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Prescient Venture Partner, LLC’s principals, David Aoyagi and Scott Pozzi, have constantly delivered superior investor returns by seeking opportunities to increase value and by using their unique and exceptional design and construction, analytical, financial, and negotiation skill sets.  These unique, hands-on skills have allowed them to fully leverage each driver in the Value Cycle (see Investment strategy page) thereby maximizing investor value by purchasing at a discount, improving operations, repositioning properties, and reducing expenses.  David and Scott have constantly delivered significant value where others have seen little or no value.   The following are two real life examples of Scott and David, individually and prior to Prescient Venture Partners, LLC, creating ‘something from nothing.’ 

Scott Pozzi

Case summary:  By repositioning a downtown San Francisco, California office building, Scott outperforms a rapidly rising market by increasing property's value by $74 million or 560% within 48 months.  

Situation/Problem — 111 Pine Street is a 35-year-old, 18 story high-rise office building in San Francisco’s Central Business District that had eroded in value during the early 90’s to less than 50% of its Book Value of $33million. Although it enjoyed enviable location attributes, it suffered from deferred maintenance, poor tenant relations, management staff complacency and fiscal neglect.  Within a 6 month timeframe the building endured three ownership changes. Taking over as the building’s asset manager, the challenge Scott confronted was to initially increase the building’s value over two very short ownership horizons (four and six months respectively) and to subsequently increase value over the long term for the final purchaser.  Most of the building’s value-add potential was limited by its anchor tenant, a back office business unit of Wells Fargo, who controlled 40% of the building for another two years and possessed extension options at below market rates on all of its occupied space.  Seeing an opportunity to maximize investor returns, Scott set out to actualize a ‘high performance’ but ‘improbable for most’ strategy.. 

Solution — The first thing Scott did was to review the building’s performance from the standpoint of his investors.  He already knew the building had not performed  as well as “comparable” properties.  Wanting to be systematic in his review of the property, he formed a team to examine the property’s underlying financial performance, assess its prospects for generating cash flow in the years to come, and test these forecasts against the validity of the market’s implicit assumption about the property’s future performance. 

What Scott found was disappointing but revealing.  The building’s return had been well below the market overall, below the returns of comparable properties, and that its upside potential was not likely to be realized since Wells Fargo was unlikely to forgo its below market rent extension option in what was shaping up to be a rising rental rate environment.  He was inspired, though, by the building’s solid fundamentals that could form a solid foundation for the add value strategy he had in mind.. 

What stood out from the analysis was his perception that a perceived low probability for success strategy of maximizing the building’s value was not that improbable for him.  With key insights — through analysis —about Wells Fargo’s infrastructure costs and business, Scott believed he could negotiate Wells Fargo’s early lease termination; upgrade the building for little expense to the owners to a level that would attract higher caliber tenants; increase the building’s revenues by re-leasing the building for (at a minimum) the higher going market rents; and reduce operating expenses —all within the context of a rising market.  By accomplishing this strategy, Scott knew he could deliver extreme returns within the relatively short time frame of 12 to 48 months.   

Developing a focused and specific business plan and outlining key milestones, Scott and his team turned their attention to executing his strategy.  Within 12 months, Scott had successfully achieved every key milestones in his strategy:  he stabilized the building’s cash flows (hence, immediately increasing it’s “as is” value) by securing what his analysis identified as the 5% “at risk” tenants and by increasing occupancy by 10% to 95%; he negotiated Wells Fargo’s early lease termination by leveraging his good working relationship and knowledge of Wells Fargo’s infrastructure and how their move would reduce their costs.  Of even greater significance, while working with Well Fargo, Scott was able to accelerate his repositioning plan by arranging for Wells Fargo’s high profile sub-lease tenant, First Republic Bank, to lease Wells Fargo’s vacated space and for First Republic to upgrade the building—at their own expense!

In addition to achieving increasing revenues, Scott also increased the building’s operating efficiency by “permanently” reducing expenses through better financial management; dramatically reducing building upgrade costs (via First Republic’s upgrade); and by successfully reducing the property’s assessed tax value by $2.5 million which translated into an immediate and substantial permanent increase in value.

All told, within 48 months, Scott increased the building’s market value by $74 million or 560%.  He succeeded in maximizing the building’s intrinsic value by creating a well managed and cohesive team, capitalizing on his strong working relationships and superior negotiation skills, and leveraging insights that allowed him to reposition the asset and increase the building’s operating performance as well as its prospects for optimizing annual revenues and market value down the road.

David Aoyagi

Case Summary:  David sees value where others see none, reduces risk, and repositions properties for a 382% return within 6 months.

Situation/Problem—A for-sale commercially zoned corner-lot property contains an unusual combination of a turn-of-the-century house and a large warehouse.  The house, the main focus of marketing efforts, is considered ‘undesirable’ because of its uninhabitable condition and the fact it comes with an older warehouse in a mostly residential neighborhood that no longer allows large commercial traffic.  The area does have some commercial businesses with, in fact, each of the other corners having a successful business --one corner has a quality neighborhood grocery store, the other a high-end coffee shop that offers a comfortable reading area, and the other corner a service station.  Also half a block away is a popular restaurant featuring quality American cuisine.  The neighborhood is considered part of an area associated with an expensive small private college noted for its strong academics and quality sports programs.  The area is a strong middle class neighborhood.

The property was evaluated by many residential and commercial investors and ‘passed on’ because of the belief that no profit could be made renovating the house and selling it with the warehouse and vice versa.  No offers were made and the widely known and generally accepted perception was the property was a losing proposition.  David saw differently.  

Solution – The first thing David did was to systematically evaluate the property from multiple perspectives, assessing demographic changes and preferences and developing alternate return on investment models using the Value Cycle as a framework.  From his analysis, David knew he could improve the market’s perception of the property by repositioning the property, and, in doing so, could maximize the property’s value within a short time.

From his research, David knew the warehouse/house had devalued over time because of a transfer of value from commercial to residential properties that had resulted as the neighborhood became almost exclusively residential.  David’s analysis also pointed out that high-end loft units were generating high, stable returns in other parts of the city.  What David found particularly intriguing was the property’s commercial zoning that allowed for residential use and the configuration of the lot, which had a large portion of unimproved land behind the warehouse.   To round out his perspective on the potential value, David conducted a statistical market study on whether the area would support a high-end loft development.  His study confirmed his belief that the market—which included a major hospital and college nearby-- would support a quality loft development and that a strategic repositioning of the property as a high quality single-family home and as a loft building would provide a superior and high return.

With this strategy, David significantly reduced his plan’s risk by achieving the county’s verbal assurance that he would receive approval for a loft development and a division of the one lot into two separate lots – one for the home and one for the warehouse--before he purchased the property.  After obtaining ‘approval,’ David promptly purchased the property at a 25% discount.  He then, with little uncertainty and speed, successfully petitioned the county for official approval, an acknowledgement that immediately doubled the market value of his investment and improved upon the first step in the Value Cycle by increasing the investment’s “As is” value. 

Moving forward and leveraging his operations management expertise, David subsequently renovated both the house--restoring its original high-end ‘Victorian’ era details as well as adding modern amenities and finishes that had wide appeal--and converted the warehouse into a high-end multi-unit loft building with off-street parking within three months-- an accomplishment considered ‘unattainable’ by many.   All told, within two and a half months of project completion or within six months of purchasing the property, David successfully transferred value back into the property by repositioning it as high quality residential properties and capturing a substantial 382% return in less than six months.

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