How do you start your career in commercial real estate, what kind of properties should you look for, and how to manage your properties during Covid-19? We learn from Eric Wang, a commercial real estate investor with institutional private equity experience totaling over $1 billion in transaction experience and asset management of multifamily, office, retail and hospitality property types.
Tell us a little bit about you.
I used to work in commercial real estate, institutional, more private equity funds. And that's where my learning experience came from. These were larger funds that invested in value add projects around the West Coast. I'm based in San Francisco, CA and invest in office, retail, a little bit of hospitality, and a little bit of industrial. I started with Prudential Real Estate Investors, now called PGIM. They are still a very large investor, they just completed a huge industrial acquisition this past quarter. From there, I worked at GAW Capital Partners, which is a major international firm based out of Hong Kong, but they have their offices here in Los Angeles, and I was in their San Francisco office working on acquisitions for them.
I think for some of your listeners, they wonder where all the background experience comes from when getting started in real estate investing. I worked at these firms, and not everybody has the opportunity to do so, but you learn a lot on these firms, working for other professionals and people who know what they're doing, who have a lot of experience. And that's the best way to learn. From there, I decided to quit my job five years ago, start my own company investing as a developer in the Bay Area, on individual projects in areas that I care about, not out of a fund, but project by project. I've invested in office, multifamily, and now a student housing project that I'm working on right now. I operate now as a small company, really a solopreneur. I have an intern that works with me right now. But that's been a decision that I've made just to keep things simple. I've seen other groups and firms manage billions of dollars in real estate, and they only need a few people. But I get to work on projects that I care about and in markets that I care about here, mostly in the East Bay here in the San Francisco Bay area, where I thought there was a lot of upside and change. That's what I've been focused on the last several years now.
A lot of our listeners can relate to where you are, basically running their own business. I would love to hear how, especially in the Bay Area, how do you determine a good project to take on because prices have been insane here. You will need probably a couple of years to bring a project to fruition and to find a tenant and things like that. What are the key components that you look for on a particular property?
Obviously today with the Coronavirus and people moving out of the Bay Area, it's pretty clear, it's really difficult right now, but I just don't want to be too forgetful of the history of the Bay Area. In the past 10 years, it was undoubtedly one of the strongest markets in the world. You had all the tech talent coming in and so now obviously today we see a volatile market. But five years ago, people weren't complaining too much. They were finding a lot of great deals and doing really well with them. But the point is, we're here today, and today is different than five or 10 years ago. Today, it's very difficult. There is a lot more attention that is going towards the lower cost of living markets, lower tax markets, Texas, Florida, even Nevada, Washington state where there's no income tax, for a variety of reasons to be outside of the Bay Area in particular. But as far as up until today, which have been my recent projects in the past few years, how did I make it work in the Bay Area? My approach has very much been influenced by the value investing, the Warren Buffett approach where, I don't need to swing at every deal, I can just take my time.
I don't have 10, 50, $100 million in equity that I need to get out of the door. I can be patient and wait. Looking back, I ended up allowing a lot of good deals pass by, but the ones that I did pursue, I felt good about, the ones that I ended up taking a swing at, with the baseball analogy, I felt good about. So it's building in that margin of safety, where you don't feel like you're overreaching, overstretching, requiring leverage to make the deal work. From a high level perspective, it's this idea of patience. I don't do a ton of deals every year. I do good deals every year. That's the way I try to frame itThat brings me to one of the reasons why I'm working on my own not in a fund structure.
It sounds like we have very similar approaches, especially when a ton of people were buying properties left and right.
Yes, pre COVID, it got out of hand, especially in multifamily. I couldn't do a multifamily deal in 2019. I couldn't find a good one. I looked at a lot of stuff but couldn't find one that penciled out.
Let's take an actual example. Let's take one or two examples from beginning to end. How did you analyze a particular commercial project? Why did you decide to take it on, what did you do with it? What were the scary parts? And then how did you exit, if you have exited them?
One good example is the live work loft project I invested in. It was multiple lofts, essentially multifamily, but it's non traditional in the sense that these weren't little apartment boxes. They were artist lofts that were east of Lake Merritt, almost East Oakland. And at that time in 2015, Lake Merritt in Oakland was a really booming market. More and more attention was coming around the lake, it was starting to already get expensive. Just east of that in this quiet neighborhood, there wasn't yet much attention there. And so the reason why I was able to get it early on, starting my company was because there wasn't as much attention in that neighborhood. And now in recent years, or today, there's been focus and investment all over the Bay Area and further deep East Oakland. But at that time, it wasn't that clear.
So it's this path of growth mentality, the location was in the path of growth, outside of Lake Merritt. I acquired that and the goal was to transition these very large units, these lofts from very cheap space used for artists, or for construction people, people who had all different sorts of crafts and hobbies in these spaces, and small businesses as well, to transition that into more lifestyle, living for the creative class that was moving into Oakland, who appreciated better finishes and also the traditional space. It used to be a cookie factory. So the history of the space, people appreciated the personality of the space, the tall ceilings, there was even the original cookie oven, still remaining there. Some of the tenants just appreciate some of these little features of the building that were still there, historic features, that gave character and personality to the building, so maintaining and preserving some of those features while just making a much cleaner, better place to live. We provided some of the basic things, like bike parking, put on a new roof, upgraded the kitchen interior finishes, they were just plywood type finishes. And we got a lot of great tenants, some wonderful creative tenants. Some of them are running their own businesses as well because you could have a business license to operate a business in these technically work live lofts is what Oakland calls it.
We had new tenants come into the space and it felt revitalized. I use that word a lot, that's why I call my company Rev Projects, to revitalize things, I really felt like it was revitalized. That happened after a couple years, we renovated most of the building, about two thirds of building, it wasn't 100%, and exited a couple years ago. So that was a good project.
Was it zoned live work already when you purchased it?
Yes, it was already zoned that way. And I didn't need to change anything about the zoning. The major value add there was just upgrading the use, just making it more efficiently used and presentable for the market of people that were moving into the area at that time.
And you didn't do a ton of construction. You did not make these lofts smaller.
No, we thought about that, but we saw the demand and we saw the rental pop already just from improvements that we made. So we didn't feel the need to do that. It was mostly interior renovations and common area improvements and basic building upgrades.
And then you rented it out, and then you sold?
Yes, there was another operator. He actually did renovations in the area. But he didn't do much with this building. He's owned it for a couple years already. And it wasn't a traditional project for him, he normally would do really heavy value add stuff, and he had an investor that just really liked the building, and they just wanted to be in the area and continue the growth in Oakland. I think they felt like they would do well with it, and take more medium to longer term, take it the rest of the way. I just got out of its messier condition and gave it to them.
And did you have to get a ton of permits to do everything that you had to do or was it a pretty smooth process?
This one was more straightforward. It was one of my earlier projects, and I needed to keep it simple. I needed to complete a round trip for my investors, and I needed to take a little bit less risk at that time. My recent projects have been heavier projects. But this one was simpler.
I think that's brilliant, to take something that it's pretty straightforward, you don't need a ton of permits, if any, and you just add value by improving the building and exiting. That's very smart for the beginning of people's careers.
Let's talk about a little more riskier project, or larger project that you have recently taken on.
I think the best example to talk about is the student housing project that I'm running and managing right now. It has 120 units. They're not really full units, they're like a dorm room. These are individual rooms in a building, just a block south from the UC Berkeley campus. Great location, I went to Berkeley and when I was student there, I passed by this building, walking to class almost every day, and it has some ground floor retail. The goal there was to upgrade these units. Nothing about the building was ever touched for decades. They changed some carpet here there, but that's about it. Over the course of the last year that I've owned it, we've renovated over 70 out of the 120 units, completely changing the finishes in these rooms. So speaking of permits, now we have a permit to build a communal kitchen in the building, it didn't even have cooking facilities in the building. Student housing, you have students, there's a lot of food in the area, they got meal plans, and they found other ways, but finally, I'm building a kitchen. It's gonna be a large, beautiful kitchen in the middle of the building. That one was interesting because we had to take out one of the rooms and Berkeley doesn't like it when you take out housing, for probably good reason.
So I needed a administrative use permit in order to even take out the room in the first place. That got approved, and now I'm working on the building permit so I can build that kitchen. Recently, we changed out all the lights in the hallways to LED lights, they used to look like a ghost hotel, one of those haunted hotel movies, walking down the hallways, so we got brand new LED lights strung up in all the hallways in recent weeks. We're going to paint and carpet all the areas, we're going to redo the lobby, but the main value add was the rent pop, especially pre COVID. The units are small rooms and they were getting $800 on average per unit. But then after even just a simple renovation, we got it up to $1,300. Percentage wise, that was a huge pop just for the type of work that we did. So that was pre COVID. But now we're not getting those rents, simply because the university is online, it just started a few days ago and everything's online. And what we've seen is that though the classes are online, about half of the students have returned back to Berkeley. And many of them have stayed home, wherever they are, but there is more activity recently. And we've actually maintained the occupancy in the building at around around 80% today. So we're doing we're doing okay, it's not the worst case scenario.
It's a tough time renting and leasing in the student housing market in many of these universities. But I have hope for universities not disappearing, the higher education mark is going to change, obviously, but I think we'll be okay with some of the tier one universities. If you're in the Bay Area there'll be Stanford or Berkeley, in other cities with more tier one universities I think their student housing will be okay. It's just a matter of if the classes go back into session. If they go from online to back onto campus, the demand will be there again. I think it's just a matter of time. We'll just get through this tricky period right now.
Was there anything that you did in particular to make sure that the rents were still coming in and that people were back in these units? Or any advertising?
Actually a few things. Number one, people were concerned about health concerns in group living situations and so, health and safety were most important on people's minds and on our minds. Here are just some of the basic examples of things that we changed at the property to alleviate people's concerns: 1. We required facemask inside the building, even in the common areas outside of your rooms. 2. We encourage people to not crowd on elevators. 3. We installed a little bit more microbial resistant door handles and all the common areas, it's not going to be a perfect protection against COVID or viruses, but it has similar effects that copper has in protection of microbial organisms. 4. We installed touchless faucets in the bathrooms, there's even a touchless toilet flush product that we installed for the toilet so you can just wave your hand and it flushes. Just a lot of these little operational changes and some physical changes that give people more comfort. 5. When people move into a room, similar to what a hotel would do, we put this tag on the door that breaks, kind of like when you break new packaging. You enter your room, it tells people that no one has been inside this room since it has been cleaned, sanitized, and we've sanitized all the surfaces.
Everybody has had to do something different during this COVID season. Those are some of the changes that we've had to make, making people feel safe coming back again. In terms of advertising, we really built up our social media, I have a good management team and they're constantly posting on Facebook, Instagram and putting out little specials, little treats or a little discount, and we've had to discount our rates for the fall. And that's simply because you got half the school that's not even on campus, but we'll see what happens in the spring. I don't think anybody can even predict what's going to happen next month, but let's see what happens in January, February when we go to the spring semester, and maybe we might be on a better track, we all hope.
Is there anything else that you think is important for our audience to know?
What I'd like to share about my journey was you learn from knowledgeable people, you take a risk and you step out onto your own, you start your own entrepreneurial journey. What I tell people, is if you want to set sail for new land, you want to start your own company. You have to leave the land behind you before you can see the land in front of you. That doesn't feel good when you're in the middle of the ocean. Wondering in which direction and when am I ever going to see land again. That discomfort really is motivation and pushes you. And that's what pushed me to achieve what I achieved with the Rev projects and, and some of my projects up to this day. I'm constantly searching for the next project to work on, and it's a risk to make each step.
Eric Wang
eric@revprojects.com
www.revprojects.com