Income, Impact, and Return in Opportunity Zones, with Thomas Morgan

Thomas Morgan

How is the Opportunity Zones program stimulating more impact investing across the United States?

Real estate broker, developer, investor, and impact investing expert Thomas Morgan joins me today to discuss this topic and more.

Note: this is Part 2 of my conversation with Thomas. If you missed it, click here for Part 1, where we discuss the key similarities and differences between 1031 exchanges and Opportunity Zones.

Click the play button below to listen to Part 2 now.

Episode Highlights

  • How the Opportunity Zones program incentivizes impact investing in ways that Section 1031 does not.
  • What the COMPOUND Opportunity Fund is doing to achieve a triple bottom line.
  • How Thomas differentiates the COMPOUND Opportunity Fund by focusing on real estate income outside of primary markets.
  • How COMPOUND seeks Income, Impact, and Return (IIR, instead of IRR) with a focus on curated projects in affordable housing, adaptive reuse, commercial redevelopments, LEED Green certified buildings, social impact, preservation, conservation, homeless shelters, and food deserts.
  • Thomas’ philosophy of permanent capital and focus on how investments will look for his kids’ kids.
  • Deal flow: how Thomas’ voicemail box filled up in less than a week with real estate projects.

Featured on This Episode

Industry Spotlight: COMPOUND Opportunity Fund


Founded by Thomas Morgan in Aspen, Colorado, COMPOUND is an impact investment studio that creates, sources, and manages global impact investments in real estate. The COMPOUND Opportunity Fund focuses on double and triple bottom line projects in opportunity zones throughout the United States.

Learn More About COMPOUND

About the Opportunity Zones Podcast

Hosted by founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

Show Transcript

Jimmy: Sure. So talk to me now about your opportunity zone fund that you’re working on, the COMPOUND Opportunity Fund, what is its focus? And how much are you looking to raise?

Thomas: Yeah. So I’m really excited you asked about it. I just wanna be clear, we’re still in the early process of it with our lawyers and accountants and whatnot. We’re waiting for the regs to come out and be finalized. And we’re also trying to figure out exactly how we wanna structure it because the investments we’re looking at doing, I call them more bespoke, or curated, or niche investments.

The idea for COMPOUND came about several years ago. I learned about impact investing where impact investing is you’re investing to create positive social and/or environmental change. Some people have referred to it as triple bottom line. So you’re trying to get all three bottom lines, financial return, social return, and/or an environmental return. So I got really interested in that.

So instead of just making money to make money for the sake of that, which is fine. You know, I like making money. I wanted to feel good about what I’m doing, what I’m working on. And this was a way…it goes back to the question you asked me earlier about my journey. I grew up in Flint one of the… I was suburban kid. I went to school in the inner city Flint.

And it goes back to the dichotomy of where I live now Aspen, or just outside Aspen with $50 billion houses where people flying in on private jets and there’s traffic jams. So it’s that dichotomy of wanting to make money, but also do good in the world. And so I was trying to say, “Okay. What could I do that would achieve that?” And here we are.

Jimmy: That’s great, Thomas. Can you tell me how your opportunity zone fund is different than a lot of others that may be on people’s radars?

Thomas: Yeah. So I was talking about it’s niche or bespoke where we’re curating the properties. And we’re essentially trying to come up with investments that achieve a triple bottom line. And everything we’re doing is real asset or real estate focused. So everything, at the end of the day, is secured by real estate. And my background is income real estate. So every project we’re looking at has to have some sort of income component.

And a lot of people have heard the term IRR, internal rate of return. What we’ve come up with is what we’re calling IIR, which is income, impact, and return. And you can swap the income out and the impact out depending on what the investors’ goals are. You know, a lot of times when I talk about the social impact stuff, people glaze over if you lead with impact.

So if you lead with income people are like “Oh I can get some income out of it, but then also get some impact out of it and feel good about what I’m doing.” And then the return part is, “Okay. You know, where does your money come back? Does it come back in the form of income, or does it come back in the form of sale, or refinance?” So everything we’re doing, we’re trying to calculate an IIR on it. And we’re essentially custom-curating the projects that our fund will invest in.

And some of the different ones we’re looking at straight down the middle ones would be you’ve talked about with some of your other guests are affordable housing, adaptive reuse, commercial redevelopments like strip centers, old industrial properties LEED, green-certified buildings and the good tenants like I talked about earlier.

But we’re also looking at I would call it a preservation category, which adaptive reuse falls under that. And we’re building a database right now. You talked about that with one of your guests last week about how to map the historic buildings in the opportunity zones. So we’re actually working on that right now where we’re going after the biggest, most beautiful buildings in the opportunity zones, and then putting together partnerships with our opportunity fund to figure out: Okay. How would we adapt if we reuse that building? How can we marry the historic tax credits with that together so that…

Jimmy: Good. When that database is ready, you’re gonna have to share it with me. And I’ll pass it along to Rich, who was my guest last week, who spoke about twinning the historic tax credits with the opportunity zone program. I’m sure Rich would love to see it.

Thomas: Yeah, I’d love to share that with you.

Jimmy: And sorry to interrupt, but you were continuing to talk about what different types of impacts your projects will have, so please continue.

Thomas: Yeah, yeah. No, that’s great. So preservation, one, conservation is another. For example in the Aspen Valley here, we have a really active land trust who’s conserved and managed thousands and thousands of acres of wildlife and created trails. And there’s tons not tons, but I mean, hundreds of billionaires that live in this area. And they contribute money to the land trust.

And the land trust, for example, just bought a million dollar piece of property, and they’re gonna put it in open space, and they’re gonna add trails and whatnot, but they had to do a big fundraising drive to raise $1 million, buy the property, and then they have to manage it, and maintain it, and own it, and whatnot. So what we’re talking with them about in other land trusts around the country is essentially sale leaseback where our funds comes in, buys the property, and then the land trust, instead of having to coming up with $1 million, we set a rate of return whatever the project is after.

Let’s say it’s 5%, let’s say it’s 6%, whatever, and then they sign a long-term lease with us we’re the landowner, and then they pay income. So instead of them having to raise $1 million upfront, they only have to raise, let’s say, 50 grand a year to lease that property and it achieves the same benefits. But us as investors get the benefits of owning the property and deploying that capital, and they get the benefits of paying for it over time. So that’s a conservation example.

And then we’re also looking at doing some stuff with homeless shelters. One of the things that people talk about with homeless shelters is Housing First, which has been a successful program around the country where contrary to property belief, if you give homeless people housing, and you make them figure out a way to pay for it, it ups their pride of ownership, and it gets rid of that systemic homelessness because they start to…people care about them, and they have a place to live, they take pride of ownership. But there’s a little thing that in the HUD code, it was actually passed as one of the acts, I think, congressional act that not many people take advantage of, but it’s called Title V of the McKinney-Vento Homeless Assistance Act.

And essentially, the federal government, any excess property they have, and they have tons of excess buildings and land around the country, they have to post that property on the federal register. And a certain number of those properties will qualify for the Title V Act, and any homeless organization can get that property for free, and as long as they’re operating it for some sort of homeless need. So what we’re looking at doing is partnering with other… all of our investments are gonna have probably a co-sponsor where someone who’s an expert in these things we’re talking about we’re the real estate expert, and we’re putting together the fund, and providing the capital, but we’re gonna need a niche expert. So we would partner with a homeless shelter, homeless housing provider.

And essentially think about the rate of return not trying to take advantage of homeless people, but if you get a piece of property for free from the federal government, through a program that was created by Congress similar to the opportunity zone or the 1031 program, and you lease that out to homeless people at a nominal rate not much money, your rate of return is almost infinite, and you’re doing something really good. You know, the homeless population in L.A. right now, it’s crazy. Seattle, it’s crazy. So that we’re looking at providing some of those solutions.

And another one is food deserts big problem around the country. And I’ve kind of stumbled on those where Dollar General, big corporate tenants, actually they’re not a provider, necessarily, of fresh food, but they go into what are called food deserts where there’s a lack of fresh food, fresh produce it’s more like maybe some canned food or convenience store type of food. There’s a certain criteria where people have to drive more than 20 minutes or something to get fresh food like we’re accustomed to getting at the grocery store. They have to drive over that, then it’s considered a food desert.

And Dollar General opens in these locations and they’re starting to add fresh produce to their…they have bananas, and apples, and lettuce, and other things and they’re becoming little mini grocery stores. But we’re working with some different retailers to go into food deserts. And we’re gonna try and marry adaptive reuse or historic buildings in the food deserts.

And then like I said, everything we’re trying to do is gonna have some sort of income component. So most of it is gonna be structured a sale leaseback or built to suit development where if a tenant wants us to build them a building, and that’s where the opportunity zone opportunities own play comes in, we can build the building and we obviously have to meet that substantial improvement requirement.

So we’re looking at combining all these different things depending on the opportunity zones, where they’re located, the tenants, the capital that would come in and wanna get income from those tenants, and then what are the social benefits of preserving water, land, wildlife habitat, and/or preserving historic buildings that are part of our history and culture? And so it’s trying to align all those different things and that’s where the name COMPOUND comes from. It’s essentially what compound means is to take a bunch of different things, and mash them all together, and see what you come up with.

Jimmy: Yeah, that’s great. And what I love about your fund is that it has a very specific focus on positive social impact. I think a lot of funds out there today, not to disparage any of them, but there are a lot that are focused on income and return first. And if there’s any social benefit aspect, that’s just the cherry on top. But you really start and end with that positive social impact. So I think that’s great.

Thomas: Yeah. And that’s where I got sidetracked before was that that dichotomy of there’s a lot of funds out there that’s their goal to make money, defer taxes. And that’s fine, that’s great. You know, I have clients wanting to do that. I’ve done that myself. That’s great. But that dichotomy for me is came from Flint, lived at Aspen how you do both and how do you feel good about what you’re doing for your kids is something we’re looking at and how we’re structuring this is permanent capital or evergreen capital.

And I like to use the seventh generation line how would this look to your kids’ kids? And so the decisions we make today how is that gonna affect the world and affect our kids’ kids? And so the investments we’re making are gonna take that into account. And we don’t have to have a three-year, or a five-year, or a seven-year exit period, you know? We can exit when we want to or need to, but the idea being is that the capital stays there to make positive change systematically.

Jimmy: That’s a great perspective to take into consideration. How does it look for my kids, how does it look for my kids’ kids? I love that. So I know your fund is in the initial stages of getting set up, but do you have any shovel-ready projects in the pipeline, or what’s been the biggest challenge for your fund so far? Has it been raising capital or finding projects, or just getting everything off the ground, I guess, so to speak?

Thomas: You know, really just time, of course. We’re all busy with you got main businesses, new businesses, kids, life happens so just the time to put it all together. You know, being a part of the CCIM network, yeah, I did a post in one of the forums last week. And I posted in another commercial real estate forum about looking for opportunity zone projects that have a social impact or environmental impact component. And my voicemail was literally full, Jimmy, for, like, a week. And the emails just kept coming in from projects.

Not every single project is something we would look at or do, but there’s tons of projects, obviously, in opportunity zones, the brokers are becoming aware of it, you know? So I don’t think deal flow is the problem. You know, from our perspective my perspective, my background is real estate. And so the property component is no problem, but the new part of the business for me is the private equity or the fundraising side of it.

So we’re talking to some different families and different investors about putting in a pretty big chunk of capital. But I think, goes back to that initial quote is good deals find good money. So we’re leading with the deals and hoping to structure some of these deals, get them ready and in place, and see what kinda money shows up.

Jimmy: Good. That’s good. What is the size of the raise that you’re looking to make? And how does it relate to other impact funds?

Thomas: Well, Jimmy I’ll be honest, I have big aspirations for this. And I think not just me, but there’s several other people doing it that are kind of at the leading edge of the new impact investment space. Impact investment has been around for 15 years, or even more. So there’s been a lot of people doing it for a long time. But it’s really starting to gain traction with what’s happening with the populism rise and the Paris Accord and climate change, different things going on around the globe right now.

But to give you an example one impact fund founded by TPG, a big private equity group you’ve probably heard of them out of Texas. They started what’s called The Rise Fund, and they got Bono. I don’t have Bono to headline it, but Bono is an investor and kind of the face of the fund. And their initial fund was $2 billion. And they’ve closed that fund out and they’re now raising another $3 billion because of extra investor demand. So that’s, I think, the biggest impact fund to date. And they’re making business investments as well, equity investments, not just real estate so that’d be a $5 billion fund.

In ours we’re kind of a hybrid. We’re impact investment but we’re also essentially real estate private equity. And so $2 billion or $5 billion in the real estate private equity space is pretty small. You know, Blackstone just closed a $20 billion fund, Brookfield disclosed a $15 billion real estate fund. So trying not to laugh, but our ambition, and this isn’t for the opportunity zone part, this is our impact fund secured by real assets, we’re looking over the next 5 to 7 years to be a $10 billion fund.

And I think there’s enough capital out there that’s aligned with this kind of mission and what we’re trying to do to easily raise that, especially in the scope of some of those other raises I was talking about. But second part of the question is the COMPOUND Opportunity Fund and that’s what’s focused just on opportunity zones. And right now, we’re gonna earmark $250 million for that. Let me know if you disagree or agree, but that’s medium size or maybe a small size opportunity zone fund. Most of what I’m seeing is, like, $500 million.

Jimmy: Yeah, that’s on par with a lot of others. I’ve seen some that are $50 million, $100 million, $500 million. I know that the SkyBridge fund is trying to raise $3 billion. That’s the largest opportunity zone fund I’ve seen. So, yeah. So you’re at $250 million capital raised for the opportunity zone fund component of your impact fund. But the entire impact fund, you intend to be $10 billion with a B. That’s a sizable chunk of change there. I hope you raise it. I mean, I wish you luck.

Thomas: Yeah, thanks. And obviously, it won’t be one raise it’s gonna be a series of raises. And going back to the structure, we’re waiting on those final regs to come out. But some of them might be structured as REITs, some of them are gonna be structured as LLCs, some as limited partnerships. And then we’re also trying to figure out, okay, do we put all the conservation assets in one asset bundle under their own separate operating companies, or do you put all the preservation under one, or do you put all just the normal income assets under one, like, how do you divvy it up so investors can invest in which part they want to invest in, or do they invest in the upper echelon top level fund?

Jimmy: Right, right. That makes sense. You were speaking about your focus on IIR, income, impact, and return, as opposed to IRR. For your opportunity Zone fund component of this fund, are the opportunity zone investors going to be focused on income? Because I’ve heard from others that they probably shouldn’t be as focused on income as most real estate investors are, because this essentially is a capital gains tax incentive. What are your thoughts on taking that income and reinvesting it within the fund instead of distributing it out to investors, or does that depend on the structure?

Thomas: Yeah. No, it goes back to the REIT classification for us. You know, obviously if we’re REIT, we have to distribute the income. But if we’re set up as a partnership, pass-through in most cases, to take advantage of the opportunity zone legislation, we are gonna reinvest it, but we would like our investors… that’s my background is people invest for income. They’re secure, stable assets that provide regular streams of income. So we want that to be a component.

But back to your point is I think a lot of the initial opportunity zone money and developers is gonna be… they’re focused on the gentrification areas close to the big cities, close to the affluent census tracts kind of the home run deals where income really isn’t that… that’s not what they’re after, they’re after the big, big capital gains where they’re gonna invest in the project, get the tax deferral they can wait out the holding costs and wait out the development time period get up to stabilization, and then exit the property after 10 years.

So I think that’s where most of the money’s headed into that kind of development scheme. And that’s great. I mean, there’s a niche for that, and there’s a need for it. But we’re trying to go back to kind of the outlying areas or I call it thematic investing of, like, okay. It might not be right downtown Denver, but it’s right downtown St. Petersburg, Florida or wherever you’re looking. But there’s other areas, I mean, there’s opportunity zones in rural areas, and that’s where I think our conservation component comes in with organic farming.

So there’s other avenues to invest. But the income thing for us that’s my bread and butter that’s what we’ve been doing for a long time. And that’s what our investors want, and so we think that’s important to provide.

Jimmy: Very good. That all makes sense. Very good. Thanks for the answer there. Well, Thomas, we’re getting toward the end of our time here today. But I want to ask you a couple of big picture questions before we end things. I wanna know throughout the course of your career, what are some of the biggest mistakes that you’ve made, if you don’t mind sharing them, or what are the biggest lessons that you’ve learned from some of those mistakes?

Thomas: Yeah. I love the retroactive questions or reflective questions. For me, is that a mistake I made early on was too much leverage or OPM, other people’s money, and not being conscientious in just what that means. So a lot of people went through it during the recession I’ve made my mistakes. But any real estate deal not over-leveraging.

Most of my good clients who have been the most successful are 50% or less loan-to-value leverage, or a lot of them are cash. And my clients who buy stuff cash, they call me up every few months, say, “Thomas, I have another $2 million I need to invest.” And that’s because they just continually are getting cash flow, they’re not servicing debt, you know? So being careful not to over-leverage over is one.

And number two is with people, like you said earlier, it’s a people business and people show you their true colors early on. And so kinda reading those signs because if someone acts one way in a conversation or at a restaurant or in an email early, or in a contract negotiation, the chances of them doing that again in a more serious situation are very high. So you’re kind of, I don’t know, reading people for their true colors. But I would say those are the two biggest mistakes or things I’ve learned over the years.

Jimmy: And maybe speak to your successes a little bit here with this next question. What’s been the most memorable investment that you’ve made over the course of your career? Are there any that really stand out?

Thomas: Yeah. No, another great question. It makes me kind of reflect back. Last year, I had one of my biggest years ever. I closed a 15 property Dollar General portfolio, $25 million, like, we were in 6 different states. And I sold a record-setting cap rate, Walgreens, $15 million Walgreens on the West Coast. And so those two deals were big. But the thing is when you asked me the question, what comes to mind is a guy I helped right at the tail end of the recession on a little $200,000 property. He was going through a divorce. He was behind on as loan payments. It was a little duplex. He just couldn’t sell it, wanted out.

And I had a friend and a client, who wanted to buy it, and so we worked out a deal. I took a reduced commission just to get the deal done because I kinda wanted to help them and he was just in a bad spot, you know? And at the end of the day, I was like, okay, no big deal. Like, everyone wins. I made a little money he got out of the problem, my client got a good deal. And we went to the closing together and we walked out about this time of year, February, something like that, and he came over and he goes, “Thomas,” he goes, “I just wanna, like, I wanna thank you,” and he put his hand on my shoulder. And he shook my hand and when you shook my hand, he gave me a cash tip, Jimmy.

I mean, I don’t know how much it was. It was 900 bucks or something like that. But I said, “No, Larry, I’m not gonna take that,” you know? And he said, “No. I want you to know how much I appreciate this.” And that it goes back to this whole compound thing we’re talking about. It’s about the money, but it’s not about the money. You know, it’s about doing the right thing, and helping people out and using those positive things for change.

Jimmy: Oh, that’s a neat story. I’m sure you made quite the impact on that person’s life there. Well, we’re getting toward the end here. As I said before, Thomas, before we go, where can my listeners go to learn more about you and your firm, and your new opportunity zone fund, the COMPOUND Opportunity Fund?

Thomas: Yeah. No, Jimmy, I appreciate you having me on the podcast. I mean, there’s a lot to cover. We didn’t really get too much into how we’re working into opportunity zones, so if someone even wants to follow-up with me I think Jimmy will put in in the show notes, but is our 1031 website, and then So that’s actually a URL, You can learn about both there. But I’d be happy to kind of figure out how we’re… or explain how we’re fitting in the OZ program into our impact investments.

Jimmy: Great. Well, yeah, like you said, for my listeners out there who are interested in learning more about Thomas and all of the resources that we discussed on the show today, you can find links to all of those resources on my show notes page for this episode. And you can find those show notes by heading over to You can check out all the resources I have on the opportunity zone’s database and all of the resources that Thomas and I referenced on the show today. That’s Well, Thomas, it’s been a pleasure having you on the show. I really appreciate your time. And I hope to talk with you again soon.

Thomas: Yeah, Jimmy. What you’re doing is awesome. Keep up the good work.

Jimmy: Thank you.