Summary of "Real Estate Investment Opportunities Series - DLP Capital"
Summary: Real Estate Investment Opportunities Series - DLP Capital
Presenter: Don Worner, Founder and CEO of DLP Capital Moderator: Jim (White Coat Investor community)
Company Overview & Strategy
- Founded: 2006
- Headquarters: St. Augustine, Florida, with offices in Pennsylvania and North Carolina
- Assets Under Management (AUM): Nearly $6 billion, with over $5 billion actively managed
- Investment Volume: Over $10 billion invested in housing, spanning 36,000+ real estate transactions
- Portfolio: Owns approximately 25,000 rental residences, primarily focused on attainable (affordable) workforce housing
- Mission: Finance and build thriving communities to address the affordable housing crisis in the U.S.
- Vision: Become one of the 100 largest private companies in America, impacting 10 million lives
- Core Values: Strong emphasis on stewardship—operating with an owner’s mentality to protect investor capital and generate consistent returns
Business Model & Growth Framework
Flywheel Model
- Purpose-driven impact
- Elite Execution System (OKRs-like framework for goal setting and communication)
- Stewardship of investor capital
- Financing and operating housing communities
- Scaling impact and growth
Investment Thesis
- Focus on attainable workforce housing where rent is less than 30% of local income
- Geographic focus on the Sun Belt, especially Southeast states (Florida, Georgia, Carolinas), targeting markets with strong job and population growth
- Emphasis on investments with significant equity cushions behind their capital (senior secured or preferred equity)
- Preference for investing when others are hesitant, particularly in higher interest rate environments
- Belief in long-term demand growth for single-family rentals and rental housing generally due to affordability and demographic shifts
Market Outlook & Key Metrics (2024)
Rental Market
- Rent growth forecast: 1–3% (historic average)
- Occupancy: Approximately 95% nationally, near all-time highs
- Delinquency increase expected: About 1% decrease in rent collected due to affordability stress
Housing Supply
- New construction starts halved in 2023 compared to 2022, expected to halve again in 2024 due to financing constraints
- Acute shortage in high-growth states like Florida and Texas
Homeownership vs Renting
- Cost to own a home is approximately $1,298/month higher than renting—nearly double—driven by high interest rates and home prices
Investment Vehicles & Fund Details
All funds are private, impact-focused, evergreen, and designed for accredited investors, aiming to provide above-market, double-digit returns while maintaining affordability.
Fund Name Strategy Preferred Return Target Net Return Liquidity Tax Reporting Notes DLP Lending Fund Senior secured mortgages on rental housing 8% 9–10% 90-day redemption 1099 Largest fund (~$1.1B AUM, 400+ loans), zero principal/interest write-offs in 10 years, monthly distributions, management fee rebates over $1M. Example loan: $22.5M at 62% LTV for manufactured home community. DLP Housing Fund Equity ownership of existing rental communities 6% 10–12% Annual liquidity K-1 14,300 apartments owned, >25% annualized net returns over past 4-5 years, tax sheltering via depreciation and QBI deduction, monthly distributions. Example: $9M preferred equity in new community with $14M sponsor equity behind. DLP Building Community Fund Develop and build new rental housing communities 8% 11–13% Annual liquidity K-1 Focus on new construction, delivered 11.74% net last year, builds cost-effective single-family rental cottages with community amenities. Example: 280 units under construction in Winter Haven, FL. DLP Preferred Credit Fund Senior and mezzanine mortgages (second position loans) 9% 10–11% 90-day redemption 1099 Newer fund (~$100M AUM), loans to top-tier borrowers with significant equity cushions, zero delinquencies to date, monthly income distributed, fixed note option available at 9% fixed for 3 years.Risk Management & Stewardship
- Owner Mentality: Every employee treats investor capital as their own, rigorously scrutinizing expenses and performance
- Loan Workout Policy: If a loan goes delinquent, DLP buys it out at 100% of principal plus accrued interest from the fund, personally managing the workout or foreclosure to protect investors from losses
- Capital Stack Priority: DLP invests ahead of sponsors and other equity investors, prioritizing return of capital and preferred returns to their investors
- Case Study: Sponsor equity wiped out but DLP’s investors still earned 17–18% IRR
Investor Experience & Terms
- Minimum Investment: $100,000 per fund for White Coat investors; no minimum on additional contributions after initial investment
- Fee Structure:
- Preferred return paid first (6–9%)
- 2% management fee charged after preferred return
- 20% promote (carried interest) on profits above preferred return
- Fee rebates available for accounts over $1 million per fund
- Tax Efficiency:
- All funds structured as private REITs, enabling unlimited Section 199A Qualified Business Income (QBI) deductions
- Most income sheltered by depreciation
- Capital gains typically deferred until exit via 1031-like exchanges within the fund
- Liquidity:
- Lending and Preferred Credit funds offer 90-day redemption notice
- Equity funds have annual liquidity
- Reporting: Regular monthly or annual distributions, with 1099 or K-1 tax reporting depending on fund type
Market & Strategy Insights
- Interest Rate Outlook: Expect rates to moderate from current mid-6% borrowing costs down to around 5% within 12–18 months, though timing is uncertain
- Market Challenges: High construction costs, slow permitting, and municipal fees drive up housing costs, especially for workforce and physician housing
- Solutions: Public-private partnerships and zoning reform are critical to increasing supply and affordability
- Investment Preference: Credit strategies favored currently due to higher yields and lower volatility amid uncertain interest rate and banking environments, though equity offers upside potential
- Geographic Focus: Sun Belt states with strong demographic and job growth, especially Florida, Georgia, and the Carolinas
Actionable Recommendations
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For Investors: Consider diversifying across credit and equity funds depending on risk tolerance and income needs. Credit funds provide steady monthly income and capital preservation; equity funds offer higher upside with longer lockups.
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For Developers/Operators: Partner with experienced lenders like DLP who provide capital with strong equity cushions and have a track record of managing risk and workouts.
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For Policymakers: Facilitate zoning reforms, reduce development friction, and foster public-private partnerships to increase affordable housing supply.
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For Operators: Embed community programming (amenities, social events, wellness, education) to build thriving communities and increase resident retention.
Key Metrics & KPIs
- Assets Under Management (AUM): ~$6 billion
- Properties Owned: 25,000+ rental units
- Loans Made: 5,000+ loans with zero principal or interest write-offs in lending fund
- Occupancy Rate: 95% nationally
- Rent Growth Forecast: 1–3% in 2024
- Lending Fund Returns: 10.57% net last year, 10+ years of 10%+ monthly returns
- Housing Fund Returns: 25%+ annualized net over last 4-5 years
- Building Fund Returns: 11.74% net last year
- Preferred Credit Fund Returns: ~10–11% net, 2.5 years track record
- Minimum Investment: $100,000 per fund for White Coat investors
- Fee Structure: 6–9% preferred return → 2% management fee → 20% promote
Presenters & Sources
- Don Worner, Founder and CEO, DLP Capital
- Jim, Moderator, White Coat Investor community
This summary captures DLP Capital’s strategic approach to addressing the U.S. affordable housing crisis through diversified real estate investment funds, emphasizing stewardship, risk management, and delivering consistent, above-market returns to accredited investors.
Category
Business
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