Workforce Housing in Opportunity Zones, with Riaz Taplin

Why should investors consider workforce housing as a stable Opportunity Zone investment strategy?

Riaz Taplin is principal and founder of Riaz Capital, an Oakland-based developer and operator of workforce housing specifically focusing on how to address the changing housing need of the millennial generation.

Click the play button below to listen to my conversation with Riaz.

Episode Highlights

  • The origin of the nation’s housing crisis, and who is most affected by it.
  • How urban planning regulations have resulted in what amounts to a tax on housing.
  • The future of the city, and why they may continue to be viable in the long run.
  • Why workforce housing has proven to be a stable asset class during this pandemic-induced period of economic crisis.
  • Why the over-amenitization of properties has made the cost of building housing unaffordable in certain places.
  • How the stability of workforce housing asset class creates value, compared to the luxury multi-family asset class.

Featured on This Episode

Industry Spotlight: Riaz Capital

Riaz Capital is a workforce housing developer headquartered in Oakland, CA. Their development strategy positions them to potentially capitalize on delivering substantial and sustainable returns to long-term investors. With dozens of workforce housing projects in their pipeline across the San Francisco Bay Area’s Opportunity Zones, Riaz Capital created the ABD Ozone Fund to serve the growing nationwide group of accredited investors who are drawn to this product type.

Learn more about Riaz Capital:

About the Opportunity Zones Podcast

Hosted by founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

Show Transcript

Jimmy: Welcome to the Opportunity Zones Podcast. I’m your host, Jimmy Atkinson. How can workforce housing be developed in opportunity zones? Here to discuss this topic with me today is Riaz Taplin.

Riaz is founder and CEO of Riaz Capital, and he joins me today from Oakland, California. Riaz, thanks for coming on the show. Welcome

Riaz: Jimmy. Thanks for having me on.

Jimmy: Absolutely. So our show today is going to be focused on workforce housing and the backdrop for the case for workforce housing in many ways is the housing crisis that is hitting hard in our nation’s urban markets, and in particular, in the Bay area where you are located. I wanted to get your thoughts on the housing crisis and maybe you can characterize it for our audience and who is the housing crisis hitting primarily.

Riaz: So I think we should divide this into the why does it exist and who is it hitting hardest? Right. So I think one thing to think about is the origin of the American city and who cities were designed to house. So cities were designed to house family. So if you look at, you know, marriage age, you know, at the beginning of the 20th century, people broadly speaking got married in their late teenage years and early 20s, right? And if you fast forward to, for example, and you hit a time point in 1955, 80% of American households were multi-generational households.

And what that means is, is that 80% of the living units were either parents and children or parents and older adults. If you fast forward to 2015, 20% of American households are now single generation households. In other words, the demographics of America had flip-flopped on itself, whereby the vast majority of households were now either a single individual or a couple.

So why did this happen? So if you look at every social movement of the 20th century and you collapse it into one number, the delay in fertility rates, women entering the workforce, so on and so forth, it all resulted in people having children later, which means that the number of years in which there are children at home is restricted to a smaller percentage of one’s life, which means that somebody is living on their own for a longer period of time. And by and large, most people chose to take that extension in life expectancy that delay in fertility rate by living single between the time they’re in their late 20s and early 30s. That’s point number one.

Point number two is America did not realize how quickly it become an urban place. And the planning restrictions that are more, that are stronger in urban areas, restricted the growth of entry-level housing. So if you think about in business, we have this line, don’t let perfect be the enemy of the good. In housing broadly speaking, we let perfect the enemy of reasonable. So in other words, cities misunderstood who their customer was, number one, number two, they made it difficult to build housing by introducing different degrees of planning restrictions, which is the worst here in California.

So for example, every unit must have a parking spot. Every unit must have open space. Every unit must be a certain size. All of these are good ideas, but they’re fundamentally attacks on housing. That’s number two. And number three was all of these things, basically in order to fix the problem, the solution that many cities introduced, made the problem worse, right, which was just making the process more cumbersome. So in places like the Bay area, which is probably the peak of this problem, where we have an enormous number of young individuals moving to the Bay area to be part of the tech economy and the most restrictive planning environment, anywhere, almost in the world, this has become the most acute.

So if you look at what was the result of under supplying, not designing for the customer, etc, it’s that as of 2019, San Francisco Planning and Urban Research believed that the Bay area had underbuilt moderate income housing by 408,000, okay? And basically over a 20 year period, we should have built, give, or take 430,000 units of housing. And we only built 22,000. So we’re basically producing for every 20 units, we should have produced. We produced one unit, right?

And that’s the basic underlying idea of why investing in workforce housing in the Bay area is good economics, right? And the reason why we focused on not looking at workforce as the entire umbrella is who is this problem affecting? It’s people who have the benefit of one income and are broadly speaking, working in the economy in a professional capacity outside of the tech and financial sectors.

And this group of people, since they’re broadly speaking, single have minimal spacial needs and have a minimal need for space because they’re very externally oriented towards being out with their friends, out working, out exercising, out having fun. So this idea of that, having a small house and a big life, people at that stage of life don’t wanna spend a big portion of their income on housing. They wanna spend the big portion of their income on experiences. So we as Riaz Capital chose to design a housing solution that facilitated people over an 80% to 100% of AMI, having something that they could be proud of, something that was conveniently located to work and something that was private. In other words, they’re not sharing with somebody else while it not consuming a disproportionate share of their income.

Jimmy: That all makes sense to me. And that’s a great little history of the last 70 years of society that you gave us or least one cross-section of society. It particularly, you know, the how housing has changed or demand for housing has changed over that time period and how our policies have not kept up and it’s led us to where we are today. And I think you’re absolutely right that, you know, this is really about supply and demand and the supply is extremely low and the demand is very high for this type of product.

So excited to dive in with you more about that shortly here, Riaz, but first I wanna back up from it and get to know you a little bit more Riaz. Can you tell us a little more about yourself, maybe tell us how you got to where you are today last over the last couple of decades, or so. You’ve been doing this for a long time, but tell us a little more about yourself please.

Riaz: Yeah, so I’m a San Francisco native. So I grew up here in the Bay area kind of like a quintessential Bay area family. My mother came from more the nonprofit background. My father was a real estate attorney. When I graduated from college, I had this dream of building workforce housing and I called up this architect and I was like, Hey, you know, like my parents gave me some money. I wanna like build housing for, you know, for everybody in Oakland, right? The guy never called me back. So I ended up spending the next five years doing luxury housing projects in San Francisco.

And so the pitch, so there were modern houses, and the idea is you could just move in with your clothes, right? So soup to nuts. And then I did that as a service company after the crisis, but the whole time, you know, my dad had acquired a small portfolio in Oakland, which was about 100 units. So I was running this kind of like cross-section between what I was doing on the luxury side of the business and what I was doing on the entry level side of the business. And basically 2008 happened and I converted when I was on the luxury side of the business and do a service business. And I kept building up our kind of workforce housing portfolio.

And in 2015, I stopped doing anything on the luxury side and kind of committed, you know, full time to what we do now, which is basically developing different types of housing for people who are in between $60,000 and $80,000. And over the course of the decade in this kind of search for the solution for the $65,000 customer, you know, we’ve done, co-living, I’ve advised co-living companies, we’ve done student housing, we’ve done micro units, we’ve done micro living, we’ve done micro studios. So we’ve done a series of things that like, is this a problem? Is this housing crisis affecting the working Bay area something that can be solved with technology, or is it a physical problem? In other words, we need to design a different type of housing.

And the conclusion we came to after a decade of ideation is this is not something that you can solve with an app and that it required a new housing type. So if you look at housing as an ecosystem, you have student housing, you have multi-family, you have single family homes, you have senior living, which we’ll all get to have coronavirus doesn’t get to us, but there was not a housing type for people post-college pre-marriage right? And so it took us a decade of kind of like playing around with this. Where we came to realize that the quality of our customer who when we were able to get to the entry level price point was actually a great person.

And what I mean by that is like, there’s a negative stigma to the word workforce. There’s a negative stigma to the word entry-level. There’s a negative stigma to anything that doesn’t sound like a luxury tech person or a luxury finance person. People wanna lease to themselves, right, because it’s the best understanding somebody has. And through a decade of working in the space would we found was that people who make $65,000, they’re teachers, they just don’t make a lot of money. That doesn’t mean they’re going to be a bad customer, right? And so we basically tried to scale that as a solution.

Jimmy: And that brings us to the moment that we’re currently in right now, 2020, which has been pretty taxing on our economy and pretty taxing on urban areas in particular and a lot of people getting a little bit skittish about the long-term viability of cities and the future of the cities. What are your thoughts on cities, Riaz? Are they viable longterm with the current crisis that we find ourselves in?

Riaz: So I think here basically what’s important. Look, is cities have proven to be the most efficient organizing system for people for thousands of years, right. And who lives in cities prior to the crisis, and who’s gonna live in them afterwards is the macro question. So if you look at the Bay area, which is the area, which Garrick and I have the most familiarity, and you look at it pre-crisis, and if you look at that compared to America as a whole. So what America looks like is you have a pretty even distribution of people from zero up to 70, and it looks like a little bit of a pyramid, right?

So, you know, you have an even number of 20-year-old, 30-year-olds, 40-year-olds going all the way up. In the Bay area, it looks like a lollipop that got stuck in the middle of the stick. In other words, the majority of the people are between 22 and 42, right? In other words, people come here at the beginning of their career or after college to figure out technology. And so this is the epicenter of the innovation economy, right? And if you think about that for all cities, who is gonna continue to wanna live in cities, and who’s gonna say, you know, we’re out and we’re not coming back.

And I think the way to think about that is to segment by age first, what 20-year-old wants to go live in Boise, Idaho, to segment by profession. And so like, if you’re a software engineer, maybe it’s possible to go live in Boise, Idaho. If you’re a salesperson and you’re trying to make connections or a marketing person or something, we’re being people oriented as important being in one place becomes important.

And the third thing is, you know, what industry do you work in? And so, but by and large, I think going back to the root of it is like people are pack animals. And so when you’re in your 20s, when you’re a little kid, your pack is your parents. And as you get into high school, your pack turns into your friends and your parents. By your early 20s, the important people in your life by and large are your post-college friends and professional colleagues, right? And people are trying to date try to learn a lot, right? It’s the exposure decade where you’re trying to take it as much as humanly possible, right?

And so that is very difficult to accomplish working remotely over Zoom. So I think that for people that are in that early 20s to early 30s, pre-kid period of life, the city, the office provides a social outlet that is not gonna be possible in a remote world, right? I think the idea that, you know, when people reach a certain stage of their career where I’m not gonna say that since Jimmy, you and I are roughly the same age that, you know, we’ve learned what we’re gonna learn.

Now, we all continue to learn for our whole lives, right? But priorities shift when you have children and things like that, that once you’ve moved to that period of life, is it possible that people will move out of the city earlier once they have children? So historically, I would say people by and large would leave San Francisco or leave New York, you know, when they needed to put their children into school because of the issues that, that, and I’m not saying everybody did, but statistically speaking. It’s possible now that people would leave earlier than they would have otherwise over this one-year period.

I think what you’ve gotten is an acceleration of that movement. So people that would have moved in 2023 moved in 2020. People moved in 22, moved in 2020. My perspective is that the importance of the city as an organization of one’s life, up until the point you have your own family is critical. And that’s why we’ve designed a housing solution focused on that group, which is okay, and whatever form a city comes back, no one is graduating from Notre Dame where you went or London, school of economics, where I went, or, you know, any of the Claremont colleges or any other place. I mean like, you know where I wanna go. I wanna go to Boise, Idaho, or I want to go to Salt Lake City.

No, when you graduate from college, if you wanna be in finance, you wanna go to New York. If you wanna be in entertainment, you wanna go to LA. If you wanna be in technology, you wanna come to the Bay area, right? So if you’re gonna try and be like super successful in your career or whatever you wanna go to the epicenter of that industry for a period of your life, and those are represented by different cities in the country.

Jimmy: I agree. I mean, and you might say to paraphrase, Mark Twain, you might say at the reports of the death of the city have been greatly exaggerated. We are in a tough time and the cities haven’t hit hard and maybe you’re right. Maybe people who would’ve moved out of the city in 2022 are just getting on with it a year or two earlier. And I take your point there. I wanna talk a little bit more about the interesting moment that we’re currently in and the fact that we are in a crisis. Our economy is in a crisis and I wanna talk to you about the key to surviving a crisis like the one that we currently find yourselves in, and why in your view Riaz, do you believe that workforce housing has been proven to be stable through this time of crisis?

Riaz: Yeah. So if you look at what happened when the tech bubble burst in 01 or the financial crisis in 08 or the crisis in 2020 triggered by the coronavirus, the luxury side of the market actually took a much harder hit than the workforce category or the entry-level category. So if you think back to 2001, our workforce housing category rents fell by about 4% while the market fell by 18%, which means the luxury side of the market fell by more than 18%, right? If you look at what happened today, and if you look at our portfolio as a proxy for entry-level housing, we’ve been able to maintain, you know, 98% collections over the course of the last seven months. We closed last month with 3% vacancy. It’s been not the best year from a performance standpoint, but no one would ever argue that 98% collections is a disaster, right? And why is that?

The fact that basically the workforce housing category number one is more under supplied than luxury urban housing, which has attracted a tremendous amount of capital over the course of the last decade. It would be number one. Number two is that if you look at the customer base, whether it’s New York, San Francisco, or LA, who was living in luxury housing and who could afford them, it’s people working in the tech sector or the finance sector, right? So in other words, they had a high degree of financial flexibility.

So the minute their job said, Hey, you don’t need to be here anymore. You can work from home, these people, you know, anecdotally had the financial flexibility to go and work from the Hamptons or Aspen and their job, all of a sudden gave them the flexibility to do so. If you look at that compared to somebody who makes 75 grand a year, who statistically speaking as about $50 a day of discretionary income, the people who are living in kind of, I would say the broadly entry-level housing, it’s not that they didn’t wanna go to the Hampton or take a vacation in Colorado or work from another place remotely for a period of time is by and large, they didn’t have the financial flexibility to do so number one, and number two, their jobs wouldn’t let them.

So if you look at our portfolio and you look at the last 100 people that moved in, we have no professional concentration above 21%, as opposed to potentially 70% in luxury multi-family. So what that means is that, like, let’s say 20% were working in healthcare. Well, if you’re a nurse at a hospital in the Bay area, you can’t go work from somewhere else. So basically, it was a lack of basically professional, locational, and financial flexibility and the diversity of our customer that made it a safer bet over the course of the last what’s now eight months.

The other thing is in a crisis, you always have new entrance to the job market, even if it’s at a slower level. And when things got tight, people wana trade down. So in our most recent project where we did a 30 unit micro studio project, which we were able to get stabilized in 30 days, 35% of the people moving into the building were doing so, not because they were trading up, but because they were trading down. So our strategy has always been within the most affordable category to be the most appealing option.

Jimmy: Right. Right. Makes sense. Makes sense. Again, we’re talking about supply and demand and that supply very limited, particularly in our urban markets, particularly in the San Francisco Bay area and demand will always be there or should always be there at least a barring, anything completely unforeseen. There’s always people who need entry-level housing whether they’re coming into that market or they’re stepping down into that market from one direction or the other.

We’re running a little bit low on time here, Riaz, but wanted to talk with you a little bit about specifically what you guys are doing with your strategy. I wanna talk with you about your development strategy and your opportunity zone strategy in particular first year your development strategy wanted to learn a little bit more about that, and essentially, how do you treat value with your development strategy and how will the market value your assets do you believe?

Riaz: You know, in terms of creating value at the end of the day, real estate is a very simple ratio. It’s the rent you can charge per square foot divided by the cost per square foot, which gives you your yield. Or if you wanna think about like a bank account, your interest rate on your investment, right? And so the lower the cost is the higher the return. And I think by as many people were tracing this luxury customer basically amenities, the amenitization of buildings specifically parking right, basically made the cost of building housing in California unaffordable. So the two things that we do differently, I would say than most developers is we focus on a portfolio strategy. So we avoid mega projects, number one, and number two, we avoid the over amenitization of projects.

What we focused on is creating, you know, high density per square foot, having a predictable process, and avoiding unnecessary costs. And that all sounds obvious like I like buy low, sell high, pretty simple, but it’s basically a decade of experience on how to do that in a predictable and sustainable and scalable way. In terms of how people will value our assets or how the market will value our assets, if you look at this industry that was developed out of 2008, which of these single family homes where basically a lot of single family homes after the financial crisis became rental, right?

And over five, 10 years that the yield on those assets became very, very valued, right? And the reason is, is that it proved very stable. So given the fact that our workforce housing asset class has proven very stable through the crisis where luxury multi-family has taken a huge hit, I think there’s market logic that would dictate that over a period of time whereas luxury family multi-family typically would have traded at a premium to workforce that high quality workforce housing could trade at an equal playing field with premium properties, right, because they have performed better in uncertain times.

Jimmy: Right. Makes sense. Yeah. The stability of the asset creates a lot of value. Now, I wanna talk now about specifically your opportunity zone strategy. You have the ABD Ozone Fund, or Affordable By Design Ozone Fund. Tell us a little more about that and specifically Riaz, how do you approach opportunity zones differently than most other OZ platforms?

Riaz: I think one clear distinction is that we’re very focused on the underlying economics and what we were doing as a development company pre-OZ, post-OZ didn’t change at all. So the two, the markets that we focus on our markets that we’ve worked in for almost 20 years, that happened to have become opportunity zones. So we’re location experts. The type of units that we’re building in those neighborhoods are the same types of buildings that we thought were good investments in those areas prior to the opportunity zone. In other words, our strategy or our investment strategy didn’t react to the opportunity zone. It just became another layer of investor benefits.

So when anybody is looking at investing in something, they should look to what’s the underlying economics, how does it improve when you add some leverage? And what the opportunities that zone did, is it added like the icing on the cake tax benefits by investing with us in our opportunities non-compliant fund, you’re getting a tax what’s almost a tax-free yield, right?

And the majority of the funds out there are either looking at producing a very low yield or a very high-risk yield. So, you know, whether it’s a hospitality asset, secondary market, or it’s something like bridge where they’re offering a very low return. So what we are is kind of like, what’s kind of like an emerging developer, right? But we’ve been in business 20 years. We have a lot of experience in this space and we’ve proven we can produce high returns.

So for those people that are investing for security, you know, to buy a house, to pay for their kids’ education to fund their retirement, we will produce a better risk-adjusted return than our competitors. Whereas the majority of people in the opportunities on space created funding platforms around the tax strategy, we’re a pure play workforce housing option

Jimmy: With a tax benefit as a cherry on top almost, right?

Riaz: That’s right. Excellent.

Jimmy: So Riaz, I’m sure you’ll have more offerings in 2021 and beyond, but this fund, the ABD Ozone Fund is closing on December 31, 2020. Before we go today, could you tell our listeners what are the three compelling reasons why they should consider your opportunity zone fund? And if also let them know where they can go to learn more about you and the fund.

Riaz: I think number one is that we’re a multi-family pure play. So many opportunities on fund market themselves as a multi-family fund, but have components of retail and office, even if it’s a small percentage mixed into them. So this is a pure play multi-family fund. I would say number two is that it’s because of releasing two who releasing to in terms of it being a workforce housing target, the stability of our revenues, therefore meeting our projections should be very realistic. I would say number three is that this segment of the housing market in the country pre-COVID was the most undersupplied part of the housing market anywhere in the country, and we’re supplying directly in to that bury under-supplied market.

So to give you an idea, Oakland built 17 units of moderate income housing in the year 2019, right? At that rate, Oakland would meet its moderate income housing goals by the year 2500, right? Yes, 2500. So for these three reasons, you know, investing in this fund should prove to be a very attractive place to allocate capital, and you can find out more about it and all of our work at Riaz Capital at

Jimmy: Perfect. So for our listeners out there today, I will have show notes on the Opportunity Zones database website, and you can find those show notes And there you’ll find links to all of the resources that Riaz and I discussed on today’s show. And please do head to to learn more about Riaz and Riaz Capital and their ABD Ozone Fund. Riaz, thanks for joining me today. It’s been a pleasure.

Riaz: Thanks so much, Jimmy.


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