Multifamily Man: The Dermot Company’s Andrew Levison

Andrew Levison has gone from small-time property management in New Haven, Conn., to national institutional multifamily acquisition and development. He is chief investment officer at The Dermot Company, which he acquired in 2015 along with CEO Stephen Benjamin and Chief Financial Officer Drew Spitler. 

Founded in 1991 by Bill Dickey, Dermot currently manages approximately $5 billion in assets and owns, holds investments in, or manages over 7,500 apartments across 24 assets. The firm’s portfolio is national, but roughly 70 percent of it is in New York and 30 percent in Florida, with properties that include 20 Exchange Place, 101 West End Avenue and the Quay at Palm Beach Gardens. 

Levison sat down with Commercial Observer to discuss his career path, the differences between owning multifamily properties in New York and Florida, and why America finds itself in a housing crisis. 

This conversation has been edited for length and clarity

Commercial Observer: So what is the path of your career? 

Andrew Levison: It’s a little bit unusual, I guess. When I got out of Wesleyan University, I was a ski instructor/ski bum for a year in Steamboat Springs, Colo. And, while I was out there, a college friend and I were talking about our interest in getting into the real estate world. So, after a year of being a ski bum, I moved to Boston, I had an economic consulting gig, and my friend and I, basically on the weekends, started buying up three- to six-unit apartment buildings in New Haven. 

I was shuttling from Boston to New Haven on the weekends to buy, renovate, lease and repair these small apartment buildings with a friend of mine, and that was kind of our side hustle while we were working our 70 hour-a-week jobs. 

We did that for a number of years, built up a small portfolio that we ran ourselves, and I did the consulting job for a year and a half before realizing that I didn’t know much about the real estate business from just doing this stuff on our own. So I got a job back in New York working for an owner-operator and developer in Harlem called the Janice Property Company while I continued to own this stuff in New Haven.

How do former ski bums acquire buildings? What went into it in terms of financing?

I would say it’s entrepreneurial, interesting and not necessarily recommended. It was a combination of all of those things. It was the era of no-doc loans. These were small but highly levered loans, and then for the remainder of the capital we were doing friends and family, pass the hat. Plus, whatever savings we had, we were putting that at risk in these properties as well. That’s how we pulled it off. And everyone got paid back with interest, including our friends and family. We didn’t really make money, but everyone else came out OK. 

How did small property management inform your institutional ownership role today?

The main thing that that experience gave me, and then my first real job in real estate at the Janice Property Company taught me, was what it takes to do the job. Because when I was renovating apartments myself, or painting apartments myself, or fixing toilets myself in New Haven, I knew exactly what it took to do the job. We weren’t professionals, but I knew how many hours it took for us to paint an apartment, for example. 

So, when I got the job in Harlem and then I was overseeing vendors and staff who were doing the work, they couldn’t lead me astray as much as they might want to, because I could say with honesty that I’ve done this myself. So I knew exactly what it took, and I knew that a three-hour job should be a 30-minute job. 

From my perspective, I built incremental skills from the very bottom level of the real estate business. And, while I can’t speak to the broader company, when I came to Dermot, I had had these kind of layered experiences starting from fixing toilets and leasing apartments myself, and dealing with city agencies directly, then working for a small but experienced property company in Harlem that had hundreds of units and on-site superintendents, and a little bit of infrastructure, and sort of bringing that experience to the job of managing others.

Tell our readers about Dermot’s business model and how you guys separate yourself from the pack. 

Dermot’s an amazing place because, in the U.S. real estate business, there aren’t a tremendous number of multifamily firms that have been around, and doing the same thing, for 35 years, who aren’t family businesses that have been passed down from generation to generation. We have this interesting mix of not being a family business, being institutional in the sense that we have institutional financing partners, but also doing it for decades, staying focused on our core mission of being vertically integrated multifamily managers. 

A couple things have set us apart. One is the depth of experience in New York City, which not a lot of companies have while also being active on the national stage. Two is that non-family lineage, and also we’ve had a generational transfer. In 2015, the three senior guys of the company, including myself [as well as Stephen N. Benjamin and Drew Spitler], bought the business from our founder [Bill Dickey]. We had a really successful transition in ownership 10 years ago that changed the business, but followed the same ethos and morals as we’d had for the previous 25 years. 

And I think it’s just an entrepreneurial place, but it’s also really warm and welcoming, and is a great place to work.  

Who are your renters today?

We’ve been quite focused on higher-end areas, particularly in Palm Beach County, finding properties that are closer to the build-to-rent (BTR) products —- so townhome-style units, attached garages, places that are sort of in between your traditional rental and our new niche products of BTR and SFR (single-family rentals). 

We have defined this customer that we call “the lifestyle renter,” who we define as someone who can buy a home, but not the home they want. That really defines a lot of people — renters who have great jobs, they’re upwardly mobile, they probably do want to own a home, they might be starting a family, they want to live in a nice environment, in a nice place, close to amenities, but they really can’t afford to buy today, given the price of housing and interest rates. And so we see those people renting for longer. 

Let’s talk about the New York multifamily space. What have you done to try to remain successful in a very competitive and, frankly, complex environment? 

We’re enmeshed enough in this city that we understand the trajectory of where things are going. People talk about the 2019 rent laws [the Housing Stability and Tenant Protection Act of 2019], but what they forget about are the 2011 and 2015 laws [the Rent Act of 2011 and the Rent Act of 2015]. The state legislature changed multiple pieces of rent-stabilization in each of those years, and, because we were heavily invested in that space, we had about 3,000 units in older buildings that had rent-stabilized exposure. We saw how the dynamics were changing, both in terms of the underwriting, what it cost to improve a unit and capture the rent and get units to market, but also the dynamics that were playing out with tenants and landlords, how tensions were increasing between them in that space, and how that impacted operations. 

We saw what was happening and saw the impact of those earlier changes in the laws, which made it really hard for us by the time 2015 rolled around to make sense of investing in that space. So, we bought the business in June 2015, we had seen the 2011 change, the 2015 rent law change was happening at that same period of time, and we were underwriting deals like everyone else, and we were just losing repeatedly, because we were using real underwriting numbers, real experience of what is it cost to maintain these older assets. The deferred maintenance numbers could be quite high on these older buildings. What does it cost to operate them? What does it cost to renovate these apartments if you can get them back? 

We had real experience of what it cost to maintain these older assets, and we really moved away from that business because we saw that it was getting really hard. At the same time, there was a tremendous amount of institutional capital coming into it. We had been in it, we’d been successful, but without that flood of capital coming in we didn’t feel that it was a reasonable place to be investing. 

So we shifted away from the rent-stabilized space and focused more on buying younger buildings with market-rate housing — kind of 1970s to early 2000s vintage, with a doorman, elevator, maybe they have amenities, maybe they don’t, but really go in and make the buildings much nicer apartments with a broader array of amenities. 

And what have you guys learned from Florida? 

Yeah, it comes with its own challenges. Nothing’s easy in Florida. You don’t have the same regulatory challenges that you have in New York in terms of rent control and other regulatory pressures, but you do have supply pressures, more of the normal market dynamics. 

In New York, because of all the regulation and the cost of doing business, it’s tremendously difficult to build, and so we have limited supply in New York. So you deal with pockets of supply. In Florida, the government is encouraging people to build housing, which is great from an affordability standpoint but can be challenging from an ownership standpoint, because it might mean that you have pressure on rents. 

We’ve seen some of those impacts recently, as the wave of deliveries continues to come from what got started in 2021 and 2022, but we’ve really tried to focus on locations where there’s going to be restrictions on new supply: higher-end locations, where there’s a lot of homeownership and limited rental product coming. But the dynamics of the overall state and the excess supply that came out of the last cycle has been challenging over the last one or two years. 

How do we fix the housing supply problem in the United States? 

I wish I had the solution to that. I studied economics in college. I believe in supply and demand factors. When you look at a place like New York, or other places with artificial restrictions, over the long term, if the demand continues to be there and the supply is limited, you’re going to see increases in rent that are higher than inflation. That’s what you’ve seen historically in New York. 

And I don’t think that builders of housing think in the way of “Oh, well, if we don’t build, then rents will go up faster,” because there are builders, there are owners, and they’re not necessarily the same people. There’s a whole business in the United States of what we call merchant builders, who build multifamily housing, and their goal is to sell it as soon as it’s finished. They’re making money on the trade between their basis and the sale. And that doesn’t necessarily require rent growth in order for them to make money. They need to be able to build at a reasonable cost and sell at a higher cost, and they make money, and they’re not relying on rent growth. And so those are sort of two different forces. The builders are focused more on what current interest rates are, what the costs to build are, as opposed to the trajectory for long-term growth and rates. 

I don’t see our industry pulling back from building housing. As I like to say, builders are going to build. 

What’s your best advice for people breaking into CRE?

There’s no defined path that anyone is going to travel, right? There’s a combination of what’s available to you, what you put into it, and how lucky you are. For better or for worse, I started out on the direct operation side of the real estate business and kind of worked my way toward the acquisition and investment management side. That’s a path, and it’s not necessarily the only path. I like it personally because I’ve always wanted to be close to the properties. I’ve always wanted to be an operator of buildings.

I think that people who understand the operations of buildings make for better acquisition people, because they really know what needs to go into an underwriting. The numbers have meaning, they’re not just numbers on a piece of paper. 

That being said, starting your business as an analyst at one of the big private equity shops gives you an entirely different skill set and sophistication with complex finance and underwriting models that I wasn’t able to bring to the table. I started learning those skills in my 30s, whereas there are analysts who work for me today and are learning those skills in their 20s. So, I think my recommendation is that people should do what they like doing, get really good at it, and then build those skills. And wherever that takes them, it takes them. 

Brian Pascus can be reached at bpascus@commercialobserver.com.