With stints at AMLI Realty and Equity Residential Properties Trust, David Schwartz was already well versed in the industry when he co-founded Waterton with Peter Vilim in 1995.
Starting a real estate investment and property management company is a daunting summit to climb, but the company has grown and diversified beyond multifamily into hospitality and seniors housing. As the firm approaches its silver anniversary, Schwartz looks back on what he learned over that time and how his experiences have shaped Waterton as a company and charted its path onward.
What were the most important lessons that you learned during your time at AMLI and Equity, and during the founding of your own firm? What lessons do you try to impart on the next generation of real estate professionals?
The co-founder of AMLI is a friend and mentor of mine, Greg Mutz. And when I started there, he used to tell me to stay focused; don’t try to do everything, just get good at one thing. And I think at Waterton we’ve kind of followed that advice over our 25 years. Staying focused is our core investment thesis. Everything we do, we’re trying to create value. We haven’t strayed too far from that. That focus is probably one of the most important lessons I’ve learned.
The second lesson really came from Equity and Sam Zell, who was another mentor of mine—and still is. When I left Equity he told me that nothing’s going to matter in my career going forward after I make a decent amount of money. The only thing that’s going to matter in my career is shem tov. I asked him what that meant, and he said it’s Hebrew for “good name.” He said your name is what you work for, what you spend your whole career for, it’s your reputation. And you never, ever want to compromise it. We have lived by that as well. Everything we do, we do the right thing, even if it’s not in our self-economic interest. We want to do the right thing for investors, our employees, our residents and our customers. And sometimes, that’s not how we make the most money. I’d say those are the two most important lessons I’ve learned, and they are really profoundly deep into Waterton’s culture.
How would you describe that culture? How has Waterton’s culture impacted the company’s success?
When we started we had a very entrepreneurial culture. We still try to keep that entrepreneurial culture 25 years later, but it’s a little harder when you have so many people. We are and always will be entrepreneurs and we want to think like entrepreneurs. But over the past 10 years, we’ve developed a cultural roadmap that is ingrained in you at Waterton that we call the Waterton way.
There are five attributes that we consider the Waterton way. The first one is simply be nice. Pete [Vilim] and I always considered ourselves nice guys and we always wanted to hire nice people. We were never a sharp-elbowed type of company, and we don’t want to change that. It’s a very simple thing, but it’s hard to stick around at Waterton if you’re not nice.
The second attribute is to listen and talk. And that evolved as we became more electronic in nature. We felt it was important to have simple conversations and harder conversations by listening and talking to people versus, you know, sending a terse email that could have a reaction that is unintended.
The third thing is that we are okay with mistakes, but we expect people to own it, we expect there to be teaching moments and move forward and hopefully the same mistake isn’t made. A lot of our success over 25 years was making different mistakes and then learning those lessons and getting better over time.
The fourth is we expect people to get things done. Sometimes that means you’re getting it done early in the morning or late at night or at home or on vacation, but we expect things to get done. We’re serving three customers: our residents, our employees and our investors, and sometimes getting it done means doing it at what may not be the most optimal time.
Lastly, we want to have fun. That has always been Waterton from day one, even when it was just me and Pete, we were always having fun together. We enjoy laughing at each other; we take our work seriously, we don’t really take each other that seriously.
You’ve said that, forced to choose, the Waterton property that you’d pick as your favorite is Presidential Towers. What is it about those buildings and/or your work on them that endears them to you?
When I’m in the office, you can see it out our window. It’s one of the biggest rental communities in Chicago and it’s been a long-term hold for us. We’ve held it now for 13 years and we’re constantly making improvements to it, so it’s constantly evolving. It’s in a location that—you don’t see this too often—but every year it gets better. The West Loop has really become the center of where all the action is in the city of Chicago, restaurants, bars, it’s a tech hub, hotels. When we first bought it, there was no restaurant scene, there were no tech companies coming to Chicago in any meaningful way and you would never consider having a hotel in the West loop. To see the neighborhood continue to evolve like that is extraordinary. I would suspect in 10 years, that neighborhood will change for the better even more. To have 2,346 apartments in one community, it’s like running a city. It teaches us a lot and it’s kind of the place where we experiment with new technology new, rent tech type of initiatives. We’ve tested all the state-of-the art package delivery, mobile apps, things like that. Hopefully we’ll continue to hold the asset for at least another 13 years.
As an avid mountain climber, I’m sure there are some notable summits that you’ve yet to scale. Are there any achievements in your career that you hope to conquer?
There are a ton of summits out there that I haven’t climbed that I want to climb. Some are super aspirational, where I say I’m not going to climb it but given the opportunity I might. I think the same holds with my career there. There are almost infinite career summits I see out there. Some that I want to attempt are challenging but I may not make it and there are many that are challenging, but we’re just not ready but we’re going to get there. I think it’s a very open field for us at Waterton as far as what we can do and how far we can go. So, yes, there are many achievements in my career and as a company that we would like to achieve.
One example is a year ago we acquired a senior living company. A near-term summit is to raise value-add investment funds within the senior living space and really grow that business as the demographic tailwinds are in our favor. We don’t develop multifamily—that’s a summit that is wide open for us to attempt. We’re looking at how we can get into multifamily development as another investment product that we can offer our investors. Doing more in the affordable housing space where there’s a massive need. That’s something that Waterton used to do 15, 20 years ago. We were a significant tax credit investor within the affordable space.
There are a lot of examples of ways we can grow our business above and beyond our value-add investment vehicles. But we also know that we’re late cycle. If you stay with the climbing analogy, the cycle is the storm and you don’t want to climb in a storm. We want to be pretty cautious about putting the gas pedal down as far as growth initiatives when you’re late cycle. Putting the gas on development right now doesn’t seem to make great business sense, but can we slowly grow into that business? Yes, we can.
Just to belabor that metaphor a little more, would your forays into multifamily development be more along the lines of staying in the base camp and charting a course up the mountain for once the storm passes, or making incremental steps up the face of the mountain?
We’re not staying at the base camp. We have a really good weather team and we’re letting them guide us with incremental steps up the mountain, but we’re going to be safe. Another lesson I learned early, though it may sound very obvious, is to never lose capital. Before we make any investment, is there a risk that we can lose our investors’ money? We have to figure out how to minimize that to almost zero. We do take risks as a company, but we do so in an extremely calculated way.