February 13, 2023

JF3084: How to Get Started in Co-living Real Estate ft. Matt Ryan


Matt Ryan is a real estate entrepreneur and the founder of Re-viv, a private equity company focused on funding co-living spaces. A returning guest on the Best Ever Show (JF1593 and JF2322), Matt is currently developing co-living, rent-by-bedroom spaces in Sacramento and Denver.

In this episode, Matt discusses how he got started in the co-living niche, including the increasing demand for co-living spaces with 45 million Gen Z workers hitting the market in the next decade. He also details the biggest complications of developing and managing co-living spaces, as well as how to determine if a market is right for co-living.

Matt Ryan | Real Estate Background

  • Founder of Re-viv, a private equity company focused on funding co-living spaces.

  • Portfolio:

    • Currently consists of $12M AUM, including Phase 2 buildouts via lot splits and ground-up residential.

  • Based in: San Francisco, CA

  • Say hi to Matt at: 

  • Best Ever Book: Who Not How, by Dan Sullivan and Dr. Benjamin Hardy

  • Greatest Lesson: We can choose to go through life’s experiences alone, or find those who are willing to share theirs. Bring on partners that have more complementary skill sets and fill gaps for you.


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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with Matt Ryan. Matt is joining us from San Francisco, California. He's the founder of Reviv, a private equity company currently focused on funding co-living spaces. He's been on the podcast before twice now actually, episodes 1593 and 2322, where he first discussed the new opportunity of opportunity zones, and then how to be a social entrepreneur.

Current portfolio consists of four and a half million of real estate, with another 2 million in phase two buildouts [unintelligible 00:01:53.18] and ground-up residential construction. Matt, can you tell us a little bit more about your background and what you're currently focused on?

Matt Ryan: Yeah, thanks for that intro. And just to quickly update, I know that we're up to 12 million in assets under management.

Slocomb Reed: Oh, wow.

Matt Ryan: Yeah, that might be a dated bio that you got. So we've seen a bit of growth here in the last couple of years. But yeah, our current product focus is specifically the co-living space. It's a rent a bedroom model focused on affordability for 22 to 35-year-olds, and specifically within the Sacramento and Denver market. We have projects in both those markets going right now. And then of course, we've done some other side projects, put some capital to work. We've done a workforce housing project in Sacramento, and a fix and flip with a lot split, we're building two single family homes in Oakland. That's pretty much what we've been up to... And I'd say co-living has been our predominant focus for the last going on three years.

Slocomb Reed: That's an interesting niche to get into, Matt. Can you tell us a little bit more about why that's what you're focused on?

Matt Ryan: Yeah, it really came by introduction through my architects, and also just kind of being a little bit frustrated with the value-add B and C marketplace, for a couple reasons. It was obviously a marketplace where there was a lot of competition, a lot of new players moving into the space when we were getting in... And also, the regulatory environment, i.e. rent control, in our (call it the) first market that we penetrated into, Sacramento; we were trying to take more of a thesis-driven approach to workforce housing, that focused on renter retention, but also focused on bringing projects that needed capital improvements, that needed to bring these apartments up to code, and make it a nice, safe, livable environment for the tenants, but also balancing the necessary rent increases. So that was a primary focus for ours.

When rent control came in - we're not a big fan of that policy. We feel like it puts a lot of hamstrings, but it's also there to protect consumers and try to create some guardrails. But anyways, at that time, we were introduced to an operator who was doing co-living in the Oakland markets, and an architect and good friend of mine, we would be openly exploring business opportunities together, and he basically said to me, "Hey, I want to do something with you here locally; you should look at this co-living thing." And I was a bit skeptical at first. Ben Provan, of the OpenDoor, which was a management company - sad to hear they recently closed their doors... But I was introduced to Ben and appreciated and loved his charisma and his idea of what co-living was, and the problems that it solved... And for us, we've always been focused on this idea of thesis-driven real estate, and for us co-living checked a lot of the boxes. The ability to provide affordable housing, if you want to call it that, even though we're not taking a subsidy, even though we're not using tax credits, and kind of solving a bigger problem and being able to do it while parlaying back my experience on energy efficiency and green building, and how we tackle this issue of building housing in urban and suburban areas of job markets that are producing jobs, and people are struggling to find housing.

So that was where it really took off, and we early on paired that with the opportunity zone legislation. That was a little too niche for people; we kind of struggled to pair that. It was a little too complex. A lot of people liked the co-living product, but they weren't quite ready for O-zones. Around that time, we kind of pulled back on that strategy and used both capital resources, and eventually end up doing a lot more co-living projects without the O-zone overlay. But again, we love the O-zone legislation, and really what we thought it was intended to do, and it aligned with our thesis.

Slocomb Reed: I'd like to hear more about that thesis, Matt... Let me talk through some of the assumptions that my brain is coming up with, so that you have a baseline for correcting me, and adding, too. When I think about co-living - well, first of all, I'm picturing a fairly large single-family house, or a three-story duplex that we have in the neighborhoods of Cincinnati, where something like co-living is already popular... I'm an apartment owner-operator in Cincinnati, Ohio, and I am making a few assumptions here... One of them is when you rent by the bedroom, because the tenant is only renting a private bedroom in with shared public spaces, it's more affordable than an individual apartment for them. It also increases the total revenue that can be garnered from a space because of the way that it is subdivided. So they pay less, there are more of them, therefore you generate higher revenue. You also have more people living within an individual housing unit, meaning that it doesn't take a unit per person, in this case, to house those people... Meaning that there could be some other benefits as well in the broader market with an under supply of housing, if you're in a market that has an under supply of housing.

I would have made the assumption that you were focused on 22 to 35-year olds, even if you didn't say it, Matt, because that's been my experience with that space as wel,l if you're not doing student housing. So tell me, where am I wrong, and what can you add to that?

Matt Ryan: Yeah, you pretty much nailed it. So whenever you're done with Best Ever, you can come over; we've got a job for you in investor relations. You can talk to our investors. That was a great job, man. I wouldn't add much, other than the fact that this co-living marketplace, if you will, a lot of people will look at it with a judgmental eye. And it's new, it has a new nomenclature, it hasn't been around... A lot of people go back to the '70s impression of communes and stuff. People moving into urban cores, and especially post 2010, the millennial generation, my generation, to seek housing and buddy up with roommates, and go on Craigslist, or get a couple of their friends and move into a three-bedroom versus a studio, or a one-bedroom, to bring down their rents is not a new model. This has been happening not just in the last decade, but for several decades. And before that, we had boarding houses that led way for some of the zoning offices to then shut them down and kind of exclude them as part of the (call it) urban landscape... But this is a type of housing that's existed, we've just failed to produce it... And now that it's become more predominant in the affordability crisis, especially for that age demographic, it's even more prevalent. There's increased attention, in the fact that you can produce a profit, produce a strong housing model for people that is fairly turnkey, and it takes away some of the friction for those people who are trying to find that housing.

Personally, I moved to San Francisco, I've been through that friction. It's not fun. I spent two and a half months looking for a place to live, and I essentially did what we're talking about; I got a two-bedroom, found a roommate off Craigslist... And guess what - we argued about how to split some of the utilities, how to split the cleaning service. That's the friction that we're talking about here, that operators like [unintelligible 00:08:55.09] and some of the other big operators, both in Europe and America, have basically streamlined. It made it very easy and turnkey for people.

And so from my perspective, I just let people know that this isn't a fad. This isn't something that's "new and hip." This is an existing marketplace that people are now moving in and becoming highly sophisticated in, and using technology as kind of a lever to, again, make it a very frictionless process for the end user, i.e. the tenant, that 22 to 35. And from our perspective, there's 45 million Gen Z's who are about to hit the job market over the next decade. They're about the same size, if not slightly bigger than the millennials... So if anyone has any doubts about how prevalent the demand is going to be, and where these people are actually going to be looking for housing... I always like the old Brookings statistic that I use... It's a little old, but it was in 2016; 75% of the jobs coming out of the 2010-2009 recession were in cities of over a million. And I understand with the prevalence of remote work - yeah, maybe that reshapes a little bit, and we knock 5% or 10% off that... But the fact remains historically, cities have been major job producers coming out of recessions. So these younger kids, call them, they're going to be moving back in the cities, they're going to be moving out of mom and dad's basement soon, and they're gonna be looking for housing in these job producing cores, just as they have the decades before. So what options they have available to them? The people who are there to position those opportunities for them are frankly going to be the ones to benefit.

Slocomb Reed: There are a couple of things you mentioned there that I would like to ask about... First, do you all property-manage the properties that you have in Sacramento and Denver?

Matt Ryan: Because we're doing this at a relatively small scale - and we're doing that purposefully, because both markets, there is no co-living basis there. There is no foundation in Denver. There was one institutional grade asset that was developed in Denver; not a lot of information available for it, because I don't know that they went all-in on a co-living model. Sacramento, there is no precedent. So these are 9, 10, 20 bedrooms. So yeah, unfortunately, we are going to have to self-perform initially. But I think - and as I've talked about on another podcast, it's an inherent challenge, but it's an opportunity. Property management, frankly - I've run the numbers on some of these operators; a lot of them have gone out of business. It's a tough model. Property management is not an easy business. It has to be done at scale. There's been a lot of consolidation in the property management sector for co-living. I still don't understand how these guys make money. Anyone who's worked on the development side, on the private equity side, absorbing that property management - we can absorb that into our OpEx, and actually make a little bit of money. It's kind of a net breakeven at the end of the day. But we don't have to make money in that division in order for it to make sense for us, because we're making money on the asset appreciation. We just bought this building, and we're going to turn it into a business that's going to have a much higher profitability, ideally, than the one that we bought.

So for us, to wrap the operating model in - I don't want to say it's not a big deal; asset management is always a big deal. It's always extremely difficult and challenging. But the nice thing is, I still think there's a lot of European operators who are looking to break in this market; we're really hoping we can find a partner to come along with us... Because we don't want to be in the long-term business of co-living property management. We just want to be a developer, we just want to grow and scale operations. But I think, again, where the opportunity comes in is that we're gonna have to get damn good at it. We're gonna have to trudge through the mud. We're doing our research right now, diving into all the best practices, diving into the people who have already been there, hiring consultants... So it gives us a good platform to know what we demand from an operator when it comes time to hire that operator. And I think that's where the opportunity lies for us.

Slocomb Reed: Right now, while you are the property managers for your portfolio - I don't want to make assumptions. I'm an apartment owner-operator in Cincinnati, Ohio, and I'm standing in my office which was a boarding house back around World War Two. That's my understanding, at least; I wasn't around to know that, but... Speaking specifically to this, let me ask, what are the biggest complications or difficulties that you are facing specific to managing these co-living spaces?

Matt Ryan: The first one in projects of this size, it's always scale, and how good of an onsite manager can we truly get for this type of property, and what the fee structure is going to be [unintelligible 00:13:29.19] That's why the most successful value-adding developers don't build anything less than 80 to 100 units, because you can have an off-site manager, and a really well paid W-2 onsite manager, because you have scale on this side of things.

So I think scale is one of those terms that gets thrown around a lot... But let's just call it the quality of the person that's on site that's managing it; how much time, energy, resources and pay structure can you truly allocate to that person, given the size of the property that you're managing? So I think that's challenge number one; we're going to have to rely on (call it) a distribution amongst the tenants. It's a smaller space, so I think perhaps that makes it more manageable. But traditionally, people aren't easy to manage, whether it's an organization, or it's a property... So I think that kind of comes to number two, which is the community. What's the organizational structure? And I say that in the context of maybe culture, if you want to relate it to business. What's the culture and the community that you're trying to build? What are the expectations that you set? And I think that really goes without saying in any property management. Are you doing the small things? Are you turning around maintenance in a reasonable timeframe? Are you responding to tenant demands in a reasonable timeframe, and also pushing back on tenants when those demands are unreasonable? You're thrusting people -- the kind of intangible to it all is personality, and personality conflict, which if these people don't truly know one another, frankly [unintelligible 00:14:55.18] company that's actually put together a match-making service (they just launched probably four months ago) dpecific to the co-living sector to address this problem. When I say technology is kind of taking over and really accelerating co-living as a product, that's what I mean.

So I think these are challenges that there's already tools and mechanisms that are being put in place, but I'd say those are the three inherent challenges that we have in an initial operating model, and property management model. But I wouldn't consider at least two of those three distinct from any other type of challenges one would experience in property management.

Break: [00:15:31.05]

Slocomb Reed: Matt, what is it that you're looking for in a market that you want to move into for co-living?

Matt Ryan: What a lot of savvy investors look for - supply constraint; a good balance of supply versus demand. I think for us we really try to hit that middle of the fairway cash on cash and equity growth. So I think you have to be very weary about going into markets that are at risk of oversupply. So I think that's number one.

Number two, obviously, you want a high-level of growth in that young demographic; you want in a metropolitan that's exciting to people, that young people are wanting to move to. Traditionally, that's been higher barrier to entry, more expensive markets. People are moving to the Nashvilles of the world; that doesn't make them not a good fit for co-living. I think one just has to tread very lightly.

The other thing that we kind of look at is - I'm coming from California, and I've been in Sacramento, and Oakland... So we're looking at a pro-business environment that frankly is a little purple politically, is what I tell people. A little blue and red mixed in there. Sacramento doesn't necessarily fit that definition, but it's a secondary market that's really benefited from the anti-business, anti-competition sentiment. And there is a little bit of red within Sacramento, even though it's very blue politically... And I say that just from the voter base in the surrounding areas. So I think it does create a little bit of a counterbalance there. But that's what we really liked about Denver - Reviv's kind of original business thesis was to be a neighborhood-specific investor, non-product specific, and we're still really trying to navigate towards that model. It's a very challenging thing; you have to pick a product, but... I will just say very quickly, the thing that I like about Denver is kind of this intangible, which it has just a lot of cool neighborhoods that are very much redeveloping, and have a really strong resurgence in their identity, the neighborhood that we bought our property in being one of those.

So outside of the major metro and those other things that we were talking about, we very much focused on the neighborhood. What is this neighborhood going to be in 10 years from now? And I always kind of tell investors - Reviv's original thesis was if you could go back 10 years ago, and pick that neighborhood that you wish you would have bought everything you possibly could have because of what has become today - that's our model. So again, we dive deep into those elements of the neighborhoods that are the next hot neighborhoods, and that's what really drives a lot of value and growth potential for us. So it kind of goes a little bit further beyond just the metro.

Slocomb Reed: Matt, I'm surprised to not hear you say that housing affordability is one of your factors. I mentioned, I believe, that I'm in Cincinnati, Ohio... And I think as an owner-operator and a property manager here, the first thing that comes to mind for me is that in those neighborhoods that you're referencing, that are trendy for people ages 22 to 35, the majority of them anywhere that you could find inventory that could be converted to co-living or operated as co-living, you're also going to find affordable studios and one-bedrooms to live in. So yes, there's demand to be in those spaces, but the margin between what someone would pay for a bedroom in a co-living space, or what you would likely need them to pay in order to operate profitably and what they could get a studio or one-bedroom apartment for - I don't know that that delta is broad enough to work in a place like Cincinnati. Is that what you're factoring in? Is that why you're in Sacramento and Denver? Is it because there's a margin between what you can charge for a bedroom and what one-bedrooms and studios cost per month?

Matt Ryan: Yeah, that's a really great point. And the thing of it is, is broadly speaking, housing affordability - you've gotta be careful looking at it per unit, like what's the door price, and what's the price relative to, call it, area medium income. And then you still have "Is that demographic that we're talking about moving into these (call it) maybe poor neighborhoods with a lower area medium income, just because the housing stock is cheaper and more affordable?"

So I think housing affordability is relative, so it's challenging... To answer your question, do I think co-living works in Cincinnati? Yes, I do. Because you still have to pick a property that you can acquire at a good cost basis on your post renovation cost isn't a good cost basis relative to comps. You still have to find a good deal. And then I think if you're eloquent about how you price that in the appropriate neighborhood, relative to the surrounding stock that is available to people, i.e. the studios, the one-bedrooms, and even the Craigslist room shares that are available to you, and you price it correctly, it's going to work. It should work. And that's where it gets challenging to look at just affordability.

Yes, we have a lot of ways in which we analyze a look at that and how we pick our pricing... I think what you're alluding to is "Do we try to go into the more pricier sub markets or neighborhoods, and then try to acquire properties there?" Yes and no. Typically, those properties are much more challenging to acquire on an existing asset basis, acquiring an existing property, and they're inherently more challenging to develop. And that's the other thing about co-living and where we're shifting our models to be able to do these projects, buying existing buildings at a good cost basis because they were office that were converted from residential; so we're converting them back to residential.
Co-living in the future, and some of the more successful developers doing it at scale are building co-living from the ground up. So I think that's the other nuance to that, which is "What's your raw land cost? What's your go vertical cost, and where is that relative to...?" And, again, what's the surrounding product?

And I think from the affordability perspective, there's less and less existing stock that's out there that's truly affordable, and has the appropriate amenities. Is it a nice place to live? So I think that more and more of those options are just limited for people. So I think for us, again, if you're pricing it correctly, and you're doing a good job, building a quality product, I think it's easy to stand out. Because again, the interesting thing about co-living is you're kind of delivering almost a brand new product or a recently renovated product at the bottom 15%, 20% of the rental market. If you put the rental market on a scale like Sacramento, you can't find a midtown apartment for less than $1,600 to $1,750, sometimes even two grand. And we're performing at $1,150. And that may go up to $1,250, maybe $1,300. But that's still at the bottom 15% of the rental market. So I think that's the competitive advantage as well.

Slocomb Reed: That makes a lot of sense. Matt, are you ready for the Best Ever lightning round?

Matt Ryan: Yeah, let's do it.

Slocomb Reed: What is the Best Ever book you've recently read?

Matt Ryan: Thank you for the recently, because that's what I always default to... Who, Not How. I've gone from small, just me and a few people, we're getting ready to scale, I have a business idea in my Asana, and let's just say it's getting rather full... And I get oftentimes frustrated about lack of progress in those other areas of my life, and that was a really groundbreaking book that put it into perspective, that to be able to expand into those other areas of your life, you really have to find the right people and engage those people at a high level. So that helped reshape some of my frustration and my mind in focus... So it's been a big one for me.

Slocomb Reed: Nice. And that's by Dan Sullivan and Benjamin Hardy.

Matt Ryan: Yep.

Slocomb Reed: What is your best ever way to give back?

Matt Ryan: 1% of all pre tax profits on the asset management company goes into local communities. So that's kind of built into our model and part of a larger, again, thesis of kind of building an ecosystem, and community revitalization and benefiting the communities at large that we invest. So that's kind of our big one. And then I've just tried to secretly get involved with nonprofits that I felt have causes near and dear to my heart... And instead of just making one-time donations, I usually try to set up on a monthly donation, just a small amount, and then just accumulate those over time... And it's been really nice being able to do that. And as I've come into more capital, making bigger donations to causes that are close to me.

Slocomb Reed: Matt, thus far with Reviv, what is the biggest mistake you've made and the best ever lesson that resulted from it?

Matt Ryan: Yeah, trying to go at it alone... I wish I would have brought on partners a little bit earlier on, or maybe go work for another developer prior to. I was fairly unemployable moving to San Francisco, because I had ran my own company for five or six years, and had a very close friend of mine tell me when I was interviewing, like, "What are you doing? Quit kidding yourself, you're not going to work for anyone." It was great advice at the time, but I really wish that I would have brought on partners that had more complementary skill sets and filled the gaps for me. You can't raise venture capital for a private equity company that's kind of in conflict, and I always joke with people that I was the only idiot who moved to San Francisco and started a private equity company, versus a startup that took on venture capital...

So to me, while I've been successful, I've had a great return on my capital, I don't think I had a good return on my time in some of the investments that I made in people early on, as far as just the quality of people, and the amount of budget that I had available to me. I did it on a shoestring. And looking back on it, I don't think that's the most efficient way to start a company. Certainly not a private equity company. And, frankly, I think I'm a little bit lucky to even be here. It's a lot of luck, I would say. And if I had one regret that I wish I could go back and do it differently, I'd say that's the one.

Slocomb Reed: Gotcha. On that note, Matt, what is your best ever advice?

Matt Ryan: Yeah, well, let's pick up on that one... I'd say everyone's looking to get into real estate. As a syndicator and investment manager, call it, I'm a little bit spoiled here, but the other regret I have is that if I had a little bit more capital, maybe I would have taken that and invested in two or three syndications with operators that I really respected in the space, and maybe go work a W-2 for a little while, or go work for a developer... Because it's really a difficult business to get in; not just from the capital needs of it, but there's just so many layers of nuance, and so many bogeys is what I call them... Things lurking in the background, that can literally cut you out from underneath. And it's just a really challenging business to get started in without a lot of experience, and a lot of breadth of expertise in a lot of different topics.

So for me, my best ever advice is really get educated, but invest with a sponsor, or go work for someone else who's really doing it, and doing it well, and take that one skill set that you have and deliver that. The people who I've seen who have had a meteoric rise in the private equity and syndication space - that's what they've done. They haven't tried to just gut it out on their own. And I wildly respect those people, and I think they're incredibly smart for doing so.

Slocomb Reed: Last question. Where can people get in touch with you?

Matt Ryan: Just go to re-viv.com. That's our company's website. We have all of our recent deals up there. We're about to launch another one, just as a teaser. There's a Calendly link; you can book a call with me if you want to rap about investing, co-living, whatever it is that you feel pertinent... And I think we've got some pretty good information out there. We're continually trying to build it out. So I'd say that's the best way.

Slocomb Reed: Matt, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a best ever day.

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