The Davis Cos.’ Cappy Daume On Distressed Investing And The Art Of Meditation

This series goes deep with some of the most compelling figures in commercial real estate: the deal-makers, the game-changers, the city-shapers and the larger-than-life personalities who keep CRE interesting.

Cappy Daume made a career switch during a major downturn when she joined Boston-based The Davis Cos. in 2009 and helped launch its first fund.

As chief portfolio management officer, she has helped grow the company dramatically since then, raising roughly $1.9B across four funds with another soon to close. The company’s portfolio has grown to over 35M SF of commercial space and over 12,000 residential units across 239 properties nationwide.

As the office market faces escalating distress, Daume said the firm is “extremely optimistic” about the environment for new acquisitions. 

“We’re back to distressed investing,” Daume said.

Davis invests across the capital stack, and Daume said distressed opportunities have helped the firm unlock ventures into new markets. In its fifth fund, the company has already begun investing in properties in Georgia, New York and Florida. The company also has 24 distressed or discounted commercial mortgage-backed securities bonds it bought between 2009 and 2013, totaling $374M at face value.

The Davis Cos. also made a big splash in its hometown last month when it acquired one of the largest developable sites in the Greater Boston area for $73M. It plans to transform the 100-acre former ExxonMobil tank farm into a major mixed-use project with a focus on the emerging clean tech and tough tech industries. 

This interview has been edited for length and clarity.

Courtesy of Cappy Daume

Cappy Daume and her husband, Sam.

Bisnow: Can you talk about what your role as chief portfolio management officer entails and what types of things you have been focused on the most in recent months?

Daume: Chief portfolio management officer is, I guess, a way of trying to put me in the C-suite, if you will. Basically, once the investment is made my team is responsible for the health and well-being of the investment. So, seeing over the execution of that. It can be working with the development team. Clearly, if we’re building a building – my team isn’t building a building — we are very much involved in the financial aspects of the investment, the marketing, the leasing, the stabilization, the disposition, the valuations, the investor reporting piece of it. If you think about it as acquisitions is at the tip of the spear, and then they sort of land the fish and they put it in the boat, my job is to make sure that boat gets to its destination as planned, so to speak. 

We’ve got a very diverse portfolio, both in product type — we’re in life sciences, industrial multifamily self-storage, student housing — and we’re in several different markets. There’s a lot of different things that we’re focused on at any one point in time. I’m sure you recognize that there’s a big focus on getting leases done, getting sales done that you can, optimizing operations, and anything that you can do to help stay on track executing your business plan because interest rates did a big spike over the last 18 months, which is somewhat not helpful. The Fed is intending to slow things down and they have, in fact, slowed things down. You got to be sharper on all of your skill sets to keep that forward motion. And that’s what we’re working on, in collaboration with a lot of other people here on the platform.

Bisnow: You joined The Davis Cos. in 2009, what did the company look like in those days and how has it changed over the last 15 years?

Daume: I joined [CEO Jonathan Davis] before we raised our first fund. That was the opportunity as to why I came over to the firm. And I had a very good position at what was Spaulding & Slye, JLL at the time, but Jon was really taking [The Davis Cos.] in a different direction and I was very excited by that opportunity. He was able to raise money when other people couldn’t. He had an operating platform. He’s one of the best really deep value investors that I’d ever met, and so I wanted to come over and help him build the business. So that’s what we did.

We ended up raising our first fund, and now we are soon to be closing our fifth fund. To tell you what it looked like, we were probably 35 people when I got there. There were a lot less systems and processes; you were sort of making up as we went along. Today, we’re about 125 people. We’ve more than tripled our headcount and our first fund was $230M, and the fund we’re working on now is rounding out around $900M plus or minus. That’s why assets under management have grown a tremendous amount. It’s been incredible. It’ll be 15 years in April.

Bisnow: What lessons were learned from helping to raise those funds? And especially during a time when no one’s really raising money. What did you learn throughout that time?

Daume: I think that the essence of why I came over still remains today. One of the key differentials, I sat in an investment sales seat for 16 years, and I saw a lot of people make money … They were the beneficiaries of a lot of momentum in the market, financial engineering as I call it. I was more old school and believed that you could create value at the asset level by making real improvements physically to real estate, to properties. Just because I bought a building at 8 cap and I could sell it at 6.5 cap, but I didn’t do anything to the building, I didn’t change the rent roll, I didn’t do anything – that’s like a song that you don’t know when it’s going to stop. It’s kind of like musical chairs, you don’t know when it’s going to stop and you don’t know whether you’re going to have a chair available for you. We call it momentum investing here, which is not really what we do. What we’re doing is a lot of the heavy lifting value-add, and that takes a platform.

Courtesy of Cappy Daume

Cappy Daume with her dad “Pops,” husband Sam, brother Curtis, brother Jeff and his wife Becca, and her mom “Gigi”.

Bisnow: As a leading woman in the industry and someone who has been involved in CREW, how have you seen the opportunities and challenges for women in real estate change over your career?

Daume: One of the largest and most tangible ones that I think is still playing out, but the whole focus on DEI includes women. And I think there is an awareness that the leadership is being held accountable to be inclusive of women. That’s making them, I think, stop and think a little bit more. I am not sure that it has fully played out yet. But I do think for women coming in behind me that is a tremendous advantage.

I think that, in a strange way, Covid is really positive for working women. The ability to do what you’re doing right now, to do your work right from home if you can, or to add some flexibility to that. A lot of women, really talented women in this field, start struggling with the life-work balance. And certainly being able to do some of what you would normally do in the office at home adds to that flexibility, and I think is going to help people stay longer. And it’s the staying longer part that I think is where we lose a lot of women. I think a lot of women will filter in and then they get to a point in their career and either they’ve figured it out, but a lot of them haven’t or a lot of them haven’t been able to identify a mentor, a strong enough mentor to help pull them through those moments. To help really elevate them when they need it, to help recognize the work. I find that women are mothering at work as much as they are mothering at home, and even if they’re not mothering, they’re this caretaker. You end up doing a lot of work and there’s a lot of women I see that are really good. You tell them to do their homework, they come prepared with their homework, and sometimes they don’t get all the recognition of what that means and all the effort that that takes.

There can still be a fraternity aspect to this business and I think I’ve been lucky because I feel like Jon only cares about someone’s intellect and their ability to add value.

Bisnow: What is the companies’ strategy in the new year as we’ve seen a slowdown in almost every market? What opportunities are you seeing that you plan to pursue?

Daume: Maybe you’re seeing a lot. This place does not slow down. All during Covid, we’re buying right through Covid if we think it’s a good deal. What we’re seeing a lot now is actually the distress that you’ve been reading about and anticipating is starting to show itself into opportunities. That is either through lenders reaching out, refinancings, ownerships that need rescue capital or restructuring, people who are capitulating on purchase prices that they thought they had, they didn’t have and their ability to hold out for that is being impaired.

We’re back to distressed investing first and foremost, and that’s what we excel at. That’s what we started in 2009. We are extremely optimistic about the current environment for acquisitions. We invest in not just our real estate but will invest up and down the capital stack. That affords us a lot of different kinds of opportunities and entry points. In those entry points, if that means that eventually we’re going to get to feasible, that can be a desirable outcome for us because we’re now operating. So we’re kind of combining a lot of different skill sets. And having that operating capacity, I think, is very powerful to a lot of different constituents at this point.

Bisnow: What are the differences you’re seeing in the properties on the market now compared to 2009? Or in the way that you guys are going about acquiring and looking at sites?

Daume: I think 2009 was definitely pretty frightening. You kind of have to really squint your eyes and remember, because you didn’t know if the whole banking system was going to fail, right? I think there obviously have been some bank failures, and there may be more to come, but it doesn’t feel like a systematic threat as it did in 2009.

But I do think that there’s a lot of liquidity there. I think that today, there are still a lot of investment dollars that are sitting poised to take advantage of this kind of correction in pricing more than anything else. We just need the debt markets to stabilize. We need the interest rates to stabilize. I think interest rates were not as spiky. This has been a companion piece with this cycle that you’ve got the whole office sector, really interesting and extremely different than where it was in 2009. If you were to look at institutional investment portfolios, office historically was a very big piece of that pie. So there’s a lot of dollars tied up in office, and it is unclear how that demand is going is coming back. I think it’s coming back, but I don’t know that it comes back and it’ll look exactly the same way. It is an out-of-favor asset class. So lenders don’t want to lend on it and institutional investors are trying to minimize their exposure to it. And, because of the size of the pie that they’re trying to shrink, it is causing some problems in the system. So that’s different, right? That’s very different.

Bisnow: Last month Davis acquired the Exxon Mobil site in Everett, one of the largest development sites in the Boston area. What attracted TDC to this site? 

Daume: I think it is a generational once-in-a-lifetime opportunity kind of thing to have that kind of scale where you can really help create and have an impact. I mean for me, it is so uplifting. I was trying to think of how to coin the term and I’m going to come up with it, but it’s like taking an old industry that’s been around for 130 years, there’s been petroleum in some form or another really and that was important at the time, but obviously, it was excess real estate for Exxon so that era is ending. We’re going to remediate the site. We’re going to make the site resilient for the future, and you’re helping to create something.

I’m 60 years old. What we’re creating here is not for me. It is for you and your children and my children’s children. And in a new age where we can do things with clean tech, we can do them environmentally sensitive, socially sensitive and we have a big canvas, which is ultimately absolutely thrilling. It can also at times be like ‘Where do you begin?’

So we’re in the process of engaging a master planner as we speak. We have all kinds of really interesting ideas around trying to capture the mixed-use nature. It’s definitely going to be a mixed-use site, and I think we’re going to play to technology. Whether that is advanced robotics, 3D printing, cleantech, tough tech, advanced manufacturing. That’s the industry where we see growth in Massachusetts, to be honest with you, in the near term that has accelerators and that we can see. And [we] believe in housing, adding housing. I’m sure there will be things that we can’t even visualize or completely wrap our heads around right now. So it’s very early, but I can tell you that it is a really very motivating and inspiring thing to try and advance.

Courtesy of Cappy Daume

Cappy Daume with her son Ben, daughter Carter and husband Sam.

Bisnow: How have economic headwinds such as high interest rates and construction costs impacted the ability of developers like Davis to get financing and break ground on projects? How are you navigating those headwinds?

Daume: Well fortunately for us it’s a little bit about timing. We were not trying to break ground on a lot of new projects. So we’re really coming through, I think we delivered five or six developments in 2023. I feel fortunate that way. We weren’t trying and we’re not looking for construction financing at this moment. I think if you’re trying to pencil a new development right now, it is exceedingly difficult because it’s not only the financing that’s tough. Construction costs had been on a, I don’t know, 10-year run, but a four-year accelerated run. That is definitely tapering off. We are having inbound calls from general contractors looking for work. I think the supply chains are unclogging, and like all things, you start construction and eventually, the tide has to change. And so we’re seeing real evidence of that. 

Demand, I think, is less transparent right now … If you talk to the advanced robotics people or advanced engineering people or the life science people, they have business plans that they’re trying to capitalize on, but their VCs are saying, ‘Do more with less, do more with less, just wait. Wait a few more quarters. Don’t make a decision now. I know you need that space, but not now. Wait two more quarters, wait four more quarters.’ That’s like a trickle down effect that we’re all feeling. That doesn’t last, and we’ve been in that now for probably close to 18 months. So I think you’re going to start to see some of these more positive signs. Does that mean that we should go break ground tomorrow on a new life science project? I don’t think so. It is going to help the absorption and the financing markets, the capital markets I should say, start to move because they have kind of been in a paralyzed position. Nobody wants to transact because they’re not exactly sure, but once they stabilize it they may not like where it stabilizes. But with more certainty, then they can start to make decisions.

Bisnow: In the office market, we’re seeing record vacancy rates and a sharp decline in values for properties that are selling. How is this impacting Davis’ portfolio, and how do you think this difficulty in the market will shake out over the course of this year?

Daume: I would say within the five funds, we have two office buildings, both of which are close to 85 to 90% leased, with long-dated leases. We made a strategic pivot in 2014 to get out of the office market at the end of fund two, the second half of fund two. So I kind of feel blessed that way.

What I would say is that we have been looking at office distressed deals, and I think our feeling is it would have to be a very distinctive property that we would pursue. We’ve looked at a lot of office conversions to resi. So far, the pricing and/or the geometry of the building just hasn’t yielded us unlimited opportunity like you might think. We’re in the office five days a week and that’s not because we’re a real estate company. That’s because we do what we do better when we’re together, and I don’t think we’re unique in that. I think it’s a matter of companies coming to their own realization of whatever intensity level that they need or want or desire.

There’s an awful lot of obsolete space in the world to come … but if you’re midrise, B building, mid-block building, I think it’s going to be challenging. But I think if you invest and you make things distinctive, you make it easy, there’s opportunity there too. I think corporations can’t keep their culture and their productivity as high as they would like working 100% virtually. If you’re going to bring people back in three days a week, you can be maybe more efficient and think about how you’re using your space. And you may be using your space differently, but I don’t think it eliminates the need entirely.

Bisnow: Davis’ portfolio is not only in Boston. What other areas have you been focused in? What markets do you see opportunities in the future?

Daume: We have a small office in New York. Two of our first deals in fund five were in New York. I think we felt like New York after Covid got particularly hard hit. And there was a big void of people and capital, and I think we felt like there is opportunity in New York. New York is coming back. New York is back. The first two deals we have done are residential deals. They’re multifamily deals, and we have another one of our deals in fund five that is down off the Southern Richmond-Norfolk port, and that’s an industrial deal.

We’ve also done another student housing deal in Orlando in this fund, and all of these positions we have subordination, meaning they were deals that were already in the works and the lack of debt created an opportunity. We went in and filled that opportunity in one case, we even took on the development role along with subordinated equity positions. We’re not subordinated, but their equity is subordinated to us.

Right now, I think there’s quite an array of locations where you can find distress. It’s everywhere. In 2009, distress took us to Chicago and Colorado. It took us to the Carolinas, it took us to Louisiana. It took us because of notes that went bad that we went and bought and things like that. I don’t know what’s ahead of us exactly. But I do know we have a real focus in the Tri-State area. We’ve got a real focus up here. We own several investments down in Washington, D.C., and in and around Northern Virginia. We have some investments in Texas, Austin and Dallas. We have some investments in Savannah, Georgia, around the Savannah port. I think you’ll see us be strategic and opportunistic. I know that’s not a clean ‘These are the five markets we cover,’ but that’s not really who we are.

Bisnow: Give me a bold prediction for the rest of this year.

Daume: I think by the second half of 2024 we will see a noticeable increase in life science demand and leasing transactions getting completed, but that we will only start moving the needle on availabilities, with best of class leading the way.

Bisnow: What is your weekend routine or favorite weekend activity?

Daume: It was funny, I wrote three down and the one that first came to mind so I’m just going to blurt it out, Sam and I, Sam’s my husband, we like to watch Saturday Night Live clips on Sunday morning. That was my first quip. The other thing that I do on my weekends is, believe it or not, at the age of 60, I’m learning to meditate. It is not easy for a high-strung person my age. So I have adopted this woman Tara Brach, and she does an hour and a half long, they call them, Dharma talks and I love to listen to her while I am cooking because the only days of the week that I really cook are on the weekends.