Outperformance With A Value-Add Strategy
At Rev Projects, we implement a value-add strategy in our properties to improve physical and operational deficiencies. Simply put, we fix what’s broken. Before our ownership, these properties were deteriorating and in need of capital investment after years of deferred maintenance; or they were poorly managed with absentee owners, which resulted in low occupancy or low rental rates or both. Whatever the case, we target these properties because they fall in line with our goal to completely revitalize properties and make them more useful to their communities. Rev Projects believes this strategy leads to the best financial performance for our investors, because the projects appreciate in value with our creative design, incisive strategy, and pure sweat.
Some real estate firms may outsource construction activities to third-party property managers. At Rev Projects, while we do engage third-party managers for day-to-day operations, we choose to closely oversee and execute the value-add strategy with all of our vendors and contractors. We implement a variety of improvements to complete a project, including: renovation of interior finishes, rearranging floor plans, rebranding, and replacing base building components like HVAC systems and roofing. For property management, we hire experienced managers to handle day-to-day operations professionally. In multifamily management, for example, sometimes a little better customer service and responsiveness can lead to tenant retention and thus stability in cash flow.
One of our projects, Landing Parkway, was in need of major repair: it had faulty HVAC systems, a cracked and deteriorating parking lot, and interiors that were over 20 years old. It was left behind by an owner-user seller. We completed a remodel of the floors, ceiling tiles, and interior design that dramatically increased the property’s desirability to R&D industrial tenants. Considering the building’s close proximity to Tesla’s main factory, the installation of electric vehicle charging stalls was a welcome addition. We also prioritized the creation of an open and flexible R&D area so tenants could envision their machinery and equipment in the space: old demising walls were cleared away in the center of the building. Our case study describes the improvements in more detail and the fruits of our labor: the transformation into a valuable industrial facility that eventually became home for an electronics manufacturing tenant.
Another Rev Projects development, Old Mother’s Cookies Lofts, followed the same value-add strategies that led to outperforming results. OMC Lofts was a live-work loft building in Oakland that had outdated finishes and fixtures. The building had untapped value because the property was located in an area that was just starting to be recognized by investors and tenants. Repairs to the roof and fire systems were implemented. We preserved the historic features of the building, while completely modernizing the finishes of the unit interiors. Market rents gradually increased with the increased demand in the neighborhood. Our case study details how other investors were willing to pay a premium for the improvements we made when it was sold in 2017. We were rewarded for staying on course with our value-add strategy.
Value-add deals offer attractive upside for patient investors who are willing to accept the risk and wait for the project to come to fruition. Expect a value-add deal to require time to complete all of its improvements, usually between 12 to 36 months. During this time, expect little to no cash flow in the form of distributions. The rewards of the deal come from appreciation on the back-end, assuming the initial going-price was thoughtfully evaluated at a low enough cost basis--which is another key to a value-add strategy: identifying a property that already has the potential to be great.
At Rev Projects, we take pride in our patience--waiting to identify projects that have a strong chance of outperformance, and once we uncover an opportunity, we pursue it aggressively. We will always maintain a value-add approach and act as a fiduciary for our investors to unlock value in properties that have not seen their full potential. With the work put into the deal, value appreciation is a natural result.
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