Jon Sellers, CEO, RevKo Commercial Real Estate

In an interview with Invest:, Jon Sellers, CEO, RevKo Commercial Real Estate, discusses RevKo’s integrated commercial real estate model, Houston’s industrial growth, investor communication, construction costs, and the company’s expanding development portfolio. “We’re an open book,” Sellers says of the transparency that supports long-term investor relationships.

What was the vision behind RevKo’s integrated real estate platform?

I have been doing this for 20 years. I started in the industry as the chief financial officer for a large development company, where engineers, architects, contractors, subcontractors, and other parties were hired outside the company. Coordinating all of those stakeholders took time, and communication among them was difficult.

When I set out on my own, I wanted to consolidate many of those relationships, find good people, stay with them, and create lasting relationships. The goal was to work as a team with flexibility on dollars and time, and to build trust with the people providing construction and consulting services. We rely on one another. Sometimes, we request that consultants reduce their costs to help make a development work. The overall goal is investor return.

I also brought construction and brokerage in-house because that reduces time and costs. Since those teams are inside the office, conversations flow more easily, everyone understands the objective, and I can better control the outcomes. We cannot control outside sources such as permitting or municipal timelines, but once we obtain those approvals, the process among investors, developers, and other stakeholders is smoother.

How does that approach give investors greater confidence?

Investors become comfortable with the people we use because they know them, have seen their performance, and understand their capabilities. When we approach our regular investors, they already know who the players are. That gives them more confidence than an outside team whose contractors or engineers are unfamiliar.

I tell investors that I have made 20 years of mistakes to get to this point, and they are getting the benefit of that experience. The relationships built over those years eliminate a lot of uncertainty in the deals we assemble. We provide investors with an avenue to own a tangible commercial real estate investment, and they understand the project because we have created a bond among the stakeholders.

What is driving RevKo’s growth in the Houston market?

One of the best things for us is that we are in Houston. It is a largely industrial area with the ship channel and major oil and gas companies. When large companies bring their headquarters here, the smaller companies that supply them also look for locations. Houston is affordable, and commercial land costs less than in other major Texas markets. Lower land costs lead to lower lease rates and sale prices, allowing businesses to obtain larger buildings and more property.

Houston also has room to expand. When I entered the business, there was the 610 Loop around downtown. Then Beltway 8 developed farther out, and now the Grand Parkway covers a much larger area. The Grand Parkway opened areas where businesses can locate near good neighborhoods and reach much of the city in less than an hour. People move here for the cost of living, and businesses follow. We have benefited from being in Houston, but we have also assembled a great team and delivered a great product.

Houston has become a logistics hub for many oil and gas-related companies because businesses can enter the market at a lower land basis. That lower basis lets them obtain more property and larger buildings than they might in Dallas or Austin.

How important are transparency and communication to investor relationships?

Transparency is a big part of how we maintain long-term relationships. We’re an open book. Investors come to the office, and we have developed friendships as well as business relationships. We keep clients informed, sometimes weekly, about project progress. We provide quarterly financials and regular updates about anything major, so investors know where their money is and can see that we are working on their behalf.

About a year ago, we brought in an investor relations director to coordinate that communication. The development team gives updates to investor relations, and investor relations updates the investors. There is no silo. Brokers, developers, and investor relations can all see what is happening with each project.

What role does quality control play in the integrated model?

About a year and a half ago, we created a quality control department to prevent mistakes and avoid delivering a poor product. Someone monitors the process from the time we begin moving dirt through completion. That includes checking whether plugs work, water turns on, and toilets flush.

Those checks help prevent problems later and improve our ability to sell or lease buildings because tenants and buyers know they are receiving a quality product. They can see the reports created during the process and the testing we perform. It also reassures investors that we are watching every nickel and confirming that the project is receiving what they are paying for.

How are you managing rising construction costs?

We work the development process backward. When we create an investment project and prepare a pro forma, we state the return we intend to provide for the risk of the asset. We then work backward into the numbers needed to achieve that return. Because we control development and construction costs, we have flexibility. If we need to reduce our fee to make the deal attractive to investors, we can do that.

Construction prices have risen almost 30% over the past four or five years, including both materials and labor. Finding workers has also been difficult, and we have had to replace trades. We cannot control all of those costs, but we can be flexible so the returns remain attractive. We may not make as much money on a particular project, but keeping investors and delivering the returns we promised supports the company’s long-term longevity.

Which current project best illustrates where RevKo is headed?

RevKo was formed about two years ago as a partnership between Boomer White, who was a broker at CBRE, and me. Since then, we have started seven projects, some of them smaller, in areas where growth is exponential. Our internal brokerage provides the data that helps us build the right product, whether it will be leased or sold. We are concentrating on growth areas such as Waller and Katy.

I am most excited about our newest project. We closed on 44 acres and plan to build 10 industrial manufacturing buildings over two phases, totaling about 550,000 square feet. The completed project is expected to have a valuation of about $90 million, compared with our usual project size of around $20 million.

Industrial manufacturing vacancy in Houston is around 3%, which is effectively fully leased. We saw limited supply and strong demand, purchased the site, and already have companies waiting to lease or buy buildings. The equity raise was about $12 million. The first phase includes five buildings totaling about 240,000 square feet, with individual buildings ranging from 30,000 to 80,000 square feet. Because of the low vacancy rate, we feel good about the project’s prospects.