Making A Social Impact and Co-Living Investments with Matt Ryan

Today we speak with Matt Ryan of re-viv about how he uses real estate to create a social impact and improve underserved communities. 

Here are some highlights from today's episode:

• What is co-living and how it benefits both tenants and investors
• How Opportunity Zones can be leveraged for tax benefits

Are you looking to level up your commercial real estate game? Join the Commercial Real Estate Bosses Community for free at https://crebosses.com/join and get access to live trainings, industry professionals, and a network of like-minded investors. 

With over 10 years of experience in real estate and construction, Matt Ryan founded re-viv to re-engineer residential and commercial real estate in underserved communities. The company’s mission follows his passions for urban policy, building technology and social impact ventures.

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Apple Podcast: https://podcasts.apple.com/us/podcast/making-a-social-impact-and-co-living-investments/id1648166587?i=1000617740495

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Connect with Matt Ryan:
Website: https://re-viv.com/

Are you looking to level up your commercial real estate game? Join the Commercial Real Estate Bosses Community for free at https://crebosses.com/join and get access to the Passive Investing 101 masterclass, live and recorded trainings, and a network of like-minded investors.

To listen to our past shows and be notified of our upcoming episodes, subscribe to our Podcast or Youtube channel:

Apple Podcast: https://podcasts.apple.com/us/podcast/commercial-real-estate-bosses/id1648166587

Spotify: https://open.spotify.com/show/1aRI59MdwaTMZL4mdhztk2

Youtube: https://www.youtube.com/@crebosses/streams

Transcript

0:00

Hi everybody. Welcome to Commercial Real Estate Bosses where we interview badass investors who are crushing it in the commercial real estate space. I'm your host, Ciaara Hoffmann, and on today's call we have Matt Ryan of Revive. So Matt, thank you so much for being on the show today. My pleasure. Thanks for having me. Amazing. Now you have a very interesting story and background, so I would love for you to tell our listeners, what did you do before real estate and how did you get into this business? Yeah, so I started out basically looking for a career around 2009, 2010. I worked for my family's company for about three and a half years outta college. So I'm aging myself there. And I got really interested into the energy efficiency and green building sector. That was a growing sector. Coming out of the, the'09 recession the Obama administration was Secretary Steven Schu, who was his secretary of Energy, excuse me. They had put a lot of funding together to try to revitalize the construction workforce and seeing the retrofitting existing buildings, which are a large portion of carbon and energy intensity. They represent 40% in total in addition to solar panel production and bringing that online that this would be a really great opportunity. And it was. I. And so we went after that kind of market segment focused on energy efficiency implementation and residential and light commercial buildings. I did that for about five and a half years, being a jack of all trades. And there had been other companies that were starting to be integrated subcontractors, integrating H V A C, insulation, basement waterproofing and foundation, and implementing that in the construction side of things. And using building science, energy efficiency as a basis for a lot of that. And so there have been a lot of companies who have tried to grow and scale, including one here in San Francisco that actually raised venture capital and was unsuccessful. And so whenever I was looking at this kind of crossroads after about five years to try to grow and scale this business or to maybe shut it down I met with the gentleman out here and the story was bleak, that there, there wasn't really a lot of room. And frankly since then, the industry has just muddled a little bit, if not decreased. And for me it was, I wanted to relay my experience. And at that point in time, I had invested in real estate. I had done, bought a foreclosed condo, fixed it up. I had recently bought a foreclosed duplex in an up and coming neighborhood. And that's where my interaction with Ms. Pam, who became one of the catalysts for revive, Ms. Pam was a community member moved two doors down from us. She worked at my daughter's school. My, my now wife moved in the other side of the duplex. And she walked every day to school to her job. It was a cook at the school. She took the bus every night to, to work her second shift. And, we just said one night my wife and I are discussing like, what happens in this Pam's more people move in this neighborhood and start buying up. And, it was the first time that I thought wow, there, there really should be a way, a company and kind of a partnership focusing on these neighborhoods that can comprehensively revitalize these neighborhoods, provide for-profit, market rate housing, but also help protect, this issue of displacement. At the time I didn't understand gentrification and, all these other larger issues. And so when I moved to San Francisco I toyed around, tried to get a job for about a year, and I realized a good friend of mine told me, that I was vastly unemployable and that I needed to quit, messing around, trying to get a job and work for someone and just, figure out what is I wanted to do and go do it. And and so that's what I did. I started selling those real estate assets. I 1031'd into an industrial building. And I just got busy. I started, calling on buildings owners that were of small scale trying to do value add projects and, that kind of led to, and just continued to try to formulate Revive as a business plan and define what our m MVP is, so to speak. Yeah. And it sounds like you've been able to combine your passion, for social impact. So tell me more about how you've been able to use that social impact in combining that with your business in real estate. Yeah, so the first thing that we did, we've focused on being a traditional neighborhood specific investment company. If you go back to revive the thesis is to actually be. Asset agnostic for a host of reasons. Just finding a neighborhood to invest in and being super aggressive in that area. I always tell people it's like we wanna be the company that people say, ah, man, I wish I would've bought everything I could have in that neighborhood 10 years ago. So that's Revive in a nutshell. But the issue of displacement and pushing working class people further outside of cities. This idea of displacement, gentrification. Once we became hip to that idea, we said value add players. And forgive me for the value add listeners are really the culprits of this displacement issue, right? We're buying a building, we're pushing tenants out, unless we're required by law to do it. We're not paying them to leave, we're forcing them to leave. We're renovating it to a new class of tenant who would want to come in and pay a little bit more, but also a little bit less than you know what they would have to pay if they lived in a really high end neighborhood for the same apartment, right? Most of these tend to be working class professionals, so we developed a value add strategy that focused on renter retention. Can we make the necessary capital improvements? But once we factored in things like vacancy, lease up, construction costs, could we make code level upgrades? Sacrifice a little bit of return, but still be able to focus on retaining tenants and still make money. And the long, and the short of it was yes. And so we did that with our first building in Sacramento and we were looking to try to scale that and maybe eventually create a model where a nonprofit or some other sort of public entity to come in and fill the gap in, Help us compensate for that devaluation of the building and maybe have an innovative strategy for value add to incentivize developers and small scale developers to preserve affordable units. A lot of affordable housing is done at an institutional scale, right? We think this is a problem that has to be attacked multi-pronged. So that was the first thing. And when they passed Sacramento's rent control, which we're not a fan of. It really threw a wrench in that strategy because now you have to go through the government to implement your strategy. You can't negotiate these type of lease terms with people. You're constrained. You can only do so much and it, so it really throws a wrench in it. And so it was around that time that we pivoted to co-living and we did that because again, we felt like it attacked a lot of those issues that we talked about. It addresses providing housing for that 22 to 35 demographic. That's competing with the Miss PAMs of the world who is displacing her because that existing stock is what everyone's competing over. And that affordable rent is what everyone's competing over, right? So if we could convert a single family home or a du, tri, quad that's vacant. And turn it into 10 to 20 beds and do that at scale. Can we provide the necessary housing for these people that would normally move into a single family house with three or four roommates and maybe push out a Miss Pam. And that was again, the big thesis behind it. And there was other reasons that we could provide it, what we felt was an affordable rent. You hear in micro apartments and co-living, there's this term being thrown around called affordable by design, which just simply means that like we're not building with tax credits. There is no subsidy, but we're able to provide a rent that is affordable by the measures of the area median income, and in a lot of instances would probably qualify for a state tax credit or some other form of funding mechanism from the government because we're providing such a low rent. But in this case, for co-living, what investors get is really a mismatch of a really high quality product, an actual better return than you would on a traditional multi-family deal. And we're able to still provide rents and that are affordable relative to the mom and pop comparables in the area and studios. But in exchange, tenants are just having to share their common areas, which a lot of people are doing already. There's already that marketplace that exists. Yeah, no, it sounds like you have a very different model than most or all of the investors that I've spoken to you on the show so far. So as far as your portfolio goes, where are you, what neighborhoods are you focusing on? Are these all just in that Northern California area? Yeah, we're increasing, like Sacramento is the exception to the non-California rule that I have now. Yeah. Cause we really tried hard to do projects in Oakland and Berkeley for a long time and beat our heads against the wall in that market. And we're now exiting that. So the two markets of focus right now are Denver and Sacramento. And for co-living, cuz they both make sense from that perspective. I can't necessarily share the neighborhoods that we're focused on right now. I don't want to, I don't wanna spill those beans. No worries. Yeah. Right now we're going from. I think we were like three years ago, we were one building two and a half, 2 million of a u m two and a half million of a u m. We're up to, we're stabilizing 13 and a half right now. So we five x our construction pipeline in a matter of 18 months, and we have 40. Yeah. 40 units of co-living coming online and we're currently raising equity to try to build out, to get to another a hundred and beyond really. I don't tend to try to get too caught up in unit counts and au Yeah. But internally we, that's a metric you have to use. And for us, we just wanna be a leader in the co-living development space. And really, provide the benefit that this investment mechanism does to our investors in the near term. Yes. Yeah, that's, we're actively looking to expand and grow and do ground up development, purpose-built co-living. Both of the buildings that we bought that were co-living are historic buildings. So they have a sexiness factor to'em. There's architectural distinction, Revive originally, like the name. I was just gonna be A GC focused on renovating historical buildings cuz that's okay. That was always something I love to do. So now I get to pair that, impose my energy efficiency, my green building, nerd-dom on it as well. Yeah. And also this affordable component. And to me that was the holy grail, right? So yeah, it's, we will continue to look for those buildings. I call'em living art, right? And I really love that idea. But they're really complex projects and it's not a scalable strategy. So we'll continue to do one off deals like that. But, more of what we're trying to focus on is ground up purpose built co-living. Yeah. And tell me more about how you came up with this idea of co-living or rent by bedroom. And as far as your strategy goes, are these projects something you just hold onto forever or do you have a certain time period that hold these properties and then sell? Sure. Yeah. I can't take credit for the co-living market, right? I tell people this is a market that's been existing for decades, if not centuries. And it's well established in Europe, right? So before common, there was European operators there was even a market segment of this back in the seventies that started to emerge before it squashed. And I don't know the reasons behind that. So I really, I wish I would, could take credit for it, but I can't. As far as whole period on our assets, I tell every investor we underwrite to a five year proforma and we base our IRRs and cash on cash over the lifetime on that. And we only do that because that's the industry standard, right? Like people shop around for investments. I talk to retail LPs all the time. That's what they're doing, and so we try to keep it really simple as far as what the time period is. I also, if I'm talking to an investor and they say, oh, so you're gonna exit in five years? I say maybe not. The best fund managers, syndicators that I've known and that I've met over the years, and when I first started this business, attending conferences and listening to, you have a fiduciary responsibility to provide the best return. Not only pre-tax, but also looking at it, I think post-tax for your investors. And that could happen in three years. That could happen in seven, it could happen in 10. And so I think for every syndicator fund manager struggles with this, with answering this question, right? Because it's really just about. When is the right time? And you have to make that call. So short answer, five years. But when you're putting so much capital and the amount of time and energy it takes to source deals and manage that amount of risk, right? Because the more capital you put into a deal, the higher the risk. And from a tax savings perspective, it really makes more sense from my perspective, being on the back end of those spreadsheets to really hold on for the long term. And use the tax benefits that real estate does. But obviously it's really hard to tell every investor that you're gonna be in this deal for seven or 10 years. So I think it's an equivocal balance, and you gotta be careful about what the matching the investor's needs with what you're trying to accomplish, and making sure you're on the same page. Perfect. Now, can you tell me more about Opportunity Zones? So what those are for listeners who haven't heard of that before and how is REVIVE taking advantage of those? Yeah, so it started with as a kind of a idea between Sean Parker, who is the original founder of Napster, who helps formulate the economic innovation group, who spearheaded this legislation, got Cory Booker, Tim Scott on board. And got it passed. And if you look into the history, the short history of the legislation and how they did it, it's actually quite remarkable. I encourage anyone to take a look at it from my perspective, it's one of the greatest private public partnerships over several decades that we've had from a policy perspective. And the way it works is, they were seeing a substantial amount of capital in the capital market sitting on the sidelines, not making its way into typically distressed markets in the us So the economic innovation group went in and actually mapped all the zip codes in the United States and assigned them a distress score. And so for a guy focused on up and coming neighborhoods and around urban cores with a, with a name Revive. This was like the holy grail of data that I didn't have to aggregate on my own. Yeah. And so we were actually using that data initially to target our markets. And so the way the legislation works is if you have a capital gain you have$100,000 gain that you sell stocks or whatever you have this period of time, and I'm drawing a blank, it'll come to me in a second. You have a period of time to invest that capital into an opportunity zone fund. Okay? And then from there, that opportunity zone fund manager, if they're buying a piece of real estate, from the time they close, they have 30 months to double their basis in the property. And for those non real estate geeks, you buy a building for a million dollars and you assign$700,000 to the land. You means you have to put$700,000 into that building to qualify for the opportunities of legislation. They want to drive economic growth, job growth in these areas and they also want to made it conducive for developers cuz they didn't want people, as we talked about earlier, going in and buying existing buildings, pushing these people out, right? And then getting this massive tax savings on top of it, right? They wanted to disincentivize gentrification, displacement, and in incentivize development. And so if you do that and you meet all those qualifications, you get your 30 months, you double your basis then when you go to sell in 10 years and you keep your money in the fund for 10 years, you pay no capital gains when you exit. And most opportunity zone funds, like we were underwriting to a three X equity multiple. So you put a hundred grand in. Okay? And at the end of it, you've basically tripled your money. So you're walking out with what? What is that$200,000 profit? You pay no capital gains on that 200 grand if you keep it in there for the 10 years. That's crazy. The other caveat to it is that a hundred grand that you had on capital gain, You would normally pay tax of just say$28,000, right? If you had a$28,000 fed tax rate or whatever, you defer that tax until I believe, and fact check me on this, to December 31st, 2026. So you don't pay tax initially, and that's where the other interesting thing goes is. If you take that$28,000 that you save and you invest in it, right? Over, say, a two to three, four year period, what's your return on that capital? And that actually kinda allows you to even further offset your gain. Allows you to continually make money on your money because you're not paying that money to the government, you're actually delaying that tax burden. It's a really interesting piece of legislation. We tried to layer it initially on our co-living deals cuz we were focused on small scale heavy value add. The truth of the matter is between the complexities of the market we were working in and the amount of deal flow, we weren't able to make an O Zone deal happen. And by the time we pivoted to Denver and Sacramento markets, the O Zones that they have there just weren't conducive to the co-living product that we had. So there was a very distinct mismatch there. I still continue to think it's a great piece of legislation. It's a great tax deferral mechanism for people that I think they should look into. We're just not being as aggressive in that space as we wanted to be, three or four years ago. And to be frank, if we had been more programmatic experienced developers at that time and not value add investors, we probably wouldn't be able to take a lot better advantage of that to and get more of our investors involved. Got it. So I just wanna pivot and switch gears here a little bit. And if you could just walk us through, one of the acquisitions that you've gone through. So maybe it's one that was even more challenging than others, and give us the story behind it. What worked, what didn't work, and what maybe you learned from it and could have done differently. Oh wow. That's a tough one. I mean, The first value add deal that we ever closed, I say we did it perfectly. We used the data, we found the neighborhood, right? We aggregated a bunch of property owners. We set up a campaign, we called them, we got an odor direct, and we closed the deal, and what we thought was a pretty significant discount. There was an 11th unit that was non-conforming. That was built, that wasn't even kind of part of the deal. The guy had approved plans to build four more units. It was perfect by all means of stretching the imagination. The only thing that went bad on that deal was that 11th unit. We essentially had to tear it down and rebuild it from the ground up, which basically doubled our construction budget. And we only able to do that at a six cap. Which is not a great return, but the rest of the value add play worked out extremely well. It has worked out fairly well for us, even though it's a fairly small scale complex. So that was the complexity. The other deals that we've sourced, two were offices that were previously residential converted commercial office, so those were deals that were just on market that had been sitting. And so that was an interesting production of the, of Covid was that, and you're hearing all the talk about it now that office buildings are highly distressed and trading at a discount, and so that was interesting for us where it's just at the end of the day, if you're traditional real estate investor and you know the business, like it's all about buying in a discount, right? Buying to a relative basement, post improvement cost, you're below comps, that's how you make your profit. And everybody goes home happy, right? Yup. And so that was interesting for us because while we wanted to continue to grow and scale our off market sourcing, cuz we were getting really good at it, what we found over time was as we got more projects and brought more online, we had more operational overhead and time suck. That we really just had to get more savvy about working with local brokers and navigating and staying away from the deals that everyone was after and finding the deals that were a little bit more complicated. And were the bastards of the group and taking those on and you hear about anyone who gets started. That's how kind of everyone does it. Now, there's a lot of risk associated with those deals, and you really have to be careful what you're getting yourself into. The deals that we've taken on are highly nuanced, very complex. These are converting historical structures and doing a change of use. So it has not been easy. And it's sometimes fun, it looks like they're gonna be good fundamental real estate deals for us. And we were careful enough in our underwriting and our assumptions that we'll be able to weather some of the hiccups that we've had. Those are the two scenarios. In a perfect world, I'd have a team sourcing off market deals all the time, but even whenever we were doing that, we found that 50% of the deal flow was off market. 50% of the deal flow was on market. And the problem you run into with your off market deals is even if you're generating that the life cycle of those deals and the time that you need to acquire'em is very substantial. So you really have to have a team doing it and competing with brokers that have, yeah, you gotta understand your competition, right? Yeah. So you can find gaps in the market. People do it every day, right? This is what makes real estate so attractive. It's a low barrier to entry. You can find those anomalies. But it's really challenging. It takes a lot of overhead to do it right? And it's one of those things. You gotta pick your poison. What do you, where do you really wanna be good at? Yeah. No, that makes sense. Now, so you took a building that was previously multi-family and then became an office, and then you're turning it back into multi-family. Is that right? Yep. And again, those were just, they were trading at such a relative discount and one of'em was also on a 15,000 square foot lot. And we had just done a lot split deal here in Oakland. And so we were like, wow, why don't we just parcel off this lot? The guys that we bought off of were fantastic. They were lawyers. They loved the building, but they weren't developers. So that was a, yeah, that was a cherry on the deal. We're like, if we could make this happen, we got like a$200,000 discount on the offering price cuz it'd been on the market for so long. We got them to seller carry, so again, we got a lot of the good fundamental elements. Plus we had this additional piece of land that we're now splitting off and creating value out of thin air. Yeah, it was neat. Again, it was a unique out of the box, nobody's looking at it deal. And I think if you're young and trying to get started in real estate, you gotta go find the bastards. Love it. I love your unique approach to finding these deals and your creative approach to even getting tenants and capitalizing on that as well. Yeah, thanks. All right. Now has your investment strategy changed at all in the current market environment? 2023. We 5x'd our construction pipeline, right? We went from a half a million in construction, was our biggest project to having, two and a half million in construction overnight. So our investment strategy is, Kind of nonexistent, we're actively trying to get investors in the door and grow our retail LP base. To answer the question specifically, no, other than the fact that we're changing into development based. We're still trying to find some existing assets. As an early syn indicator and fund manager or any syndicator and fund manager, you have to have a little bit of both. Because you need to have a menu for all the appetites of some of the investors that you're meeting. And development deals are traditionally very difficult to raise capital for on retail LPs, right? To get those retail LPs, you gotta diversify. We're having to do a little bit variety there to keep those people in the door. But no, fundamentally we're still looking at the same deals. We're still saying true to our fundamentals. As far as underwriting. Though, I think it's interesting now I haven't, we haven't been aggressive doing deals and so we haven't had to underwrite a lot. We were underwriting some of the things that are happening now. Which I thought, has been fun to see unravel. I'm excited to get back in that proforma instead of having to knock off 7,500 basis points on a refi rate. Maybe I'm decreasing my refi rate in three to five years. We weren't programming in rent growth higher than 2%. And in some cases we were saying there's gonna be a drop of eight to 10%. Now maybe I could get back to saying, maybe we're gonna see a higher two to 4% over time once things pick up again. Yeah, it's gonna be interesting when we re-approach the spreadsheets and underwriting. But no, nothing really changes for us. Again, it's about trying to find a core, solid real estate deal, first and foremost. Perfect. All right. Matt, thank you so much for being on the show today. Tell us about what's next for you and where is the best place people to find you and connect with you online? Yeah. Go to re-viv.com. That's our website. You can take a look at our open deal right now so you can familiarize yourself with what a co-living deal looks like, the type of deals that we're actively looking at. We are, as I said, raising a semi blind pool right now for equity to go after more co-living deals in the future. So if people are finding themselves interested in that segment. There's also a little Calendly tool on there. You can schedule a time with me and we'll set it up, just let me know what it is you wanna talk about and why, and we'll be happy to coordinate it. Perfect. All right, and thanks everybody for tuning in today. If you enjoy today's show, please write us a five star review on Apple Podcast or Spotify. Every review helps us to be able to reach more and more people looking to get involved in commercial real estate. If you're looking to level up your investment game, join the Commercial Real Estate Bosses Community. It's completely free. And inside you will get access to our Passive Investing 101 masterclass. As well as regular live trainings where you can ask questions. And access to industry professionals and like-minded investors. Join for free today by going to CREbosses.com/join. That's CREbosses.com/join or click on the link below and I'll see you inside.