In this webinar, Riaz Taplin presents his Ozone Fund III, which is investing in workforce housing in the San Francisco Bay Area.
- An overview of Riaz Capital, a Bay Area-based development and asset management company focused on workforce housing.
- A financial summary of the current $100 million fund.
- The use of a “portfolio development strategy” to avoid a single point of failure.
- Breakdown of the target portfolio, split between micro-living, adaptive reuse, and other multifamily repositioning.
- A breakdown of the average customer in the Riaz portfolio, single income professionals.
- How a focus on design permeates the development of the Riaz Capital portfolio.
- The competitive advantage that allows Riaz to build housing faster and cheaper than other developers.
- How Riaz is leveraging the California State Density Bonus and embracing an “assembly line approach” in its portfolio.
- Projected cash flow and investment returns for Ozone Fund III.
- Q&A with webinar attendees.
Featured On This Webinar
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 has launched Fund III, which will be a California Workforce Housing Fund.
Learn More About Riaz Capital
- Visit RiazCapital.com
Jimmy: Next up is Riaz Capital. And presenting for Riaz is Garrick Monaghan. So, I’m bringing Garrick Monaghan up on stage now. Here you come.
Riaz: Can you see me?
Jimmy: Yes. And you’re not Garrick. This is Riaz Taplin himself.
Riaz: I’m Riaz.
Jimmy: And as you can see, Garrick, or, I’m sorry, Riaz is gonna be presenting Ozone Fund III. They do workforce housing in the Oakland, California area. Riaz, happy to have you here with us today. Thanks for joining us.
Riaz: Thanks so much for having me, Jimmy. So, here we go. I’m not used to doing this in 15 minutes, but I’m gonna do my best job. I’m gonna get into my background and the firm’s background in the body of the presentation. And here we go. So, I’m talking to you all from this very colorful building here, Artthaus Studios. This is our only commercial project. But Riaz Capital is a Bay Area-based development and asset management company, focused on workforce housing. The fund that we’re currently raising for is $100 million. We’ve raised $75 million of that so far. The fund is targeting a net equity multiple of 3.2X, a 15% IRR, and 11% cash on cash. This fund is a portfolio development strategy. We have three deployment models, micro-living communities, adaptive reuse, and multi-family repositioning. This fund is, as I mentioned, a portfolio development strategy. This is done to avoid a single point of failure. Over the last 20 years that I’ve built my current portfolio of 1,500 units, I’ve always focused on avoiding a single point of failure, by having a reasonable number of small to medium-sized buildings, to ensure performance.
Who is Riaz Capital? Riaz Capital is a 30-person firm of real estate professionals. We are a vertically-managed firm. In other words, we have teams allocated to managing acquisitions, entitlement, construction, property management. We do not necessarily perform all those activities internally, but we have internal expertise across the entire development cycle. We are currently $500 million in real estate assets under management. We have 3,000 units between our operating portfolio and our development portfolio prior to Fund III. We currently have 38 operating buildings. And we’ve averaged a 36% weighted IRR on exited deals over the course of the last decade.
What do we do? We’ve developed a strategy called micro-living, which, more simply put, is simply the idea of how do you build entry-level housing that is cool and fun for the people living in it to live. Over the 20 years that I’ve been in the workforce housing business, I’ve done luxury housing, mass-market housing, micro-studio student housing, and co-living. We’ve now brought this all together into the strategy we call micro-living. And the basic idea is I wanted to develop a strategy for entry-level housing, where I’d be cool if my sister was living in it, if my girlfriend was living in it. In other words, just because you don’t have a big budget doesn’t mean you shouldn’t have a nice place to live.
This portfolio development experience, we built give or take 100-unit buildings, micro-living communities, converted churches into apartments, and rehabilitated suburban complexes over the course of the last decade. Our investment thesis has five key components, to be cycle-resistant, to have a strong resident experience, to be an efficient builder, to produce strong cash flow for our investors, and to be a socially responsible actor in our community, which is why we’re very focused on the impact that we create. I’m not going to go through every slide, but we will send the presentation out afterwards.
Who is our customer? Who will be living in these buildings? Our average customer is 32 years old, makes $61,000, but almost has a 700 credit score. Over the course of COVID, that means that our portfolio was able to produce 95% average occupancy and a 94% collection rate. I’m gonna dumb down here. If you imagine who will be living in this building as a demographic, as opposed to an individual, we’re really focused on single-income professionals, that period in life between 22 and 32, which has been created over the course of the last few decades. It also is ideal for student housing, because we have so many colleges here in the Bay Area, and for couples. It’s not designed specifically for families and seniors.
Resident experience. I came from a design background, and I wanted to make sure that just because someone didn’t have a large budget, they had a cool place to live. So, we’re very focused on the combination of how the space feels and the functional design. Over the course of the decade, we’ve developed studios and micro studios, and we focus on there being six functional areas in addition to the way the space feels, a place to sleep, a place to put away your stuff, etc., so that the function of the space is as important in the way it looks. This is a blow-up of the studio, this is a blow-up of a junior one-bedroom, this is another junior one-bedroom, this is a dual resident unit type. But in other words, we’ve developed a series of what I call Legos, that we put together on each individual project, to create the ideal mix for that location and that project size. We then pair that with a transit-oriented location, a vibrant neighborhood, and the specific amenities in the building to offset the space that you don’t have in your unit, and/or what’s available in the neighborhood.
So, why should someone invest in this? Fundamentally, what we have done is we’ve created an entitlement strategy, an efficient building, and affordability matrix that comes together to create a strong investor return underneath an Opportunity Zone umbrella. And what does that mean in core numbers? We have a proven track record of building at $250k per residence, in a market where it costs $600k, we’ve proven that we can do it in 30 months in a market where it typically takes 72 months, and we’ve proven we can do it at a higher yield. If you look at one page in our presentation afterwards, it’s these three metric comparisons, which is our competitive advantage as a firm.
How do we do this? Number one, we look to state legislation. The California state density bonus has created a once-in-a-lifetime opportunity to basically scale housing. We’ve made ourselves experts in this legislation. Number two, we standardize everything. I don’t want you to think about our units like little cogs in a wheel, but in order to make anything efficient and cost-effective, you have to standardize it. Number two, we think about this as an assembly line approach to building housing, getting a site acquired, getting it entitled, building it, and stabilizing it, where we can do it in a 30-month cycle to have better velocity of capital. We’re here in the Bay Area, but the reality is technology is gonna change the way we work and the way we live. We’re very focused on adding a technology layer on top of our buildings. And because we’re a new construction strategy, we can link together the leads, the leases, the access controls, and other technology elements in the building, into a single layer, to create operating efficiency and a better customer experience.
I came from a small business background. I grew up in a real estate family. I’m a second-generation real estate owner. And what my dad taught me was at the end of the day, what really matters is what’s the cash flow you’re getting off your assets. So, in the first three years, we’re building buildings, so there’s no cash flow. After that, we’re trying to produce basically an 11% cash-on-cash return on your equity invested, before the tax benefits. For those of us that care about the impact that what we do in our portfolios has on our community, we’ve been very focused on having very good transit scores relative to the national average, very good housing affordability scores, and also fundamentally being a green solution, by building less, and using eco-materials. If you think about the returns that we’re gonna produce, it’s a 15% net IRR, and the Opportunity Zone benefits, because of the way we’ve structured it, adds about 600 basis points to the return, so your tax-adjusted number is something like a 21%. In this fund, we’re not trying to necessarily just maximize IRR. We’re trying to maximize your tax-adjusted equity multiple over the course of the decade.
Our team. Team is the most important thing in business. I’m very fortunate, over the course of the 20 years that I’ve now been running this business, to have brought on three amazing partners, Max, Seth, and Paul, as well as two other key team members, Ariel and Lisa. Lisa has entitled 3,000 units in the course of her career, and has come to us, and heads up entitlement. Paul heads up our finance function, Ariel runs human resources, Seth runs development, and Max runs operations. We have a proven track record of working together as a team. This basically prevents any risk around any one team member. We also have a great group of advisors. So, how does the terms on our vehicle work? We have a minimum commitment of $250,000. The general partnership is putting in $2 million, and we’re an 8% annually-compounded preferred return, with 75% of all distributions going to investors. We have a 1.5% blended fee on contributed capital.
Jimmy: Okay, good. Well, if anybody has any questions for Riaz, please do use the Q&A and your… the little Q&A icon in your Zoom toolbar. We got time for a few questions here. Morgan asks, he thought that he saw a slide that said OZ Fund III. Does that mean that there were two prior OZ funds? And maybe you can talk a little bit about those. How big were they, and how are those projects going so far? It’s a great question [crosstalk 00:10:28]
Riaz: That’s a fantastic… that’s a fantastic question.
Riaz: So, as one of the prior presenters said, we’ve been working in the same areas and the same strategy prior to the Opportunity Zone being created. So, in reality, we’ve had a total of five funds. We’ve had two reposition funds. We’ve also had three development funds, one of which was not an Opportunity Zone fund, which we call Fund I. Fund II was an Opportunity Zone fund, which is now fully allocated. And we’re now raising fund three. In sum, we’ve raised about $200 million for our strategy over the course of the last four years. This fund, Fund II, which was also an Opportunity Zone vehicle, was about a $93 million dollar vehicle. So, this fund is not intended to be any larger. Is not materially different from the scale we were already working at.
Jimmy: Good answer there. Let’s get to some basic details now. Somebody wanted to know, what’s the minimum… Excuse me. What is the minimum investment, and where can we go to find the subscription documents?
Riaz: Great question. So, let me scroll down to our little summary of terms here. Our minimum investment commitment is $250,000. It’s $250,000. In terms of getting access to subscription docs, etc., you just wanna email me at [email protected], or go to our website www.riazcapital.com. I’m dating myself by adding the www, which, I think it works equally well when you got to riazcapital.com.
Jimmy: All right. That sounds good. So, [email protected] for offering documents. I just put that in the chat right now as well, so you can copy and paste Riaz’s email address, and make sure he knows that you’re interested. A couple more questions here. We got a few more minutes, it looks like, so, good amount of time here. Mike has a long question here. So, let me see if I can read all this. “Hello, Riaz,” he starts. “Recently, Riaz Capital hosted a walkthrough of some of your units for those in the Bay Area. I’ve emailed Garrick in hopes that you could record a video or VR tour. Are you able to do that? For those of us not in the Bay Area, having the opportunity to see the units from the perspective of someone on a walkthrough, and get a feel for your product, would make your investment more understandable and relatable.” Do you have that ability? Do you have a walk-in available? Or can you do that for Mike?
Riaz: So, if you email me, I can send you some virtual tours to existing unit types. And after that, if you’d also like us to do a video recording of us walking through in a similar format, we’re happy to do that as well.
Jimmy: Fantastic. So, again, that’s at [email protected] Mike, there, you can reach out to Riaz directly and he’ll get that set up for you. Thanks, Riaz. Let’s see. We got an anonymous question here. What are cash flow and refi distribution expectations?
Riaz: That’s a great question. So, I would say this is a unique feature of our fund. What we’re doing for the first three years, there are no distribution. The average cash on cash is an 11%, which includes all distributions prior to exit. In years 4 and year 5, and what’s highlighted here in blue, you’re getting pure operating distributions. In years 6 and 7, you’re getting both operating and refinance distributions. One distribution we’re planning, which is an important number to return, 53% of your capital invested by the end of year 6, to facilitate the tax payment that will be due in Q1 of ’27. The, part of the reason why the refinance distributions are not higher in any one year is that we’re building a portfolio of assets. So, if you invest, let’s just say, a million dollars, for the sake of the argument, you own 1% of the fund, which represents 16 different residences, across all probably 10 different locations. So, we’re really trying to de-risk the strategy by not having our investors invest in any single project, which basically makes the cash flows more even over the course of the decade.
Jimmy: Gotcha. Okay, good. Let’s see. Another anonymous question just came in. At some other events, this person has heard some fund managers say investors don’t care about social impact, which seems to defeat the purpose and promise of the Opportunity Zones, and not what we want to hear and not what legislators who have the power to possibly extend this program wanna hear either. It’s really refreshing to hear you talk about that social impact that’s at the core of what you’re doing. Can you talk a little bit more about your social impact mission within this structure?
Riaz: How long do I have?
Jimmy: I’ll give you a couple minutes. How does that sound?
Riaz: Okay, cool.
Jimmy: I know you could probably talk about it for an hour, right?
Riaz: Yeah. Longer. So, dear anonymous. Look, I grew up in what I call a do-well do-good family. So, my stepdad ran an organization called the Sierra Club, my mother ran a public interest PR firm, and my dad was a real estate developer. And my dream was how do I bring these two concepts together into one single activity? So, over the course of the last 20 years, I’ve been working at how do we create something that’s both good for investors and good for the audience we serve, and the community we work in? As a company, we support, for example, in one of our existing buildings, anonymous, we house first-year teachers in the Oakland School District. And when we start in the Oakland School District, we support Oakland Promise, which is a cradle-to-career education initiative in Oakland. We focus on having timber-based buildings because they’re 70% fewer emissions. We focus on a higher resident to square footage ratio on the building, because fundamentally, building less is the key to green. We focus on locating near transit, with high walk scores, bike scores.
We really want to see, like, without getting too far ahead of ourselves, how do you build a world…sorry. How do you build a series of communities that are sensitive to the communities that we’re building them into? Most importantly, if you wanna look at one number, it’s the combination affordability index score, which merges your housing cost and your transport cost into a share of your income. And this fundamentally is bringing together the affordability nature of our strategy, and the transit-oriented nature of our strategy, into a nationally recognized score. So, when we’re analyzing the locations, we’re looking at the look and the feel of the location, but we’re also looking to how functional is that location in terms of access to jobs, access to urban services, access to entertainment, which is what fundamentally makes it a more affordable strategy.
Jimmy: Excellent. Well, thank you, Riaz. We got time for one more real quick question, and then I do have to bring our next presenter up on stage. Mike asks… Mike, by the way, is gunning for MVP, I think. He’s asked several great questions throughout the course today. Mike, I really appreciate your attention and your participation. But Mike asks, “Riaz, how much has been raised thus far into Fund III?”
Riaz: So, I just got back from a trip today, so this is a dated number, but we basically announced that we raised $75 million of the $100 million total so far. We’re probably closer to $80 million as of today.
Jimmy: Fantastic. So, you’re well on your way, it sounds like.
Riaz: Well on our way.
Jimmy: Well, Riaz, thanks again. Thanks for filling in for Garrick. I hope he feels better soon. And we’ll catch you later, all right? Thanks, Riaz. Appreciate it.
Riaz: Really appreciate you inviting me on, Jimmy. All the best, sir.
Jimmy: Absolutely. Thank you so much.