From Family Business to $500M in Real Estate: Zihao Wang's Multifamily Journey

This episode features Zihao Wang, CEO of Motiva Holdings, as he shares how his family office scaled a $500M multifamily portfolio, navigated volatile markets, and leveraged California's unique real estate landscape.

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(0:09) Well, how's it going and welcome back to how to invest in commercial real estate. (0:12) And we have a super exciting guest on today. (0:15) I'm excited to get into, I always love talking about multifamily deals, super interesting.

(0:19) And we're retail guys. (0:21) So it always is fun to get into multifamily anyway. (0:25) Before we get into the guests, just a quick update.

(0:29) We do have some deals we are fundraising right now. (0:32) We have the Grand Rapids deal up on the website that we are fundraising for. (0:36) Super excited about that deal.

(0:37) I think we're targeting 18.5 IRR, like 9% cash on cash the first year. (0:44) A little over nine. (0:47) So again, super excited about that deal.

(0:49) It is fundraising right now, closing on that December 17th, I think. (0:57) Anyway, a couple of weeks in. (0:57) And I think we've got two other deals, one here in Oklahoma, one in Chicago.

(1:02) Looks like both are probably going to close first quarter next year because it's getting (1:05) late. (1:06) So keep an eye out for those. (1:09) Yeah, what else we got? (1:11) Yeah, both shopping center deals.

(1:12) Exciting. (1:13) We've been on a roll. (1:14) There's been like three or four in a row.

(1:16) Anyway, excited to get back into that. (1:18) So we won't delay any further. (1:22) We'll get right into the guests today.

(1:23) Today we have Zihao Wang, which is the founder and CEO of Motiva Holdings, which is an LA-based, (1:31) I believe, family office focusing on multifamily investments. (1:37) Again, super exciting. (1:38) Zihao, tell us a little bit about yourself and how you got into this.

(1:43) And then we'll go from there. (1:45) For sure. (1:45) Thank you so much for having me.

(1:47) I started in the real estate industry through the family. (1:50) So family originally made their money in the fashion industry back in the 80s and then came (1:56) to the U.S. in the early 2000s to continue that fashion brand. (2:00) And then it was also the time when my parents set up the family office and then started (2:04) investing into real estate locally in Southern California, where we're based.

(2:09) Got into it in 2016 on the property management side for two years, managing our family's (2:15) assets before moving on to the acquisitions and capital market side and trying to expand (2:22) kind of what the family had internally. (2:24) And right now we're around half a billion dollars worth of assets across 34 projects (2:30) in three states, primarily invested in Southern California multifamily. (2:35) Around two thirds of our holdings is here.

(2:37) And then we're also in North Carolina and Florida. (2:41) So in 2016, this is this is you personally, your family was in it before and were you (2:48) was that before college or after college or? (2:51) No, it was before college. (2:52) So I kind of started as, you know, a middle school student ish kind of riding along the (2:59) way with my parents, kind of following the footsteps of my parents and doing everything (3:05) kind of shadowing everything they were doing from, you know, site tours, from underwriting, (3:11) from talking with brokers, seeing deals come through, exiting deals, et cetera.

(3:16) So that was kind of my lead in into the real estate world through the parents. (3:20) And then now I kind of run the day to day activities. (3:23) So they still sit on the investment committee and make the major decisions.

(3:27) But the day to day operations and day to day decision making is now handled by me. (3:32) So you knew a lot about how to or about real estate before you even went to college. (3:38) Is that right? (3:39) Yeah, I kind of grew up in a very real estate oriented family.

(3:44) I actually knew more about real estate than about the fashion business, which is actually (3:49) their operating business. (3:51) Much more exciting seeing properties than seeing clothes. (3:54) Yeah.

(3:56) So interesting. (3:57) Interesting that you chose to go into computer science and finance, I believe. (4:04) Is that right? (4:04) Did you feel like that was something that would help you in the real estate? (4:08) I thought it would help me on the underwriting side of things.

(4:11) But I think the major reason why I chose CS is I think 75 percent of people at MIT major (4:19) in CS. (4:20) So it'd be awkward for somebody to not major in CS in some way or form. (4:27) There are a lot of different majors under the CS umbrella at MIT.

(4:31) I was just kind of trying to kind of fit in, in a sense. (4:35) So I chose CS as my major. (4:38) But yeah, it definitely helps on the underwriting side of things.

(4:41) Gets you very used to seeing a lot of numbers, seeing a lot of how different numbers move, (4:45) how changes work and stuff like that. (4:48) So I would say it's still, in a sense, slightly connected to what I'm doing today. (4:54) Did your family manage themselves or do you guys hire third-party management companies? (5:00) We started with third-party when we were much smaller.

(5:03) But at around 500 units, we decided to bring everything in-house. (5:08) So now in Southern California, we own our own property management company (5:13) and run everything basically in-house. (5:17) For our out-of-state assets, though, we're still not at the scale of doing everything ourselves.

(5:22) So we're still with third-party management. (5:26) Yeah, that makes sense. (5:28) So I assume Motiva Holdings has grown maybe since you graduated from college (5:34) and went back to doing this full-time.

(5:35) How have you scaled the company and brought in? (5:39) You have, I believe, half a billion under management. Is that right? (5:44) Yeah, so half a billion total managed. (5:45) So we've exited some portfolios in and out.

(5:48) So right now, we're active. (5:50) So we've been kind of a little bit on the sidelines since late 2021 and 2022. (5:56) So a lot of our assets are already kind of exited and went full cycle.

(6:01) But yeah, in terms of scaling, we definitely look to bigger assets. (6:06) We started off with 7-unit properties and then 16-unit properties. (6:10) And then now our most recent acquisition was 90 units, 20 million in Southern California.

(6:16) And then some of our out-of-state deals are around 250 to 350 units. (6:21) So in terms of property size, we definitely scaled up. (6:25) And then also the number of properties.

(6:27) We were pretty active kind of in the 2018, 2019 kind of days. (6:33) So you're on the sidelines a bit since 2021, 2022. (6:36) What led to that decision? (6:38) We just felt the market was super volatile.

(6:42) We didn't really know where we're going to go in terms of like interest rates and price expectations. (6:47) So that we didn't want to kind of expose ourselves to that kind of volatility and market risk in the real estate asset class. (6:55) So we decided to stay a little bit more on the sidelines, kind of check everything out before going back in.

(7:01) We're actually a lot more aggressive now, kind of tailing 2024 and heading into 2025. (7:09) We're just trying to kind of, our advantage is really having a lot of dry powder and be able to close deals fast. (7:15) So we're trying to find those opportunities that might be, you know, like a distressed seller or, you know, like an end of fund life kind of deal.

(7:24) And then trying to get some of those. (7:26) Well, it's interesting because I have another company outside of Criterion and we do own some multifamily and we kind of took a similar path. (7:36) COVID, I felt like that interest rates were going up pre-COVID and they kind of never did.

(7:42) And then we hit COVID and then they came down even further and cap rates were just, you know, hitting the floor lower than we'd ever seen them. (7:51) And so, yeah, we just kind of said, hey, we don't want to be buying these deals at three and a half, four cap when they're getting dead at two and a half percent. (7:59) Because if debt changes, those valuations are going to be tough to sustain.

(8:03) But we are kind of getting back into the market now as we see cap rates have kind of elevated, rates have plateaued. (8:11) And so we think it's a good time to try to start moving back into the market. (8:14) Is that kind of what you guys feel? (8:15) Yeah, we feel like, you know, I think it was like at least on the multifamily side, a lot of markets were overbuilt and there was a lot of uncertainty as to what that rate of absorption would be and kind of what rent growth would be.

(8:29) And also like pricing when the kind of the so-called distress that people have been talking about for like two years now, when that's coming and stuff like that. (8:37) So we're kind of just still checking out the market and like finding ways to get back in, knowing that, you know, kind of construction is pretty much stopped. (8:46) You know, the pipeline is much, much less than it was during the pandemic.

(8:51) So we feel much more comfortable and a little bit more transparent on the market right now. (8:56) Yeah. (8:58) Since you brought up rent growth, what sort of rent growth do you all see on your Southern California assets? (9:03) I know, you know, it's super regulated.

(9:08) I believe there's rent control in California. (9:10) Some areas, yeah. (9:11) Yeah, in some areas.

(9:13) So yeah, why do you guys love California? (9:16) I know you're in North Carolina and Florida and you obviously see different pricing out there than you would, you know, around you all in Southern California. (9:26) So why do you like Southern California? (9:28) I guess is the main part of the question. (9:30) And then what sort of rent growth do you see just generally on your assets out there? (9:36) So in terms of like rent control and stuff, it depends on the location.

(9:40) City of LA is like 3% to 4%. (9:43) Pasadena is like 3%. (9:44) Santa Ana is like 3%.

(9:45) But there are other pockets where it's like at the state level rent control, which is 5% plus CPI. (9:51) So it was like 8.9% this year. (9:54) So we can like depending on the kind of asset we can actually push rents to that 8.9. (10:01) If it was like a long term owner with a lot of loss to lease there, like maybe like a $500 loss to lease.

(10:06) So we can just push 8.9, 8.9, 8.9. (10:09) And then or other assets where it's like, you know, the rents are already at market. (10:16) So then it becomes really kind of inflation driven and market driven. (10:19) Then we're probably seeing somewhere between like somewhere like 3%, which is kind of average of what we're underwriting on kind of all across Southern California.

(10:30) The reason why we like SoCal so much is because we're local. (10:34) A lot of people are really afraid of this market because of the regulations and stuff. (10:37) But I think that's partially driven because of the fact that they don't actually live here and they don't like own so many assets here.

(10:43) By us being local and know kind of the city council members and stuff like that, we have a much better pulse as to what's going to happen in terms of legislation. (10:53) And I just feel we manage better when we're as close as possible to the assets. (10:59) Yeah.

Okay. (11:01) Yeah, I think it'd be interesting for me just coming from Oklahoma and the market is totally different. (11:05) Although I have purchased multifamily assets in other states.

(11:09) Nothing's quite like California and New York and others. (11:14) So I got the rent growth question, but talk to us about what is the cap rate and the going in cash on cash numbers and properties if you're going to try to buy a property in California today. (11:29) And is the main driver rent growth or can you get to a day one cash on cash that makes sense? (11:36) The main rent driver, the main return driver would be turnover, to be honest, because at least for our strategy, we try to target kind of long term owners who haven't raised rents for a long time.

(11:49) And because of rent control, you'll never actually hit the market. (11:53) So, for example, our most recent deal in Downey in July was a 20 million dollar deal. (11:59) Essentially, I think it was like a third generation owner and, you know, the parents just passed away and then now it's falling into like the fourth generation and they just want to sell the asset.

(12:11) And so there's been one like they never raised rents for a very, very long time. (12:15) So the units are kind of at fifteen hundred dollars in rent when market is like twenty two. (12:20) So then there's that gap of lost lease because of rent control, though, we can't actually get to that like twenty two hundred the next day.

(12:30) We have to kind of either prey on turnover where tenants move out and we can renovate and go straight to market or we hit them with the annual rent increases at which the state allows, which eight point nine percent this year. (12:42) So I would say for our strategy, we underwrite to kind of the rent growth projections of what the state allows us to do. (12:50) And we know that even if we increase it at like an eight point nine percent, tenants probably still won't leave because it's still below market because of the rent control.

(13:00) And so we we underwrite to that and kind of the cherry on top is if tenants decide to leave the property for another one, then we can't go right on right into renovating that property, renovating that unit and go right up to the twenty two hundred. (13:16) So what would the what would the going in in place cap rate be on a deal like that where you have so many tenants under market and there's that upside down the road? (13:26) So this specific property was at a five and a half cap rate, which is actually decently high. (13:32) Yeah, it sounds for California sounds high.

(13:34) Yeah. Yeah. Most properties like that will probably trade between the three ish cap rates.

(13:40) So like the kind of the two to three ish high to high to high three cap rates typically. (13:49) But this one we got it off market. The seller was hoping for a quick close.

(13:53) And that's kind of where our advantage comes in. (13:55) So we were able to get that one at five and a half. (13:59) The business plan pushes it to seven and we exit back at five and a half.

(14:03) Yeah, that's great. And then I'm assuming a lot of these deals that are being acquired all cash. (14:11) It depends.

We definitely we saw we did four deals this year. (14:15) We did two of them that were all cash and then two of them we had like we had loans on them. (14:22) Yeah.

And maybe the the five and a half cap, you can maybe put some debt on. (14:26) But like if you're buying, I mean, not you, but other people buying a three and a half cap deal. (14:30) I mean, maybe back after covid, you might might have been able to put some debt on it.

(14:35) But today you'd be, you know, kind of severely underwater with your with your debt rates. (14:40) Yeah. You'd have to go interest only still.

(14:43) Yeah. Even then it may not work. (14:45) Now, when you guys do use debt, are you are you agency debt guys or are you getting some other kind of debt? (14:52) We like to do a lot of bank financing.

(14:54) We have really good relationships with the local banks, partially because we have a lot of deposits with them from the operating fashion business that's still going on. (15:03) So the banks typically like to give us really good rates and a lot of proceeds to do loans with them. (15:12) So what's your forecast and strategy, your goals for the next five years or so? (15:18) What if I had to ask you to sum up your goals for the next five years? (15:22) What is it? What are you going after? (15:24) How big are you wanting to get? How many assets you want to acquire? (15:28) We try to acquire around five assets a year.

(15:32) Typically, we haven't hit that mark for the last three years. (15:35) So we did four this year and then we were very quiet kind of in the year prior. (15:40) But I'm hoping like 2025, 2026, we can get a little bit more aggressive and acquire around five assets a year.

(15:48) And I do believe kind of like from a long-term growth perspective, we're kind of in correction mode for multifamily right now. (15:55) But like five years later, I'm more optimistic as to the environment of multifamily. (16:00) So hopefully in five years, we can cycle some deals out from our current portfolio as well.

(16:07) And then a couple other questions here and then we'll wrap it up. (16:10) I'm curious, are you guys all your own equity or do you guys syndicate or partner at all? (16:18) Very, very few partners. (16:20) We primarily do kind of just the family stuff.

(16:23) We have brought in like ultra high net worth individuals that were kind of friends and family, (16:28) as well as some other family offices to partner on deals. (16:31) But typically, we're the anchor LPs and we like to kind of control the deal and then put majority of our capital into it. (16:39) And then let's say you are going to co-GP or partner with somebody.

(16:44) What are your IRR expectations or goals? (16:48) What are you guys trying to get year over year? (16:51) We typically aim for an 18 plus IRR. (16:54) And that's even without partners, we still try to do that ourselves. (16:59) So at the deal level, we need to hit like somewhere around an 18.

(17:03) That makes sense. (17:04) Typically, years ago, we were hitting over 20 pretty routinely. (17:12) But now, most of the deals are with the debt where it is and the cap rates where they are.

(17:17) We're penciling 18 to 20. (17:19) Yeah, that was the LP. (17:20) So it's post split.

(17:21) I mean, deal level is well over the 20s. (17:24) Yeah, we're trying to hit 18 for our partners. (17:27) Yeah.

(17:28) And we typically are doing an 8 prep and a 70-30 split to the investor. (17:35) Yeah. (17:36) So kind of our standard anyway.

(17:41) Well, do we have any other questions? (17:43) That's all I had. (17:44) Man, super excited for you. (17:46) That's an awesome business to step into.

(17:49) And it sounds like you're running it really, really well. (17:52) Would love to stay in touch. (17:53) But we want to be able to plug you.

(17:57) And so is there a website we could send our listeners to that want to check out what you're doing? (18:02) Tell us. (18:04) Yeah, I mean, we have our website, MotivaHoldings.com. (18:07) But I'm also very active on LinkedIn. (18:09) So happy to connect there as well.

(18:11) Nice. (18:12) Well, congrats on the family success. (18:14) We wish it continues for you.

(18:16) And if we ever get involved in a property out in California, we'll definitely call you and get some advice. (18:22) Awesome. (18:22) Thank you so much for having me, guys.

(18:24) All right, guys. (18:24) Thanks. (18:25) And we will see you next time on How to Invest in Commercial Real Estate.

(18:27) Thanks, everybody. (18:28) Thanks.