Can blockchain technology revolutionize Opportunity Zones real estate investing?
Security token offerings utilizing distributed ledger technology enables tokenization of assets, increased liquidity, reduction of costs, and improved transaction speed. And it has the potential to change how properties are sold and how deals are recorded.
Josh Burrell and Lane Campbell at Activated Capital have an opportunity zone fund that may become one of the first to make use of this technology.
Click the play button below to listen to my conversation with Josh and Lane.
UPDATE 2020: Lane Campbell is no longer associated with Activated Capital. He is now managing partner at Accredited Capital.
- How Activated Capital uses their OZ Score to deliver measurable impact as part of their double bottom line strategy (financial and social returns) in opportunity zones.
- How an affordable housing rent-to-own path coupled with financial literacy education can be a win-win for local communities and investors, and help to minimize resident displacement.
- Strategies for accelerated cash flow in renovation projects.
- How blockchain technology works for real estate and what asset tokenization means.
- How security token offerings (STOs) can benefit real estate investors.
- The current regulatory environment for STOs.
Featured on This Episode
- Activated Capital
- Josh Burrell on LinkedIn
- Lane Campbell on LinkedIn
- Ohio Cashflow
- Finance Requires Effective Education (FREE)
Industry Spotlight: Activated Capital
Founded by Josh Burrell and Lane Campbell in January 2019, Activated Capital seeks double bottom line returns in opportunity zones across the nation’s secondary and tertiary real estate markets. Pending further regulatory guidance, they have tentative plans to launch a security token offering later this year.
UPDATE 2020: Lane Campbell is no longer associated with Activated Capital. He is now managing partner at Accredited Capital.
Learn More About Activated Capital
About the Opportunity Zones Podcast
Hosted by OpportunityDb.com founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.
Jimmy: Welcome back for another episode of the Opportunity Zones podcast. I’m your host, Jimmy Atkinson.
Activated Capital’s Opportunity Zone Fund, launched earlier this year. And like many Opportunity Zone Funds, they seek a double bottom line, both financial and social returns. But unlike many Opportunity Zone Funds, Activated Capital is planning a security token offering.
And I’m excited to dive into exactly what that means today as I’m joined by Activated Capital’s managing partners, Josh Burrell and Lane Campbell. Before founding Activated Capital, Josh previously worked at credit rating agency Moody’s and investment banker Lazard Asset Management.
And Lane is a founding member of the Forbes Technology Council and has a background in quantum computing and Bitcoin mining.
They join me today from their offices in New York City. Josh and Lane, welcome to the show.
Josh: Thanks, Jimmy. Thanks for having us.
Lane: Yeah, thank you so much.
Jimmy: Yeah, great to have you guys on today. So, first, tell me about Activated Capital. What’s behind the name “Activated” and what is the mission of your Opportunity Zone Fund?
Josh: I mean, I can take a stab at that and then, Lane, if you want to dive in thereafter. But, really, the impetus was my prior role at Midas Capital, we had two properties and what you now call Opportunity Zones. But, you know, through Lane and I’s…just previous experience in firms that we’ve always invested in what, you know, we’re now calling Opportunity Zones. But we always felt that just having that spark, activation, having that catalyst has been a way that we’ve just been excited on our backgrounds and missions before.
And that was really the aha moment when the Opportunity Zones legislation came out where we could then have that actual culture and double bottom line. So that’s where, you know, we like to say I am activated and I’m working with Parveen Panwar on having that movement and that’s where we feel that just, we want to have that transformative change, that activation, whereas, in 10 years’ time, we don’t want to have Opportunity Zones a mile further from where they are now.
Jimmy: Good. It’s like a catalyzing mechanism so to speak. Lane, did you have anything else to add?
Lane: Yeah. You know, I’ve been kind of working with Parveen in the activated movement since its inception and, you know, I’ve known Josh for a couple of years now. And when this Opportunity Zones legislation kind of passed and all this very double bottom line oriented investment opportunity really sprang up, the activated name really made a lot of sense and it really is a movement about helping people and entrepreneurs. And it just…there’s a lot of crossover. So it made a lot of sense to choose that name for this type of fund.
Jimmy: And by Parveen you mean you’re referring to Parveen Panwar, is that right? One of your senior advisors?
Lane: Correct. Yes. And he’s the founder of the “ImActivated” movement, imactivated.com. He developed a set of principles he calls the paper principles for entrepreneurs and just folks who are trying to make the world a better place to follow.
Jimmy: Good. I’ll be sure to link to that in the show notes if my listeners want to read a little bit more about that. But if I could…let’s back up a minute now and I want to learn more about your backgrounds. And, Josh, I’ll start with you. Can you tell me a little bit more about yourself and how your career has progressed to this point?
Josh: Sure. Yeah, no, I was born and raised in the Midwest, third generation single family home, real estate developer family. But with the finance and accounting route as opposed to ground-up construction route, you know, moved, as you mentioned, to New York City and got my first job at Moody’s Investors Services, working at 7 World Trade. And I focused on CMBS or Commercial Mortgage Backed Bonds and Residential Mortgage Backed Bonds, but from a debt side.
And then, you know, worked hard, got the opportunity to live in Hong Kong, Singapore, London, and Paris for the next few years, and just all analyzing real estate deals, but from just that ground-up perspective, and from a risk management perspective. But thereafter, I went back to New York to work for Colonial Consulting. It’s a, an outsourced CFO. Basically, it’s an investment consultant that manages over 50 billion in assets and 95% of their clients, we like to say, were foundations and endowments. So I spent a large part my time tilting the investment strategy to environmental, social, and governance, ESG, or SRI or Socially Responsible Investment strategy.
So there was roughly 250 nonprofits foundations and endowments and everyone had a different view on what they classified as impact investing. So just understanding the space, but then we, you know, on the Investment Committee and just analyzing real estate in private equity deals, doing a lot of co-investments, a lot of direct deals that way. After that, I went to Lazard Asset Management where I work on the capital advisory group and work with families and family offices. And that’s where, you know, investing…I really got a good feel for the taxable investor. So nonprofit or very, you know, agnostic or exempt from taxes, whereas individuals are very tech sensitive. And, you know, with the same time they still have a different view of impact.
So, you know, just understanding the landscape of real estate and trying to articulate that to all my clients. And then from there, I went to Midas Capital where we invested in, primarily, commercial hospitality assets in the Midwest and, you know, I was one of four of the investment team committee members. And that’s where, you know, we’ve always had that value tilt in an opportunistic rehab renovation approach, and that’s where we had two hotels that were in opportunities zones, but they were just good investment deals.
There was a lot of opportunities for growth and that’s where Lane and I, you know, eventually kind of synced up and said we would like to do this and do it right to have that culture, to have that double bottom line. So we went to Harvard to have a core in real estate approach and executive education that way, CFA background. So, you know, I’ve always had that double bottom line mentality throughout my entire career, but I think this is finally the avenue and vehicle where…you know, it’s that truly…where investors don’t have to really give up the financial peace in order to have him back, which is great.
Jimmy: Right. And like you said, this program, in particular, the Opportunity Zones Program caters largely to individuals and family offices and corporations to a certain extent, much less so, you know, the institutional investors or the nonprofits that tend to avoid capital gains taxes in the first place. But, Lane, how about you? Could give us a little bit of your background? You have more of a computing background if I understand correctly.
Lane: Yeah, I’ve been an entrepreneur in technology my whole career, so I’ve been building up selling off tech companies for about 15 years, all small bootstrapped businesses. But I got into real estate a few years back advising a founder of a turnkey real estate company called Ohio Cashflow and ended up co-founding a brokerage and a property management company with him. But working with him, I just saw these amazing cash flow opportunities for investors.
And I started talking with different fund managers, this was a few years ago, exploring the concept of a fund at the time, and that’s when Josh and I started to chat about this. And, you know, I’ve seen the real estate industry is going through some massive technological and legislative changes here with the introduction of Blockchain for the industry, so it’s an exciting time
Jimmy: Yeah, it absolutely is. And I want to turn our focus to Blockchain technology in a few minutes. But, first, I wanted to spend a little time with you guys discussing your Opportunity Zone Fund strategy. I know your fund seeks what you have referred to already as double bottom line returns, both an economic return and that social impact return. And you have a mission of delivering a positive impact to the communities that you invest in. Could you explain a little bit more about what you’re doing to that effect?
Josh: Oh, you know, our impact on transformative change, essentially, you know, we’ve trademarked an OZ score, and, you know, it’s a derivative from my time at Moody’s just to be able to rate and monitor and measure the impact that we have in order to create that transformative change. So we have four metrics that we look at and that we will be able to measure. But we think that, you know, Opportunity Zones, in general, can almost be seen as a catalyst or an activation where that can be a transformative change within itself if it’s done correctly.
And what does that mean? You know, we want to be able to measure the impact in terms of the amount of jobs sort of created or having a rent-to-own model where it reduces a lot of the risk of gentrification or, as I mentioned, you know, having an Opportunity Zone a mile further outside the city is not something that we deem as a successful venture. So we want to be able to have that measurable impact in the communities in which we invest. But we want to be able to measure it. We want this catalyst to continue, so we’re really passionate about it. But we just want to make sure that it’s measured and reported and done appropriately.
Jimmy: Right. And which communities does your fund invest in?
Josh: Yeah. So we’ve always been investing and have a career investing in the Midwest and South East. We like growing markets in the sense of either population growth or stability there. There’s a few different metrics that we generally will invest. But there’s a lot of fragmentation in the real estate market, and, you know, we’ll talk about Blockchain, about how that streamlines that.
But just in real estate in general, we’re comfortable and familiar with investing in Ohio, we like Detroit, south side of Chicago, Memphis, Tennessee, Charlotte, North Carolina, you know, Toledo, Ohio, Cleveland, Ohio are some of the cities that we really like and know well and have great relationships with, and you can find just really attractive deals that you’re not going to find in New York and California and Massachusetts. So, I mean, these are a lot of distress and a lot of areas that, when you look at the map, there’s a lot of low-income census tracts in the areas that we’ve been investing in for some time.
Jimmy: So mostly secondary and tertiary markets staying away from the big coastal cities, for the most part, it sounds like.
Josh: Yeah. I mean, we always say, never say never. But we’ve been a big cheerleader for the secondary and tertiary markets for some time. And, you know, finally, the Opportunity Zones give us a little bit more of a platform to talk about it. But we always get excited when it’s, you know, having just those two to three metrics. But yeah, we never say never that we wouldn’t invest in a New York, California, Massachusetts but that’s we like little to no competition. We like the low hanging fruit, and we can talk about the strategy too, but, you know, the valuations and the property values are still…
Jimmy: Going after some of those overlooked areas?
Josh: Absolutely, yeah. So we’re looking at a renovation model as opposed to ground-up construction. And we can find, you know, the values of properties so low that we don’t have to take ground-up construction. And we can just renovate within two to three months and have that cash flowing back to our investors within four to six months, max, which I think is very different than most Opportunity Zone Funds who have to take the ground up construction to meet the regulations.
Jimmy: So you mentioned gentrification, I want to talk about that for a second. I know gentrification and specifically resident displacement has been one of the biggest concerns or criticisms of this tax incentive program. And you mentioned that you have developed an OZ score, I wanted you to tell me a little bit more about that and what specific steps that you’re taking that will ensure that you’re delivering a positive impact to community residents while minimizing resident displacement.
Josh: Right. No, I mean, this is one of the things that we talk about a lot. So, you know, as I mentioned earlier, in order for…in our minds, for Opportunity Zones to at least be a catalyst and to be successful, we don’t want to see an Opportunity Zone literally one mile further outside of the city and having that resident displacement. So we’ve instituted a rent-to-own model in any of our properties, which historically…just to give you some backdrop, a rent-to-own model, if you’re unfamiliar with, has been fragmented, there’s been a lot of predatory practices.
There’s just a lot of ways where landlords can take advantage and do the exact opposite of what the ultimate goal is. And so, we are going to say that this is our double bottom line approach. We’re not going to have the predatory practice. We’re going to institute the OZ score and then also financial literacy. And we talk a lot with anyone, but, you know, financial literacy is important, no matter who you talk to, but especially important for some of the communities in which we invest. We’ve partnered with a nonprofit, which is an acronym.
And the acronym is FREE and it stands for Finance Requires Effective Education, where all of the tenants in the homes and, you know, anyone interested in the communities want to have just a bit more knowledge base on what an IRR or loan value or what it takes to increase your credit score, that is available now to them. It’s unbiased, it’s completely just a helpful aid. Now, again, this is the double bottom line where they’ll have to do the work but we’ll help them and then pre-screen some of the tenants that will be in a good position in the next two, three, four years, if they do want to have home ownership as a goal that we can help them work towards that. Which, ultimately, in three, four years’ time, if we align ourselves and align with the tenants and investors, the communities and residents themselves will be able to, let’s say, put down$ 50 to $100, that would be enough down payment in order to get a loan at that point.
So within that time, most of the residents will treat the homes and properties better too. So there’s incentive for investors to really take notice. And that’s why we say, end-to-end equity participation is critical. We want that activation, but we want that assistance, and we’ll be able to measure that now. So just to give you some of the measuring scorecard aspects, so, right now, 1 out of 10 residents that are offered on the rent-to-own model, will generally be successful through that. That’s very low in our mind. And a lot of it is just due to predatory practices and a lack of trust.
So, I mean, we’re very clear that it is going to take some time to establish that trust and then just establish that relationship and understand that we’re just, you know, here to assist in the process and help them just learn more about what it takes, if that’s of interest. But, you know, we would like to at least double that, have 100% impact on where it is now and in order to change that moving forward. So, you know that’s really the crux of the rent-to-own model and then just having that alignment and affordability.
Jimmy: Yeah. Your rent-to-own model, that path is unique among Opportunity Zone Funds as far as I know. I haven’t heard of any others that are doing anything quite like that. And you’re actually getting boots on the ground and educating these local communities and these residents about financial literacy. That’s incredible. I wouldn’t have thought that you could get it down…that $50 to $100 down payment would be enough to secure a loan.
Josh: Yeah, let’s talk about that. I mean, you work together with them. So right now, any renter is going to have to put a security deposit down, your first and last month’s rent. You know, anyone in New York and California can really resonate with that because the rents are so high. But, you know, if you’re a working family in the Midwest, you may have had a mistake or just not aware of the implications of credit scores, and you may not have the ability or credit score, so one out of every five Americans have a credit score under 600 points, you know, that’s 1 out of 5.
And that’s, you know, that’s pretty terrifying. But, you know, having that deposit, it becomes a down payment. So, you know, we’ll put it in Escrow and then, let’s say, little by little, they’ll be investing in themselves, in the home, and building equity. So back to that example of $50 down, in three years’ time they’ve built enough for the home property value when they would have 5%, 10% already build up in equity, where they could put $50, $100, maybe even less, and then still qualify for a loan for the remainder amount where, you know, the residents are no longer paying rent, they’re actually owning the home. And paying down a mortgage and building that catalyst, that spark, that snowball effect.
Jimmy: Yeah, that’s great that you offer that service to the tenants. And I know another thing that makes your fund unique, we were emailing back and forth about it while we were setting up this call today, is your cash flow strategy. You have an accelerated cash return to your investors. Can you talk about how you accomplish that? What that cash flow strategy is, what it looks like?
Josh: Sure. Yeah. No, we’re really confident that this is just what we’ve been doing. But we’re buying fragmented and in fragmented markets that are good home quality stock that just needs rehab or renovation, so we’re not taking ground-up construction risk. We think from the environmental perspective as well, you know. There are tons of materials, tons of steel, concrete, timber, you know. Over the next 20 years, we’re going to build a new, New York City, every month. So that will take so much materials, and from an environmental standpoint, we want to try to mitigate that and be a bit more creative. So in our model, we’re taking a distressed property, and Lane can speak to this a lot too, in Ohio, but the bones of the property are great, we’ll just rehab it. And the purchase price of these properties are so low, but the rehab is enough to improve the basis. So I mean with opportunities zones, as you know, Jimmy, you have to improve the basis of the building, which is bifurcated from the land.
And we’re able to make that renovation within 30, 60 days, tenant it within 30 days, conservatively, or cash flowing within 90 days. So our investors are starting to see the percent preferred return within, we say, four to six months. We’re kicking that on. So it’ll be paid quarterly. And it’s not going to take 12, 16, 18 months. I can’t speak to other funds, but we feel that just getting that cash back to our investors just so they can see that and then measure the impact, is what we’re fighting to achieve.
Jimmy: Good. And what really turned me on to your fund was when you mentioned that you guys were planning a security token offering. That piqued my interest. So I want to talk to you about that for a little bit, talk to you about Blockchain and distributed ledger technology. I think everyone has heard of Bitcoin, which is a cryptocurrency that makes use of Blockchain technology.
But not everyone listening knows exactly how the technology works, not just Bitcoin now, I will put that aside. But just how Blockchain technology works. Can one of you give me just a very basic explanation of what Blockchain technology is and how it works?
Lane: Yeah. I mean, I can chime in here a little bit too, Josh can chime in as well. But, basically, Blockchain represents the first technological approach to creating trust between parties without an intermediary involved outside of the technology.
And it allows two people who may have never done anything together maybe geographically in dissimilar locations to send value between each other in the form of like a Bitcoin to transfer money or to create records of transactions between people buying and selling property. And that really is the fundamental value Blockchain creates.
Jimmy: And what are some of the most common misconceptions about Blockchain?
Lane: Yeah, I think a lot of people start to think Blockchain is Bitcoin, Bitcoin is Blockchain. And it’s true that Bitcoin is a Blockchain and it’s the oldest. It’s not really new anymore, it’s been around for about 11 years now. So, you know, I think people are a little amazed sometimes when they hear that. They kind of forget that this is a mature technology that has been out there, is in use.
Some of these types of Blockchains are getting more widespread adoption. And really what I’m excited about is sort of how they’re going to disrupt the processes that kind of are costly and slow, especially when you’re dealing with governments and getting different types of properties transferred and notaries involved and, you know, deals done. Blockchain represents a real path forward for automation and making those things faster and more reliable.
Jimmy: Yeah. It has a potential to eliminate the middleman and a lot of the red tape, I guess, when you’re going through some of these more complex financial transactions. So I think it lends itself well to real estate. But in your view, Lane, how will distributed ledger technology really revolutionize real estate investing?
Lane: Yeah. Well, I think, what’s interesting is the ability to now tokenize securities, right? So with a fund like ours, one of the things we’re looking at doing this year is creating a security token offering, which is a way of buying like a token, sort of like a Bitcoin, but it’s not, you know, sort of this new currency kind of token, it’s backed by a security in the fund. And so token holders would be…if we are to proceed with it, would be able to find their returns by using their token.
So they’d have the liquidity of the cash flow elements of our fund and, you know, they’d also be able to trade off the tokens on exchanges. And that’s really where the industry is sort of immature and why we haven’t proceeded with it. It’s not that the technology isn’t there, it’s just that the regulatory frameworks haven’t really caught up enough to give us the comfort level. And that’s why we’re kind of sitting on the side here and looking at like, tZero and seeing how they do before we go all in because we’d like to, obviously, adopt this new technology, but we’d also want to make sure that there’s a market for this type of offering.
Jimmy: Right. I think that might be one of the biggest challenges is, you know, conveying to the investing public what a security token offering is and why it’s so great. You mentioned tokenization of securities, tokenization of assets, you know, being able to own a very small amount of a particular project or a particular building.
The increased liquidity is a big thing, being able to buy and sell these on the exchange to other investors. I think there’s also…you know, we touched on this briefly earlier, just cutting out the middleman reduces a lot of costs and improves the speed of the transactions as well. Is there a potential to change how properties are sold and how deals get recorded?
Lane: Yeah, absolutely. You know, think about the MLS, right? Every location, geographically, in the United States has sort of their own MLS, stores different data, there’s different fees, there’s different people who run it. In essence, Blockchain could be a replacement for that. You know, if executed well and if there were the right kinds of incentives, there could be one ledger that records all those transactions and offers real insights and standardization.
But, you know, that’s just an example of recording the transactions. If you’re talking about actually facilitating the transactions, you know, you can buy property today with a Bitcoin or with Ethereum or other types of cryptocurrencies, you know, Monero and others. It just depends on if you’ll find someone who will sell to you. And once you complete the transaction, it’s getting through all that paperwork, right?
And that’s still a very manual process compared to how it could be once the legislative side kind of catches up. And this is where…I talk to people who are, you know, in the business of sort of title companies, and this is sort of where Blockchain is really going to be disruptive and really provide a lot of value to the industry where there’s much more efficiency and transparency and the ability for more deals to get done faster.
Jimmy: And automation as well, right?
Jimmy: So what are some of the biggest hurdles that the technology faces in becoming adopted and becoming the new standard?
Lane: Yeah. Well, first of all, most people perceive Blockchain as a relatively new technology. They’re not really aware that it’s been around. And even 11 years isn’t that long for a technology to exist rightly, the Internet itself traces its roots back to DARPA project. So I think what we will find in the next 10 to 30 years is that the industry will just become completely dependent on these types of technologies to provide further automation. And that will provide more efficiency in the market, you know? It ultimately is going to allow these institutions that exist today to do more and, you know, charge lower fees.
Jimmy: And can you guys take a few minutes and discuss your security token offering? The security token offering that will be offered through Activated Capital and what will it look like and how will opportunity zone investors have access to it?
Lane: Well, I’ll touch on a couple of things. One, this is totally conceptual at this point and we haven’t finalized the plans. The regulatory problem is what keeps us from really pursuing this as a day one strategy. We’ve been looking at the market and trying to determine the best course of action for a launch. And right now, we just haven’t settled that there’s enough of a market for us to do this.
So, we’ll probably decide by this summer and, you know, we won’t…as far as technology goes, you know, there’s groups like Harbor that…you know, harbor.com, they have a platform. There’s other folks out there that do this, Polymath has a solution for more developer-centric where Harbor is a little more like white glove service. But when it comes down to it, the technology isn’t the problem. Tokenizing an asset, creating the smart contracts around it, it’s all built.
I mean, this is not new technology. Again, it’s just the regulatory doesn’t exist for it. And am I selling a security, and how do I handle that? And is there a market for these digital securities? This is very different than buying a Bitcoin or buying into these ICOs that were a big deal because these are regulated.
Jimmy: Yeah. The ICOs were a little bit of the Wild West there for the last year or so.
Lane: Oh, yeah. But it was crazy.
Josh: Just to talk more about the Blockchain and avenue, I mean, we are allowing all of our investor’s annual liquidity, and in certain cases, quarterly liquidity if we, you know, have that available. So we’re making it more liquid to have that step process in order to institutionalize and get investors more associated with that, you know, liquidity option. So, I mean, that’s already in place. And then Blockchain is just going to enhance that even further.
Just to add to what Lane said, I mean, when we look at opportunity zone legislation, it’s not finalized, but, you know, we feel confident where we are today. We feel, you know, one of the…being the earlier movers and not being late to the game is important. So, you know, once we feel that level of, you know, confidence similar to the opportunity zone legislation, because, I mean, that’s essentially the same thing too. Investing in real estate is not new, investing in businesses is not new, but the avenue that opportunity zones create is new. And regulation will always not be 100%, but we wanted to be to a critical mass and that’s where we’ll be one of the first movers but not the first. That’s really important.
Jimmy: Yeah, buying and selling real estate has been around since…for thousands of years, I guess. But the vehicle is new. Absolutely. And it takes some time for the regulatory guidance to catch up as we’re kind of going through right now. We’re waiting on the IRS to release their second tranche of guidelines. Is there anything in those IRS regulations forthcoming that you’re particularly looking forward to receiving some more clarity on?
Josh: You know, in terms of the liquidity. And a lot of numbers have been thrown out in terms of the amount of capital that’s going to flow into some of the zones, $100 billion, $300 billion. And as of right now, a lot of funds are holding that for that 10-year period. So in our mind, there’s going to be more flexibility on the sale within that 10-year period. Because if you put $100 billion into a market on day one, and then take that out in years 10, you know, that’s going to have an opposite impact on what the actual legislation is trying to do. So being able to tier it in certain cases, and have that flexibility to exit and we feel that we’ve got that strategy teed up. But we want to see a bit more clarity on that front.
Jimmy: Yeah, I’m hoping that the new guidance that’s coming out here in the next week or so will allow for, you know, sale of assets, you know, one at a time as opposed to having to sell the equity investment in the fund. I think that’s a big issue, especially for, you know, multi-asset funds and these larger, you know, $100 billion-plus funds. I think that would be important to see. So we’ll keep our fingers crossed and see what happens here in the next couple of weeks as we wait for this next tranche to come out.
Josh: Right. Yeah, we’re cautiously optimistic, as we like to say.
Jimmy: Yes, exactly. Well, this has been a great discussion so far, guys. We’re going to kind of wrap things up here in the next few minutes. But I wanted to ask both of you a kind of retrospective question that I pose to most of my guests who come on. What’s been your favorite or most memorable investment so far in your careers? Is there anything in particular that stands out? And, Josh, I’ll let you speak first?
Josh: Yeah. You know, there’s just been a few. I mean, we’ve talked a lot about the impact and how, you know, going about on our approach. I mean, one of the ones that I think about a lot, is a deal that I did. And we wanted to try to take a first lien, our first position on a community foundation that would lend to a low income or affordable housing project. And this is probably the memorable one because it didn’t work out. You know, we took the first position, but there wasn’t alignment, there wasn’t a rent-to-own model, there was not that moral hazard, if you will, there was no education piece, there was really no incentive to build equity.
So, you know, that was a deal that we invested just over $50 million in that community foundation. We actually lost money on that because we had to take that first lien, that first level of collateral. But, you know, just knowing where the alignment is and how important that is and what we’re doing now is really key. But, I mean, that would probably…out of all of the deals and, you know, what you now call opportunity zones, that’s something that really resonates and we’ll be mindful of moving forward.
Jimmy: And where was that?
Josh: In St. Louis, Missouri.
Jimmy: St. Louis, right. And Lane, how about you? Is there any investment from your career that sticks out? Anything memorable?
Lane: Yeah. You know, there’s a really killer deal that I think about a lot. It’s when I was advising Ohio Cashflow and they would, you know, work in these…what are now opportunities zones. And there was this opportunity zone, a single-family home would get about a 300% IRR out of it. You know, this is a working-class neighborhood type property and it just didn’t have great, you know, aesthetics and it needed work. And going in, getting it renovated, we were able to reproduce incredible returns very quickly in about two months.
And properties like that are what got me really excited about this industry as a whole. In these markets, what Ohio Cashflow and other organizations do to generate demand initially, they have to send out, like, yellow letter campaigns. These campaigns that are sending physical yellow letters in the mail to see if people are willing to sell their properties, all-cash deals, you know, distressed properties, people may not even be living in them anymore, and then going in and making them, you know, great homes for hard-working families. These are not, you know, new construction, but that doesn’t mean they can’t be safe and clean. And Activated It is kind of a continuation of that model in a lot of ways. That’s what we’re trying to do here with the double bottom line returns.
Jimmy: Great. Well, can you guys tell my listeners now where they can go to learn more about Activated Capital, more about your Opportunity Zone Fund and the impact investing that you guys are doing?
Josh: Yeah. Just activatedcapital.com. There’s links for info and investment. There’s a couple of resources but we’re happy to speak with anyone just to talk about more of the process. That’s a good starting point
Jimmy: Great. And for my listeners out there, I’ll have links to “ImActivated” and FREE and Activated Capital, of course, on the show notes page for this episode on the Opportunity Zones database website at opportunitydb.com/podcast. Well, Josh and Lane, it’s been a pleasure. Thank you for taking some time out of your day today to speak with me and my listeners. I really appreciate it and I hope to talk with you guys again soon.
Josh: No, thank you, Jimmy. This was great.
Lane: Thanks so much for having us.