Company Profile

COMPANY:S2 Capital

2018 INC. 5000 RANK: 702

HEADQUARTERS: Addison, TX

YEAR FOUNDED: 2012

2017 REVENUE: $91.7 million

3-YEAR GROWTH:

Scott Everett's Dallas real estate company,  S2 Capital, spends years working to turn underperforming or distressed properties into moneymakers. It's a tremendously successful business model--and, in a way, a metaphor for Everett's entire adult life.

Less than a decade ago, Everett was a teenage father and community college dropout waiting tables and relying on government assistance. Since then, he has taught himself the real estate business, weathered a recession-battered housing market, and built a 250-employee business that last year generated $89.5 million in revenue.

Everett wound his way through multiple areas of the real estate industry before hitting on one that worked. He first attempted to improve his station by flipping houses, an unfortunate choice in 2007-08. With the market imploding, he shifted to the commercial side, and later began focusing on apartment complexes.

After four years of struggles and near misses, his company, Royal Ventures, still hadn't made any money. All the while though, in between waiting and bartending shifts, he continued to learn the business.

"I couldn't afford to buy books at the time, so I would spend all my weekends sitting at Barnes & Noble," Everett, now 29, says. "I just read as many real estate and finance books as I possibly could."

He also networked with practically everyone in the industry who would talk to him. In 2011 he cold-called a successful executive who told him about the value-add business model, which involves investing in properties and then making physical or other improvements to increase their value. Everett founded S2 in 2012, identified a promising acquisition target, and secured a wealthy backer.

At last his years of hustling had won him a deal, though he quickly discovered that he still had much to learn. "We damn near screwed it up horribly," he says. "I had no operations background, no construction background, nothing, but I was on site 14 hours a day, doing A to Z. Which, looking back on it, couldn't have been any better for me, experience-wise."

S2 did another deal the following year, and then six more in 2014. Volume grew from there: To date, the company has acquired a total of roughly 17,000 units at around $1.6 billion in portfolio value, and has averaged better than 40 percent returns for its investors. It made the Inc. 500 list of the fastest-growing private companies in the U.S. in both 2016 and 2017, and is on pace for $160 million in 2018 revenue. 

The value-add model has been an increasingly popular and lucrative one in many regions of the country in recent years, says Jack Mulcahy, a credit risk analyst at CoStar, a commercial real estate market research firm. "Looking at the amount of apartments people are putting money into and turning around, there seems to be a lot of opportunity," he says. "The demand is still there for a lot of markets."

The moneymaking potential in S2's backyard hasn't gone unnoticed by larger companies. Everett says the Dallas-Fort Worth market has become extremely competitive, both from the Blackstones of the world and wealthy tech investors from the West Coast who are attracted by the relatively low real estate prices.

Another challenge is the always-looming specter of a decline in the notoriously cyclical real estate market. Everett isn't expecting S2's growth trajectory to continue exactly as it has the past few years, but says he's cautiously optimistic that renter demand for the company's apartments will remain robust for the foreseeable future.

"I was thrown into this business right before Bear Stearns went under and watched it all unfold, so that's always in the back of my head," he says. "That's an every 50- to 100-year event, but we are being very mindful of our leverage and our debt."

Everett has good reason to avoid an overly aggressive investment strategy. While it's safe to say by now his personal turnaround story is complete, he still has a lot at stake as S2 moves forward--especially given that he's never taken money from outside sources and retains 100 percent ownership of S2.

At the same time, he's still focused on growth. He has vertically integrated the company, creating separate arms that handle design, construction, operations, and all other components of its deals. S2 has also expanded its territory, with properties in Houston and Florida, and plans to move into Arizona and Nevada.  

Everett, who says he tries to "hire the best and just get out of their way," has delegated much of the workload for the new regions to others in the company. It's a management style that helped make S2 one of Inc.'s Best Workplaces in 2017.

It has also freed him up to do what he enjoys the most: focusing on S2's overall investment strategy and courting capital providers. "I'm a deal junkie," he says. "I don't want to be sitting in an HR meeting discussing clothes for casual Friday or something. That just bores the hell out of me."

Published on: May 1, 2018