Sebastian Drapac's rules to playing the international investment game

“When you hit a corner, speed up. Because that is when you need to challenge and push yourself, whether that be spiritually, physically, intellectually, or professionally.” 

This motto has clearly served Sebastian Drapac well. From wrapping promo posters on road poles at midnight to waiting on tables and paper rounds, the now COO of multi-billion-dollar investment company Drapac Capital Partners, understands hard work. Together with well-known industry expert and father Michael Drapac, Drapac have become renowned for their considered approach to successful investing, their ‘investment model’ and innate ability to interpret data and sniff out good deals unlike any other. Today they are one of the best operators in the business internationally with activity across Australia and the USA. 

Despite this success, Sebastian maintains a modest, down-to-earth demeanour.

“There is nothing remarkable about my journey” he states. “I grew up like a lot of other kids in the 90’s with hard working parents from immigrant families, not liking school and just wanting to play soccer; however, I had an exceptional education and enough competitiveness and ambition in me to want to do more.” 

He now has many academic credentials under his belt; a degree in Commerce (Economics) from Monash University, Masters in Real Estate from Melbourne University, and is currently completing an EMBA at NYU. However, it came from working in hospitality that he learnt his most crucial lessons. 

“It’s where I learnt to deal with sometimes being treated ‘less than’, and that humbles you. Doing those jobs on weekends, not getting paid very much, dealing with different, sometimes difficult people, it all gave me a good grounding which is important for character development. However, I have also had some very fortunate forks in the road and exceptional mentors along the way.”

CBRE

Sebastian talks very fondly of his early days at CBRE in 2007 with what he describes as a team of ‘rock star’ agents that he and Mark Wizel built together, including Josh Rutman, Max Cookes, Justin Dowers and Lewis Tong amongst many others. 

“I was so very fortunate to start with that team, I learnt something from each of them. But Mark Wizel  really changed my mind-set when it came to thinking about performance and that’s part of what gave me the confidence and skills to come to the US and build our team here. It was a different mindset as the focus was not on commission; it was on building systems and processes and a competitive team, and I immediately gelled with that. He was extremely creative when it came to problem solving and thinking outside the box too. I loved my time at CBRE, it was wild, and I was running around with my hair on fire!”

Transition to the US.

Following the Great Recession, the housing market crashed, and no one knew what the future held, but while the ‘rock star’ team were holding their ground at CBRE, Sebastian’s father Michael was scoping out greener pastures internationally in the background. The US housing market at the time had dropped 30-40%, and in some areas residential land dropped to agricultural prices. Banks were in trouble and there were distressed assets. Michael Drapac had already been looking at international markets for some time already however he finally set his sights on the USA as the place to be. 

“My Dad said to me ‘Don’t listen to anyone, the housing market will come back, the opportunity is there, these are the types of deals we’re going to buy, let’s just do the work.’”

The father-son duo kept this thesis very simple and hopped on the next plane to Los Angeles with a 5-year plan to purchase 2000 residential lots. Instead, 10 years later they have now purchased 20,000 lots and hold a gross development pipeline in the vicinity of $7-$8 billion.

“I’ve now learnt that it’s very dangerous to have too many goals anchoring you” Sebastian states. “Because when you are fixated on one thing, it is more difficult to identify opportunities elsewhere with a clear mind. Some people may see that as a weakness however I think that’s our superpower. We’re nimble, we just do the next thing, keep our options open and constantly reassess at every juncture.”

Founded in Melbourne more than 30 years ago and now led by Sebastian and Michael Drapac, Drapac Capital Partners is a dynamic, value investment firm that has now grown into a multi-disciplinary company with operations both in Australia and the US. They are known for their unique investment model, attention to detail, and ability to identify undervalued markets, this together creating the perfectly balanced framework for prolific investment. They have a running 54% IRR (AUD) from the U.S. project, with several assets that hold record breaking results, one example being a development site in Midtown Atlanta which Drapac purchased for $4.7million and sold 2.5 years later, for $19million. It was the highest rate per square meter ever sold for a development site in Atlanta, a particularly impressive and proud moment for these Australian ‘out-of-towners’.

“My Dad especially has an interesting skillset. His extrapolation of data is exceptional. He knows how to interpret and analyse data better than anyone I’ve seen. This is coupled with a  unique disposition with numbers and intuitive ability to know if a deal is “good” or not, or if it’s mis-priced. When you mash these together it’s powerful, and you can’t teach it.”

 One thing he drilled into me, is a deep understanding of probability and risk management. We don’t think of ourselves as being in the property game, we are in the value investment game because you could apply the Drapac Investment Model to any asset class, and provided that several conditions are met, it works. We just use real estate because we have an affinity with it. However most importantly, he taught me to remove myself from the emotion in high-pressure situations and make strategic, level-headed investment decisions.”

The Drapac Investment Model.

From the outset, Drapac could be viewed like any other investment firm, however once you scratch beneath the surface, it is clear they are not. They hold an almost ‘old school’ approach to business, away from the office towers, spreadsheets and calculators and combine this with an incredibly sophisticated, institutional framework and investment model that sets them apart from the rest. Sebastian refers to it as a ‘rebellious DNA’, a counter-culture to the typical RE investment firm who traditionally invest according to the low-risk/low-return high-risk/high-return matrix. 

“We just behave and assess things differently” he states. “We buy assets for their underlying investment value rather than pay premiums  for blue sky potential and we believe our risk profile is extremely low. For example, we may take on timing risk whereby a market may not gentrify as quickly as we anticipate but maintain low gearing and debt levels. 

’Risk’ is typically mis-priced on real estate deals, so if you can quantify it better than others, which we feel we do, you are adding value at that buying point of the investment life-cycle.  It’s possible to defy the risk-return matrix through quantification, mitigation and value-add strategies. If you get that right the return profile is asymmetrical – limited on the downside, and exponential on the upside. 

Whilst managing risk is the foundation upon which Drapac is built upon however as with most successful companies, a great culture and people who are aligned with their authenticity and ambitions are invaluable to them.

Whilst managing risk is the foundation upon which Drapac is built upon, the promotion of a great culture and the commitment to forming a team that exudes authenticity and ambition is an invaluable part of the process.  

“We’re not for everybody - however, if you want to learn, grow, understand value investment and real estate, and enjoy outsized financial benefits over time through effort and dedication, then Drapac is a great place for you. But if you’re not culturally and ethically aligned, it won’t last very long. 

"We do good things and have great outcomes because we treat people right and are good business partners; we do not try to tick any boxes and be someone we’re not. There needs to be a cultural alignment with who we work with. It's very important to how we operate.”

Sebastian’s modus operandi is very clear; it's defined but fluid, technical but intuitive, open but selective. I question how he maintains this ‘sharpness’ and motivation every day, a competitive edge that very much appears to be ingrained in his persona. 

“I come into work every day feeling slightly uncomfortable.” He states. “It’s a pre-condition for growth. Whether it’s training or work, it is important to feel slightly uncomfortable every day and push yourself to that line where you know you’ve exceeded your boundaries. That is something I took away from my time at CBRE and is now ingrained in me. It makes you stay in the zone. It is the same concept as speeding up around the corner - it would be much easier to not challenge oneself when things seem difficult or ‘the fridge is full’, but that’s when you need to speed up.”