The vast majority of Opportunity Zone projects are ground-up development deals. But in Cleveland, there are numerous opportunities to renovate underutilized historic buildings.

Kevin Wojton, managing member at IOTA Development Group, joins the show to discuss how he is acquiring historic buildings in Cleveland’s Opportunity Zones for pennies on the dollar, and giving them new life.

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Episode Highlights

• The overall investment thesis of IOTA’s Cleveland Impact Fund.
• Why Kevin was attracted to Opportunity Zones.
• Examples of the redevelopment projects in Cleveland.
• How venture real estate differs from traditional real estate.
• The bull case for investing in secondary and tertiary cities.

Guest: Kevin Wojton, IOTA Development Group

• Kevin Wojton on LinkedIn
• IOTA Development Group
• Cleveland Impact Fund

About The Opportunity Zones & Private Equity Show

Hosted by OpportunityDb and WealthChannel founder Jimmy Atkinson, The Opportunity Zones & Private Equity Show features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in Opportunity Zones and the broader private equity landscape.

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Show Transcript

Jimmy: Welcome to the show. I’m Jimmy Atkinson. Today, on the podcast, my guest and I will discuss the benefits of taking an opportunistic approach to real estate investing. My guest today is Kevin Wojton, managing member at IOTA Development Group. And Kevin joins us today from Cleveland, Ohio. Kevin, how are you? Thanks for coming on the podcast.

Kevin: Hey, Jimmy. So nice to see you again. Thanks so much for having me. Excited to be here.

Jimmy: Yeah, excited to have you here as well. You got a lot cooking in Cleveland, so excited to dive in and learn more about your investment strategy there in Opportunity Zones in Cleveland, Ohio. Before we dive into that though, for our audience of high-net-worth investors and advisors who may not be familiar with you yet, or your group, what is IOTA Development Group and what makes you guys unique?

Kevin: Yeah, Jimmy, our group is really focused on doing venture real estate in the Cleveland area. We’re really focused on taking high growth and unique opportunities and just maximizing the footprint and outcomes as it relates to, you know, real estate outcomes as well as operating outcomes, and really just, like, looking at unique projects and putting in the best fit for that specific project.

Jimmy: Good. We’re gonna unpack a lot of that over the course of our episode today, and kinda learn about you guys’ approach and the outcomes that you’re seeking with your real estate investments in Cleveland. But, first Kevin, I wanted to learn a little bit more about you and your career. What led you to where you are today, and what’s your background basically? Kind of walk us through how you got into this.

Kevin: Yeah. Long story short is, started my career working in investment banking in New York City, and moved into private equity and then venture capital, and then jumped the table and then moved to the operating side of running tech companies. While I was in New York for about eight and a half, nine years, I helped build some of the highest growth technology companies in New York, including being a founding or an early team member on a company called Capsule, which did at home delivery of pharmaceutical goods. And so, always kind of had my hand in creating enterprise value. And during COVID, moved back to Cleveland to pursue both real estate and venture capital type opportunity as both a principal and a value add partner.

Jimmy: You grew up in Cleveland, it sounds like, got some experience under your belt in New York City and now you’re back home. When did you move back to Cleveland?

Kevin: 2020.

Jimmy: Okay. So you’ve been there for a few years now, and IOTA Development Group is your firm. You guys have a qualified opportunity fund, which is the Cleveland Impact Fund. Did you start that around that time when you moved back, and what’s the overall investment thesis behind that fund?

Kevin: Yeah, so our fund, our Cleveland Impact Fund, you know, we really pick up projects in the Cleveland’s Opportunity Zone, which is one of the most advantageous Opportunity Zones. The Cleveland Impact Fund exists to generate high impact outcomes as well as high growth outcomes. The thesis for our QOZF is that you can have strong impacts to the community and enhanced returns, and those narratives both help each other. And so, you know, back in 2020, we purchased our first project, which is a 30,000 square foot Masonic Temple in Cleveland’s core area, which is also an Opportunity Zone. We picked it up, it was an abandoned building that we then turned into a rock climbing gym as well as many offices and have a couple other tenants. But, you know, that was our first project. And now, for next two quarters, we have about five more projects. So we’re taking, you know, lessons learned and scaling up the approach we found a lot of success with.

Jimmy: Good. And you mentioned that you find Cleveland as a really, what would you say, advantageous location for opportunities on investing. Why do you say that? What makes Cleveland so advantageous?

Kevin: Yeah, I tell people that we are location agnostic, but we seek just only the project with the most absolute return and, you know, impact as well. We happen to have all of our projects in Cleveland because from a quantitative standpoint, you can’t really beat, you know, the opportunities that exist here in the Opportunity Zone. You know, the Opportunity Zone in Cleveland does consist of some of the core areas where there’s a lot of young energy, a lot of new builds, a lot of that stuff. And so in the Ohio City area, the Tremont area, you know, you kind of have this dichotomy between they’re building multi-million dollar apartment buildings all around us, and then we’re picking up, you know, these 20,000, 30,000 square foot buildings for less than $50 grand. So, that dichotomy really, I haven’t seen exist in many cities. You know, granted, there are a lot of, you know, you just gotta… There’s always good deals out there, but it’s just finding them is the hard part. And we have a unique first mover advantage here in Cleveland, for sure.

Jimmy: Yeah, a few of these downtown areas in that part of the country in the Midwest seem like, you can snap up some pretty big old historic buildings at pennies on the dollar, pretty impressive amount of value that that exists there. What turned you on to Opportunity Zones? You started purchasing some of these properties in 2020 when you moved back to Cleveland. Were you aware of Opportunity Zones at the time? When did you become aware of Opportunity Zones? And what about Opportunity Zones turned you on to that tax incentive?

Kevin: Yeah, for sure. So we explore, as a real estate developer and founder, and you know, all around trying to build enterprise value, we’re always looking for the lowest cost capital and highest return for our partners. We use a varied level of tools which may include new markets, tax credits, historical error rate, easements tax credits, historical tax credits, Opportunity Zones, equity dollars, as well as various non-dilutive capital. You know, what I find, which is really interesting, is that once you bridge the gap between impact and outcomes and utilizing space in unique ways, it opens up so many doors that aren’t available for multifamily developments. You know, for multifamily, it’s traditionally just a private deal. You know, you’re really stuck on interest rates and capital costs, you can’t really move on that. With what we’re doing, because we have one hand in real estate and one hand in operating companies, we’re able to merge that story together and access funding and tools that no one else really would have access to.

And so, you know, Opportunity Zones in particular are just one lever that we like to pull, but we have our own capital gains that we develop through successful exits of our technology and other real estate opportunities that we then roll into our Opportunity Zone projects. And, you know, because we come in so early, our cost basis is almost zero. And so, when we exit, we have a lot of capital gains. And so, we’re rolling our own capital gains over into more projects and kind of, with our investors and partners, as they develop, you know, venture returns, you know, they have capital gains exposures as well. And so, the Opportunity Zone mechanism really allows us to, you know, engage additional outcomes for projects we’re already heavily involved with.

Jimmy: Yeah, low cost basis indeed, you’re getting some of these pretty large historic buildings for under $100 grand in many cases. You’ve used the word impact a couple of times, the name of your fund is the Cleveland Impact Fund. Basic question, maybe a dumb question, what is impact? What do you mean by that when you say impact? I think it means different things to different people, but what does it mean to you and your group?

Kevin: Yeah, for sure. So most people see impact as a very loose term, I see it as a very defined term. You know, to me, you can do the right thing and try to make money, and by doing the right thing, you get to make, with a successful brand around that, you can generate higher returns which allow you to do better good, right? So, like, you know, to us, we only touch projects where there’s a positive outcome to the community. You know, we’re not going to these communities and building, you know, things that aren’t beneficial to the surrounding area. And it’s kind of that interchange in communication, which allows us to access tools that may not otherwise be available.

And, like, for an example, impact to us is that there’s a long tail economic outcome that we like to participate in. Our investment thesis is that, you know, as you create value, you generate value for others, and you create exponential outcomes for the community, and that just creates large-scale outcomes over time. So, more and more with less effort. And it’s all about that multiplicative approach.

So to us, impact, talked about examples, like, we bought this Masonic Temple, we put a rock climbing gym. So we took an abandoned space that was, you know, just a sore in the neighborhood, turned into a health and wellness facility. We also put in there an organization called Flux Makerspace, which teaches free coding boot camps, as well as gets tech skills into the hands of as many people as possible, which then generates founders and, you know, employees for our large-scale tech outcomes. As well as now, we have 12 different companies using the space and renting out offices because it’s an innovation space. And then we also have health and wellness, you know, on the entrepreneurship side, we also help health and wellness teachers, whether it’s yoga teachers. And that narrative just becomes exponential because we’re in the business of helping others, and that creates those long tail outcomes for everyone, you know?

Jimmy: Yeah, you’re making catalytic investments that have a snowball effect, really, right? You get that snowball rolling down the hill and it gets bigger and bigger and begets more investment opportunities and more impact in the community. I think it’s a great definition that you gave us right there, having impact on the community and kinda lifting… I mean, you’re really delivering what Congress intended for the Opportunity Zones program, really delivering some economic value and long-term investment into these neighborhoods, these communities that you’re investing in. Why Cleveland, though? I’m curious, I know you’re from there, but kind of give us the investment case for Cleveland. What do you like about it? Why are you investing there as opposed to elsewhere in the country?

Kevin: Yeah, absolutely. You know, I think, Cleveland, in particular, has so much multi state development activity in it right now, and you have so much competition for multifamily across the United States that no one’s really looking at these unique properties in unique ways. And so, when I walk across the building, I say, instead of being a developer and saying, all right, I’m gonna knock this down and build, it’s like, how can I be assistive, right? And I think that kind of Midwest approach of you do good work in the community, you know, people wanna engage you as a value add player, you know, really helps what we’re doing. Why Cleveland is, you know, we have an anchor property in one of the best neighborhoods here in Cleveland, it’s also an Opportunity Zone. So we have a really great brand out there.

We put our flag down. You know, people come to us to solve their problems all the time. And so, you know, we just are great in this city. You know, we’ve looked at Columbus, other states, you know, independently, I’ve owned properties in other places, but just the availability of unique opportunities is just really endless. Like, I could fill an endless book of business here before it’s too crowded. Whereas most other cities, there are so many people vying for these properties that, you know, you’re never gonna get a bargain deal, and maybe if you do, it’s not gonna be in the core area. You get that perfect mix of, you know, the traditional investor, the traditional developer who only wants to do ground up, luxury, residential, new builds because it’s cut and dry. And so, you know, all those other properties no one’s really looking at. And so, you know, we’re able to really get our foot in the door and be helpful to our community. Not that we’re not looking at other cities, they’re just hard to find the returns that we’re seeing here.

Jimmy: Oh, yeah. Great value to be had there when you’re scooping up those larger buildings at pennies on the dollar, as I mentioned before. Well, also, Ohio as my longtime listeners and viewers know, offers a 10% Opportunity Zone tax credit on top of that too. For those who might be unfamiliar with that, Kevin, I don’t know if you guys are taking advantage of that, and it sounds like you probably are, though, I would imagine. Can you kind of walk our listeners through how that works exactly?

Kevin: Yeah, sure. You have to be an Ohio resident for that. I believe you have to be an Ohio resident, but yeah, on the state tax side, you get additional outcomes on the state for, there’s a matching 10% program. So, you know, there are a few different pieces that you can use. In my opinion, you know, Cleveland has a lot of great incentives, because again, there’s not that many people doing what we’re doing. So a lot of people are supporting and loving what we’re doing. So I would wager, you know, for all the listeners, there’s a lot of different great projects in different cities. You know, check out Cleveland, love to connect on just, you know, it’s always worth taking a closer look because there are just slam dunk properties left and right here, so…

Jimmy: Well, walk us through some of those slam dunk properties. I’m curious about some of the redevelopment projects that are in your pipeline. You mentioned the Masonic Temple that you’ve converted into a rock climbing studio, and a couple of other pieces in that building as well, I believe. But what else do you have in your redevelopment pipeline? I’m curious to learn more.

Kevin: I’m actually sitting in the building right now. Do you want a quick fly by tour?

Jimmy: Sure, yeah, give us the tour. Kind of walk us around and, we’ve never done this on the podcast before. This will be cool, yeah, that looks great.

Kevin: So this is our office that we use. This is just our corporate office, which is here. This is the secretary’s office and then here we’ll walk out together this way. But when I got to this building, it was completely abandoned. Nobody knew what to do with it. The roofs were caving in, and I was like, “Oh, why do you need roof…? If you don’t need roofs, if you’re gonna take them off, you don’t have to worry about that. And this building’s such a beautiful historic building, you know, it’s about 30,000 square feet, but we took the roof off. And so, we have some of, one of the largest climbing…in Ohio. We purchased the building for such a low cost basis. We were able to reinvest in the, you know, making it world class or not at all.

And so, our approach is, you know, always to create the highest outcomes, you know, varied amounts of…but keeping the cost down, right? So if you, you know, talking about kind of on a project by project basis. So we purchased this building really for pennies on the dollar. We opened it, COVID kind of hit us at the wrong time, and so, we had a little bit longer construction period. We were heads down in that. But, you know, we’ve been open for a little bit more than a year now with this project. And, you know, we’re going through the, you know, it’s like long-term cash flowing.

You know, now, I’ll move on to the next ones. We’re involved with the church next door, which is an 18,000 square foot building that, you know, we purchased again for pennies on the dollar, and we already have four lease tenants already ready to go on day one.

And so, our CapEx on that one versus our monthly, you know, monthly leases on it is about 10% a month. So, you know, really with some vision, you can, you know, that’s, like, 120% return on your cost basis every year just on the first four tenants. And there’s another 10,000 square feet that we’re looking to fill out there as well. And so, we were able to work with the church. They don’t really wanna deal with real estate and they just wanna run their church. You know, we’ve been helping them fix their roof over the last few years. We help them with their trash. We, you know, we definitely help them on numerous ways. And they approached me saying, you know, how can…? You know, would you all have an interest in getting involved?

And so, that’s another commercial space. Down the street, we’re also getting involved in putting up about 100 plus apartments. That’s an old…used to be a retirement home that we’re converting into another historic property that we’re converting into apartments. You know, same deal, just picking up for very, very low cost basis that allows you to really reduce your risk. And then you bring in these additional non-dilutive financing sources, not debt or equity, but free dollars. And so, our cost of capital is so low that it’s really just no-brainer projects, you know?

Jimmy: Yeah, I do know. And, hey, thanks for the tour. We’ve never done that on the podcast before, that was pretty cool. Your Wi-Fi signal was a little bit erratic as you were walking around, but I think we got the gist of it and the rock climbing wall looked really great. So, Kevin, a term you used with me on our call earlier today before we hit the record button and went live here on the podcast, you used the term venture real estate, which had come up, by the way, on a previous version of this podcast with Kelly Ann Winget and Rachel Voss just a couple weeks ago. I’m curious, how do you define venture real estate? What do you mean by that term, and how does it differ from traditional real estate?

Kevin: Yeah, so, like, my background…you know, most people who do Opportunity Zone, they are mostly investment real estate individuals and I’m more of a founder. And so, I’ve built numerous tech companies, I’ve sold multiple tech companies and really understand that how do you grow as fast as possible and scale it over time? And, you know, coming into real estate and taking a venture approach, meaning, you know, instead of aiming for 2X, 3X in 5 years, you’re aiming for 10X in 5 years. And so, how do you do that? Well, use all those multiple uses, but the earlier you come in, the more outcome you can have.

So, like for this example, for this project, before I got my bank loan, before I got any of the architecture done, I brought in a bunch of investors and they took on a lot more risk because we didn’t have all the T’s and I’s dotted and whatever. So, you know, those individuals ended up winning a lot more than saying people coming in later after we got our bank loan, or even people who are coming in after that point, after the project was built or whatever.

And so, that product life cycle is more that of a startup where, you know, all right, we have this great concept, you know, we purchased the building, we really think we can do it, there’s more risk. I’m 100% confident in ourselves. But, you know, coming in that earlier status, what we typically see is, you know, people who like risk will come in here, and then people who are a little more risk averse will come in a little bit later. And then on the next project, those people who are a little risk averse, they see the returns that they got and they’re like, “No, no, no, I wanna come in earlier.”

And so, you know, like, being a co-founder or what I would call in the venture capital world, a friends and family round. You know, that’s different than saying a series A, series B, where in the series A you’re raising $4 million out of $20 million valuation and friends and family, you’re raising half a million at a $1 million valuation. So 50% versus 10%, you know, for half the amount. So, you know, I think it’s all about risk mitigation and trying to put the right projects in the right place. And our approach with real estate, or even really anything is fundamentals, right?

You can’t rub two stones together and make a fire. You gotta, you know, really figure out, you know, what’s moving quickly and double down on those efforts and mitigate risk by taking…you know, projects take time, but mitigate risk by working with great people who understand you can be overcompensated for risk. And so, that’s the venture real estate model, is that, yes, you wanna take on more risk, but you want to be 4X, 5X compensated for taking on that additional risk.

Jimmy: Which is great for Opportunity Zone investors since it’s a capital gain incentive that you’re getting on the backend. You want those big 5X or 10X home runs, even if it does mean taking on a little bit more risk at the outset. Hey, Kevin, given your background as a venture capital guy, are you making venture investments into these Opportunity Zone areas as well or is it all real estate that you’re doing?

Kevin: So yeah, so we have one hand in building operating companies, which includes technology, startups, retail projects, you know, anything on the operating side, and we have one other hand in the real estate side. And so, we have the IOTA Development Group, which handles all of our real estate work, and then we have our IOTA venture capital studio, which does all of our tech and operating companies. So, our product life cycle, I may have mentioned this earlier, is that, you know, throwing all those away, you know, throwing that model just to the side for a second, our model is that we’re very good at building company and enterprise value. You know, we’re software developers, we’re, you know, founders, entrepreneurs, we’re hungry. On our team we have a great group of hungry, hardworking people. And so, any project we touch, we know will turn 10X growth in less than 6 months.

And so, what we do typically is we take equity in tech startups to help them build, provide software and grow, and then those companies will grow and sell and have an exit event. And then we will roll all those capital gains into our OZ fund, which typically makes real estate investments because, you know, unless I fully control the operating company, they, at any time, can get up and leave into a different space that’s not an Opportunity Zone. And then the compliance of that’s a little complicated. So, you know, there’s ways around that. And the major way is just to have a brick and mortar, you know, typical investment. But we have made OZ investments in operating companies, tech companies for sure.

Jimmy: So you do have some tech companies as part of your Opportunity Zone fund?

Kevin: Yes, absolutely.

Jimmy: Good. So you’re in Cleveland, are there any other secondary or tertiary cities that you’re looking at that you have your eye on? Or I guess just kind of give us your perspective on the opportunities that exist in non-primary locations?

Kevin: Yeah, you know, we are always looking… You know, we only work in a city on a case by case basis, we don’t ever do like one-off projects. We wanna put an anchor in and then grow and expand that. And so, you know, we really create innovation hubs, you know, and using that model is really helpful. So we’re looking at, in the next phase, expanding this model. The more cities and the top of our market is, Boulder, Colorado. You know, we’re also looking at a lot of different places in Colorado. Fort Collins, Colorado, you know, these places that have a lot of great young energy and we can kind of help focus that energy into, you know, developing long tail outcomes for the community. So, but no, right now our book of business for this year is 100% Cleveland. I think these Midwest cities and tertiary cities, you know, really you can get returns that are just absolutely, you know, not comparable to primary cities, just because you can’t pick up properties for pennies on the dollar anywhere else.

Jimmy: You’re taking on a little more risk at the outset, but then you’re getting compensated for it more on the backend with those big returns. Kevin, these insights today, really appreciate all of them that you’ve delivered to us. I just wanna zoom out a little bit before we conclude today’s episode. I’m curious, given your expertise, what do you feel are some of the most important trends in commercial real estate redevelopment that investors should keep their eye on going forward?

Kevin: Well, I’m just gonna say this way because we’re involved with some of these tech startups that are in the proptech space, which are really on the cutting edge. One, AI, so using technology and AI tooling to really work at light speed. You know, we’re able to, we use a platform called allyaiapp.com, which does all of our email, send out all of our outreach. It kind of prioritizes emails, and as a team allows us to triage and, you know, work through email and information about 100X faster than we ever could before. You know, they’re doing demos, amazing stuff. We also are involved with a company called Health Nomad, which is developing for travel nurses and doctors, the ability to get in between short-term rentals and long-term rentals, but with maximization of property outcomes. And so, you know, I see a lot of technology disrupting the proptech space.

You know, I think multifamily real estate is great. I love multifamily real estate. To me, you know, the numbers have to work. The projects we do, you know, our IRR is typically around 35% to 45%. We need a minimum of 30% to even look at a project. And so, most of our projects end up hitting 45%, 50%, 60% after the depreciation benefits, sales proceeds, and beyond. And so, you know, I think anyone that’s using technology to scale and maximize their profit is gonna be, you know, really well suited for the future, and those who don’t will kind of be left behind. And, you know, on a real estate standpoint, with interest rates going up higher, you’re seeing a lot of the retail investors kind of getting squeezed. And so, we’re seeing a lot of duplexes, triplexes pop up for prices that would be laughable, you know, low a year ago here in the area.

And so, we’re purchasing many of those to do Airbnbs because the Airbnb price is still rock and high here in Cleveland, but the triplex costs are fallen 25%. And granted they’re mostly off market sales, but people I know who are looking to get out of the business. But, you know, long story short, I think interest rates create opportunity and those who can maximize return on a per square foot basis are gonna be the ones that, you know, especially keeping your cost basis down, having the highest return per square foot are gonna be…were always themes in the past, fundamentals and will continue to be in the future. But yeah, in between just maximizing those returns and keeping costs down, you know, I think there’s gonna be a lot of limited opportunities, so to say in the next 6 to 12 months in both the, primarily from the retail investors, but in the commercial space as well as, I don’t wanna call it the high end multifamily, but you will see a lot of those kind of going for sale next two, three years for sure.

Jimmy: Well, great thoughts on those, and great perspective that you brought today to the show, Kevin, really appreciate your time. Before we hop off this call, where can our audience of high-net-worth investors and advisors go to learn more about you and IOTA Development group?

Kevin: Yeah, absolutely. Anyone could reach me directly. The best way to reach out to me is via our IOTA website, which is iotalabs.co, and that’s iotalabs.co. I would also welcome any emails, you can always contact me at [email protected]. I’m always happy to connect and just be a resource for each other. You know, I think there’s a great, you know, movement of great projects across the country and we’d love to just be a resource for people and help in any way we can. So, you know, in the tech space, in the real estate space, you know, we’ve stumbled upon a great little model. Granted it takes more vision, a little more entrepreneurial grit than the investment real estate approach. But, you know, you get the venture returns, which, you know, to me is we’ve had numerous successes we’re building on that model and scaling. So if anyone’s interested in learning more, getting involved, again, you can just check us out at iotalabs.co.

Jimmy: Iotalabs.co. Perfect. And for our listeners and viewers, I will, as always, have show notes available on our website at opportunitydb.com/podcast. And there will have links to all of the resources that Kevin and I discussed on today’s show. Also, please be sure to subscribe to us on YouTube or your favorite podcast listening platform so you make sure you always get the latest episodes as we release them. Kevin, thanks again so much for joining me today. Really appreciate your time.

Kevin: Hey, pleasure is all mine. We’ll chat soon.