Written By: Teddy Swain, TRI Commercial Real Estate Advisor
With 10,000+ units under construction and just as many more approved or proposed in the pipeline, there is no denying the San Francisco East Bay Area is experiencing a significant construction boom unlike past development cycles. To fuel that amount of new development the region is host to a massive influx of capital investment that, in the past, has seemingly been limited to only San Francisco and the Peninsula. With a large portion of those investment dollars flowing into new development projects, where does that leave all of the existing, aging product? I caught up with Eric Wang, Principal at Rev Projects, a Bay Area investor and developer to explore how he finds opportunity in existing buildings.
Eric focuses on revitalizing underappreciated properties – hence the name Rev Projects – in order to return profits to his investors and also the communities in which he works. Alongside his investments, Eric partners with local non-profit organizations specializing in areas of rehabilitation, homelessness, and education through donating a portion of his upfront fees on every deal. Some of Rev Projects past investments include Old Mother’s Cookies Lofts in Oakland, a R&D facility in Fremont, and most recently student housing in Berkeley. During this interview, Eric takes us through his decision making process for his latest student housing investment, where he finds opportunity in today’s market, and why he chose to invest here in the Bay Area.
Thanks again for doing this, Eric. Let’s start with your background. How did you get into real estate?
Well let’s see, I started right out of college as an investor in institutional real estate with Prudential Real Estate Investors. I really valued those early experiences at Prudential because I got to understand, on a professional level, how institutional investors approach deal making, manage their investments, and develop projects! I eventually decided to go out on my own and that is when the idea to do Rev Projects came to life.
What motivated you to start Rev Projects and what exactly do you do?
I wanted to work on deals that I care about in areas that I care about. Rev Projects is focused on the middle market and acts as an investor, operator, and developer. Right now our focus is on the East Bay because we feel there is still a lot of value that we can add.
A lot of cities in the East Bay have seen significant inflow of new residents. Old Mother’s Cookies in Oakland was a perfect example of this: its former use was a cookie factory and several years ago a developer bought and re-purposed it into live/work housing to support an increased demand for loft style units with creative space.
Why the Bay Area?
This is a very good question; first things first, I wanted to be as close to the projects I work on as possible and I live here, so in that respect, the Bay Area made sense. The Bay Area is also one the strongest markets in the world. As an investor, if you are looking for a ton of upside on your investment, the Bay Area had that for a while but markets are now pretty much stabilized. However, what comes with that stabilization is some downside protection because it is such a core market, unlike some of the other tertiary markets that I think could be hurt in a falling economy.
If you don’t get the upside investing in the Bay Area that you might get elsewhere, fine, but you do get some protection. I think sooner rather than later people in my field are going to have to start thinking about not losing money rather than just the upside on their deals. That could happen tomorrow or it could be sometime in the next couple of years but that’s where people’s minds should be.
How do you approach each of your investments?
The approach I take is very much a value-add investment approach slowly underwriting and evaluating deals on a case by case basis. I only move forward with projects that I feel very comfortable with in terms of my strategy and execution. I am not a fund; I don’t need to deploy a ton of idle cash immediately so therefore I do fewer deals and tend to let stuff pass by. The deals that I really care about and I think I can do something great with I pursue.
In 2019 Rev Projects acquired a 120-unit student housing building on Telegraph Avenue in Berkeley. Can you take us through the strategy and decision making behind that deal?
Yes, Spectra Southside is essentially student housing. When it was first brought to my attention, I immediately noticed its location was just steps from the UC Berkeley campus and after some further investigation I realized it was very poorly managed. The property had been leased to a master tenant who was managing all of the residential units and that was just not run very well. I also knew that because students frequently move in and out, I would be able to get in there right off the bat and complete the improvements that were needed.
What are your thoughts on investing in Student Housing in general?
Student housing is more recession resistant than traditional housing, especially if you are close to a tier-one university. This is particularly true in supply constrained areas like Berkeley where there is already limited housing and university enrollment is increasing. You know, often times university enrollment increases during bad economic times because people want to go back to school to earn a higher degree.
I think overall, student housing is a great investment, especially at this time in the market cycle. Going in as an owner/operator you have to realize that it’s always going to be a bit heavy operationally. There is high student turnover and more wear and tear than your typical apartment complex but that’s why we contract out our property management to experts who specialize in student housing. Investors tend to pass on student housing because of the operational intensity but if its properly budgeted and managed, the pros far outweigh the cons.
East Bay Area housing development is booming. Would you consider getting involved with a ground up housing project?
Where I’m at right now with Rev Projects is very focused on acquisition, renovation, and revitalization. Taking old projects and breathing new life into them. That is fun enough for me!
If we were at a different point in the market cycle, I might reconsider my answer and take a look at some sites but ground up development is a different business entirely. I would love to be there one day but I don’t feel a deep need to be there today. Get back to me in 10 years and let’s see where I’m at.
So, what’s next for Rev Projects?
Well like I said, I operate in this middle market space where I’ve done a live/work loft deal, I just sold a R&D building, and now I’m working on the student housing project I bought last year. I am currently underwriting a couple of office deals so I actually stay pretty open in terms of asset type. I give up deal flow and total dollars invested for high quality deals that I know I can execute, no matter what asset type.
So, what’s next? That’s always the question and I leave it open – actually, what’s next is a good deal!