Does the climate change mitigation industry pose a huge OZ business opportunity?
Jack Sullivan is founder and CEO of RedCarbon, a Qualified Opportunity Zone Business that focuses on carbon sequestration technologies and processes.
Click the play button below to listen to my conversation with Jack.
- Marrying the Opportunity Zone law with one of the greatest challenges that humanity has ever faced.
- A brief overview of the climate crisis, and a characterization of the problem that it poses.
- How the climate change mitigation industry could pose a huge business opportunity, regardless of your politics.
- Why the longer term investment perspective of Opportunity Zones and attracting patient capital is a good fit with the climate change mitigation economy.
- How carbon reduction technology works and can be monetizable.
- How the national scope of Opportunity Zones allows businesses to partner with universities and technology companies.
- Why a hybrid model that attaches Opportunity Zone businesses within a real estate shell may be the ideal type of OZ investment.
- Why it’s way too early to render a verdict regarding the success of the Opportunity Zone initiative.
- The biggest structural challenges to the Opportunity Zone initiative.
Featured on This Episode
- Jack Sullivan on LinkedIn
- RedCarbon (website coming soon)
- Coasis Coalition Opportunity Zone SuperConference
- Carbon sequestration
- Greenland is melting (2016 New Yorker article)
- This ‘personal carbon sequestration’ device uses algae to remove CO2 from the air (FastCompany)
Industry Spotlight: RedCarbon
RedCarbon is an emerging Opportunity Zone Business focused on rapidly scaling a suite of carbon reduction technologies and processes.
Learn more about RedCarbon:
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 to the Opportunity Zones Podcast. I’m your host, Jimmy Atkinson. And today, I’m joined at my office here in Fort Worth by the founder of Red Carbon, Jack Sullivan. Jack, welcome to the podcast.
Jack: Jimmy, it’s great to be here. Good morning.
Jimmy: Good morning to you too, Jack. Well, Jack, you and I met at the Coasis Coalition Opportunity Zone Super Conference in Dallas earlier this year. And you’re local to me here in the DFW area. So we’ve met a few times at some of the smaller OZ gatherings here in the Metroplex since then, and always good to talk more about Oz’s with some of my own backyard.
Jack: It’s great to have a little bit of an ecosystem here in Dallas. And it’s been a pleasure meeting you the few times we’ve gotten together.
Jimmy: Yeah, absolutely. So let’s dive right in here. Let’s talk about climate change and the carbon economy. Tell us a little bit about Red Carbon to get us started. It’s a carbon economy business, but why? Why are you founding a carbon economy business and why now?
Jack: We’re just coming out of stealth mode and frankly, trying to marry the Opportunity Zone law with what I consider to be one of the biggest challenges humanity has ever faced, which is climate change. The timing is important. The science is beginning to show a compelling reason that we need to address this issue sooner rather than later. And the long term perspective of the problem seem to marry well with the long term perspective of the Opportunity Zone law. And I put the two together and out came Red Carbon.
Jimmy: So tell us a little bit about…I don’t know, for those listening who may not know a lot about climate science, can you give us some facts and figures, just the very basic overview of what’s happening with our climate?
Jack: Sure. You and I are about the same age, maybe a little older. But we grew up hearing about climate change, and we always thought, oh, it’s that thing off in the distance for the next couple generations to worry about. Just in the last five years, I think it’s become a little more obvious with the science getting a little bit better, and continuing to get better as we pass time. It’s making it clearer that this is going to be certainly the next generation’s problem and possibly our generation’s problem.
Certainly, we’re experiencing some of the changes now and they’re becoming noticeable and those are going to continue to get worse. The best science tells us that carbon we put in the atmosphere today, the max heating effect of that carbon isn’t going to be seen for 10 or 15 years. So I’m 52 and I’ll probably be dead by the time I’m 92. So let’s say on a good day, I’ve got 40 years left. There’s 15 years of heating still to come from the carbon we’re putting in the air today and the highest levels of carbon ever seen in the atmosphere on this planet over the last three billion years or as long as humanity has been around is the last 15 years.
So I’m not going to see a cooler planet during my lifetime than I saw when I was a kid, and certainly that I see today. So I’m looking at warming. My retirement years are pretty much gone. If I want to be thoughtful and try and leave the planet in a better place for my nieces and nephews, I don’t have any children directly, but I worry about their future. And this seems like the thoughtful approach to live the rest of my life is trying to help deal with this problem.
Jimmy: So, Jack, the title of today’s podcast episode is “How Opportunity Zones Can Help Solve the Climate Crisis.” We’re going to dive into that in a minute here. But first, I want to ask you, how did you get turned on to the whole carbon economy business in the first place? And when did you first start getting really concerned about climate change?
Jack: About three or four years ago, I think it was December 2016. I saw an article just in the mainstream press that talked about the pace of melt in Greenland. And growing up in the ’80s, and hearing about climate change in the background, and realizing it’s just, you know, a topic that’s out there in the world and part of your life. But in the background, when you see an article like that, that kind of jolts you into realizing, “Hey, this might be something worth paying attention to,” I decided to do my own research and dive into the issue.
So over the course of six months, I had the luxury of being in a position where I could spend hours a day on this topic. And I did, and really dove into understanding the science. And there have been some books released since that talk about the dire nature of some of the science and what I saw, frankly, scared me. And you realize that the pace of change today is faster than the pace of temperature change, going back 65 million years since the extinction of the dinosaurs, and that scared me. You realize that today, the carbon dioxide in the atmosphere is higher than it’s been in 3 million years, 10 times longer than humanity has even been humanity. That scares me. I believe the science and the correlation between carbon dioxide in the air and temperature.
And you see that we’ve already raised the temperature one degree C and that more is built into the system already because of the lag time in just the way the science works. And again, you start to realize I, as a 52-year-old, am never gonna live another year while I’m alive when the trajectory of the warming of the planet is up. And that starts to scare you. So that’s what turned me on to the science. What scared me and what nudged me into getting involved in this world was realizing that we’re now at a level where our system feedbacks, which we’re self-reinforcing, are nearing a threshold where they’re going to kick in on their own. And once they do, we can’t stop it.
And the scale of those problems are large enough that they dwarf the impact that humanity’s footprint has, exponentially so. Just the permafrost… One example, and I’ll be brief. Just to permafrost in the Arctic has more carbon embedded underneath it and within it, than all the carbon humanity has put into the atmosphere in the history of humanity, exponentially so. Call it 2X or 3X or 5X. I mean, there’s a tonne of carbon up there. And right now that permafrost is melting. Water freezes at 32 degrees, and it’s liquid at 33, and it’s ice at 31.
It isn’t gradual, it’s abrupt, and their system processes are starting to change. And that’s what drew my attention to this issue and realizing that the actual measurements of the Arctic melt exceed any of the models that we have that are out there and exceed them in a big way. And that means the mainstream perspective of what’s coming and how quickly it’s coming is probably wrong and any of the surprises are probably going to be on the sooner side rather than the later side. That’s why I decided to act.
Jimmy: No, I think that’s great. And this is…you know, if the theory holds true, this could be a serious problem for the planet and for humankind. So, listeners out there, if you haven’t noticed yet, this episode is going to be a little bit different than a lot of our previous episodes. But we’re going to tie in how opportunity zones can help address this problem going forward here. Okay, Jack, so tell us a little bit more about your business, Red Carbon. What is it intending to do? What’s its value proposition, essentially?
Jack: We’re very narrowly focused on identifying what we see as the problem. There’s a lot of talk today about a zero-carbon economy and about a circular economy. And, frankly, none of that solves the problem. The problem is we see it and the science sees it is there’s enough carbon in the atmosphere now, today in the Earth system to warm the planet. It’s already happening. We see it today. I mean, I think we can all agree on that regardless of our politics.
As such, even if we take carbon out of our economy and it takes us 20 or 30 years to do that, we still have a problem of a warming planet. And if we allow that to go on for too long, we start to run into some pretty big issues associated with the planet’s self-reinforcing feedbacks kicking in that then get beyond our control, and then we have a real problem. So we have a little window of time to try and address this and give us a little more wiggle room so that we can buy time within our economy to zero out our economy. But these next couple of decades are going to be crucial to actually mitigating our long term risk.
So what we’re doing, there’s carbon-reducing technologies emerging out there, but a lot of them are small startups and institutions, educational facilities and universities that are coming up with ideas. And the business side of that is lacking. So we’re bringing strategy and a clear vision of what the problem is and how to resolve it and how to scale it, processes, relationships with businesses to get it out quickly and to scale it quickly. And we think marrying that with some of the technology that’s out there that we can either license or partner with, or acquire, bring capital to the problem, scale it, that’s where we can add value.
Jimmy: Good. Now, some people listening, their politics may not align with what you’re doing or they may not totally buy into the argument that climate change is happening or that maybe it is happening, but it’s not that big of a problem. Is that a concern for you, whether or not climate change ends up being a problem or not? Or maybe we could talk to us a little bit about just the economics of the carbon economy.
Jack: I read business magazines. I’m a business guy and I Iook at the Opportunity Zone law as a business opportunity. Folks like that are looking at this climate change mitigation industry, let’s call it that, as a multi-trillion dollar industry. There’s enough momentum now globally regardless of your politics in the economy to try and transition to a call it cleaner, call it greener, call it whatever you want to call it, but it’s an economy that takes carbon into consideration.
And that economy if it is indeed going to be a multi-trillion dollar industry, will certainly have room for me and a couple of folks like me to try and resolve…call it a more altruistic vision or try and address a problem that we see that maybe you don’t see, or others don’t see. As long as there’s a large business opportunity there which it appears there is then there should be an opportunity for somebody to take advantage of that.
Jimmy: Now a lot of Fortune 500 companies are already moving in this direction. And there’s certainly a marketplace for carbon offset credits. Can you characterize what the fortune 500 companies are doing, how many of them are investing in this technology either directly or indirectly and how that could potentially benefit a business like yours?
Jack: There was a big shift that was largely unnoticed. Just a couple of months ago, the Business Roundtable shifted their primary vision and mission statement to include sustainability. And it is now as important or certainly within their mission statement as the bottom line. Fortune 500s are starting to take notice of the fact that their clients and institutional investors, who are also getting pressure from their investors, they all want to see some social conscience to how their dollars are being spent.
If you look at the Opportunity Zone law, it’s a long term law. Your dollars go into the Opportunity Zone law, and they need to be there for 10 plus years and the law goes out, I think, 27 or 28 years to max effect. Given that timeframe, it’s hard to see a future in a 10 to 27-year window, where sustainability and social conscience to invested dollars aren’t a unanimous consideration for how that money is spent. Given that, I think the Opportunity Zone law marries perfectly with long term patient capital that’s looking to be deployed impactfully, thoughtfully, in a way that can both earn a maximum return for investors, but also be deployed thoughtfully.
Jimmy: Yes. And, Jack, I want to talk more about opportunity zones and why it’s the perfect fit with the carbon economy business. But getting back to the Fortune 500, how many Fortune 500 companies are currently investing in this technology either directly or indirectly or playing in this space? And maybe you can characterize it for us a little bit more too.
Jack: Certainly. And just following up on that last answer, which got a little windy, sorry, 191 of the Fortune 500 are currently seriously committing to investing into green technologies and carbon offsets, and they’re trying to minimize their carbon footprints, and it’s something their investors are clamoring for and asking for and it’s something they’re looking to develop and deploy as part of their strategy to improve their shareholder value.
One hundred and ninety-one of Fortune 500 today, I expect that to be 500 of the Fortune 500 within the 10 to 27-year window, we’re looking at within an opportunity zone horizon. So the shifts are happening, they’re happening relatively quickly. I think the institutional investors in the mainstream investment community, are kind of forcing the discussion. And now in order to differentiate yourself as a large institution that runs a business, you need to have a sustainability component and certainly addressing climate changes portion of that.
Jimmy: Jack, I want to dive in a little bit more on exactly what red carbon is intending to do it. If I understand correctly from our previous conversations, you’re going to be involved with carbon sequestration technology. Can you tell us, I guess, two things for our listeners here. One, what is carbon sequestration? Exactly, how does it work? And two, how can you monetize it?
Jack: The boilerplate answer for what we do at Red Carbon is we synthesize carbon-reducing technologies together, with a common strategy to achieve rapid scale so we can get ahead of this climate change problem. That’s the boilerplate answer. The business model is emerging but it is clear within the carbon-reducing world that there are two strategies to deploy from a business standpoint.
One is to use the carbon into a product that you can then sell somehow to the world that’s valuable. And the other one is to sequester the carbon, which is defectively taken it out of the Earth’s system, so that it reduces the overall carbon in the atmosphere or in the ocean or in the world to help address the climate change issue, if you believe that that’s part of the problem. So I happen to believe that and the science supports that and I think what we’re going to be…
Jimmy: Sorry to interrupt you, but even if you don’t believe that, there’s still a market for sequestering the carbon, right? I mean, there’s a whole carbon offset credit market that’s developing. I’d like to hear a little bit more about that. Sorry to interrupt and I’ll let you get back to your thought.
Jack: Yeah, absolutely. What we’re being able to do with our strategy and vision is to tap into the trough twice. We want to both use carbon…we’ll take it out of the air, out of the ocean by partnering up with technology companies that can do that at scale. And we’ll take it and use it into a product that is deployable and valuable to industry, but at the same time, sequester it, so that it’s out of the Earth’s system. And we get paid for that. So we’re going to get paid to use it and we’re going to get paid to sequester it. So we get paid twice. So the business model works pretty well.
Jimmy: Yeah, that’s really interesting. So regardless of whether or not you believe that climate change is a problem that needs a solution, there’s definitely a market for this type of technology. I do want to talk about opportunity zones and how this plays in but before we do that, I want to kind of back up and get your personal background, Jack. Maybe you can tell us, tell our listening audience how you got to where you are today and how did you get into opportunity zones?
Jack: Sure. Early in my career, I started a few technology companies in primarily New York. Raised some venture capital, launched a few companies as a founder, Chief Financial Officer, and scaled them and exited and found that technology cycles were quick and rapid. And I wanted to get into something that was a little slower, that was a little less technical and didn’t require such an educational learning curve. So I jumped into real estate. A friend of mine from Florida called up and said, “Hey, we’ve got some land down here. We don’t know what to do with it.
Can you help us out with the business model of how to monetize it?” So I did that, I went to Florida and started buying properties and land in Southwest Florida along the Gulf Coast and turn that into a business and ran that for 15 years. Everything from a real estate broker, to an investor, to a developer, we entitled some properties commercial scale, retail properties. And over the last three or four years, frankly, as I hit my 50th birthday, started looking at what my final chapter to my career would look like. And stumbled on the opportunity zone space, and realized that it was a generational law and that there had to be an opportunity there. And over the last year, I’ve been figuring out how to marry this carbon sequestration business model into the opportunity zone law, which seemed to fit perfectly.
Jimmy: Yeah, so tell me more about that. How does it fit perfectly? What does any of this have to do with opportunity zone essentially? Why is a carbon economy business a perfect fit or a perfect marriage with this OZ incentive?
Jack: The one critique I’ve heard of the Opportunity Zone law, is that the long term perspective of the law isn’t necessarily a natural fit to some of the shorter term investment horizons we see from most investors. So you look at early-stage VC model or real estate model, and a lot of times they’re less than 10 years. But the optimal window within the Opportunity Zone law to receive the optimal tax benefit is a time horizon of 10 to 27 years. That lends itself to a longer-term perspective for an investment. And it also lends itself to creating a business that solves a problem that’s maybe a longer-term problem. And that’s exactly what climate change is.
So they seem to suit themselves to each other. You’re not going to solve climate change with impatient capital. The Opportunity Zone law tracks patient capital, and that’s the type of capital you need in order to help address the climate change problem. And, frankly, building a business around solving the climate change problem like Red Carbon or carbon sequestration business or any other circular economy business, you need that long term investment capital and it seemed to fit perfectly with opportunity zones.
Jimmy: And so, Red Carbon, I would imagine, it may receive some VC funding in the form of some opportunity zone capital. And then, is your plan to actually put a carbon sequestration plant in the footprint of an opportunity zone or have your headquarters in an opportunity zone? Or maybe you can tell a little bit more about how Red Carbon is going to set up in the opportunity zones.
Jack: Certainly. We’re just launching now. I’ve been incubating this for quite a while as you know because we’ve been talking about this for a year. I originally started the opportunity zone space thinking I would do a fund and partner up with a friend out of the Northeast Pittsburgh area and decided that I really wanted to focus my efforts around this climate change mitigation issue, just from a moral standpoint. So I’ve been incubating this for a while. And as we launch here in the next few weeks, it will be launched with capital to get us started and we’ll immediately be targeting venture capital, early-stage seed capital.
We’ve heard of a couple of different incubators that are being launched around carbon sequestration businesses. Y Combinator, which I’m sure you’ve heard of is a well-known early-stage incubator and they’re actually forming a carbon incubator now, which has already received 50 or 75 businesses and that they’re evaluating those and getting ready to launch that incubator soon. We’re playing in the same space and we think there’ll be plenty of interest from the venture community. The challenge for us and the challenge for the planet frankly, and the way we see it, is it needs to scale quickly in any solution.
So, raising capital and bringing that capital to the table is one of the strategic advantages we think we can add to technology that’s already out there and being developed within leading-edge universities. And marrying those two together, I think our value proposition is bringing that process and a strong team, which I’m recruiting now, and capital to the table and then partnering up with technology. And together, we think that’ll be the best answer. Regarding location, the value of the Opportunity Zone law being a national law is that we can go where the talent pool supports this kind of initiative.
So we’ll partner with universities across the country, we’ll partner with technology companies across the country who have raw technology that would work within our model. One of the things that we’ve identified, in order to scale quickly we believe a distributed model is going to be more important than a centralized model. So rather than building a large plant to suck carbon out of the air, which will take two or three years to build and scale-up, we think building a million small units that we can then sell and deploy rapidly over a couple of months, that seems to be the better answer.
And there’s debate about that within the carbon sequestration world. Certainly, the economics lend itself to that kind of debate. But as far as scaling rapidly, which seems to be one of the priorities for red carbon, and for frankly, humanity, scaling rapidly is certainly easier done if you deploy small units at scale, widely distributed to millions of uses and users rather than a smaller number of units that are much larger and more complex to build.
Jimmy: Got you. So I want to ask you more about that. What are these small units exactly? What do they look like? And did you say a million of them? That’d be a lot. You could have several of them in every opportunity zone in the country, potentially. Is that right? Or what are your thoughts there?
Jack: The scale of the problem is so large. A million is not even enough, it’ll be billions. So this has to be something that’s deployed broadly across humanity. It’ll be international. So, yeah, we look to identify tens, dozens, hundreds of locations as we scale and frankly, the scale of it will be a matter of capital and personnel and just growing it as quickly as we possibly can. Using the distributed model, a lot of it will be license driven.
We don’t want to have to build it ourselves, we’ll turn it over to folks who can then deploy it locally wherever they are. And this needs to be a grassroots type of growth model where it goes viral. It can’t…based on our understanding of the science, it can’t grow systematically, it has to grow organically in an emergent way that’s viral, that spreads. That’s the only way we can achieve the scale we need to quickly to help solve the problem in the way we want to solve it.
Jimmy: Gotcha. Sorry, I asked you a couple questions there. So I think you missed my first one, that was my fault. What are these units exactly? What do they look like? How big are they? Just describe it to me if you could.
Jack: We’re still evolving the technology, but we’re evaluating multiple partners, and possibly licensing some of the technology to deploy. But we think from a standpoint of ease and cost, we like the idea of not getting into a wet solution. There’s a lot of carbon sequestration technologies that are then mounted with water or some type of a liquid and it involves multiple chemical or biological processes or industrial processes that simply take time and add complexity. We want a shelf top unit. There’s actually a company in Dallas, which recently launched something that’s not shelf top, but it’s certainly building top.
It attaches to your HVAC system and uses algae to suck carbon out of the airflow that’s already built into your HVAC system. And it does so 400 times better than a tree does. So you hear a lot about, you know, planting trees all over the planet, you need to plant billions and billions of trees and it would take too long and it wouldn’t solve the problem. We’re focused exclusively on solving the problem. What this company in Dallas is doing with their algae-based solution is, barking up the right tree. We look to do something similarly, but in a dry process with a smaller unit that can be sold and manufactured quickly and at cost and deployed rapidly.
Jimmy: Okay, so this technology is still emerging, but we should be on the lookout for something like this. Potentially, you know, in a few years, I may have one of these hooked up in my home or in my backyard potentially and that would help things.
Jack: That is our hope.
Jimmy: Okay, excellent. So the plants themselves wouldn’t necessarily be in opportunity zones, although some of them would be. But I guess your personnel, your headquarters could be in an opportunity zone or developed around a talent pool ecosystem within or adjacent to an opportunity zone, maybe partnering with the university. I think I’ve got a handle on that. Is that right?
Jack: Yeah, just to be clear, Red Carbon is an OZB. We are going to be deploying in opportunity zones exclusively. And certainly fall within the parameters that the laws outline about the percentage of employees or revenue drawn from the business so that we qualify as an OZB. That is one of our primary missions. As far as location, yeah, we’ll marry with universities or other technology companies and we’ll then identify the opportunity zone location that marries up with that technology or that talent pool or that university that suits us best, and then we’ll rapidly deploy.
As far as building and distributing whatever it is we’re going to launch, we have to make the units. If it’s a widget, we have to build those somewhere. So we will need to still have plants. And those plants will be located inside opportunity zones. And then we’ll use the existing infrastructure of industry and the distribution of infrastructure of industry and Walmart and Amazon and whoever else we can come up with, to deploy our stuff and getting those widgets out rapidly. Again, we don’t want to build it from scratch, we want to use what’s already there. It’s the only way we can do this and get there at scale quickly.
Jimmy: Good. I want to step back now and zoom out a little bit, so to speak, and ask you some big-picture questions about opportunity zones in general. Because you have an intelligent perspective on a lot of these larger issues, I can tell by speaking with you several times over the past several months here. Jack, in your opinion, what’s the best way to take advantage of the OZ law? It sounds like Red Carbon is a good example of how to do this, but if I can get some more thoughts from you on that topic.
Jack: It’s interesting because I come from both a real estate background and an early-stage venture-backed company background. So I see it from both perspectives. And frankly, it was interesting to me to see the original push emerge from the real estate world and most of the funds right out of the gate, call it 95% of the funds right out of the gate. And even today, a big portion of the funds are real estate focused. I think because the Opportunity Zone law is a place-based law, real estate needs to be a component of it.
However, I think the tax benefits within the law because they are capital gain-driven, lend themselves more naturally to an investment that produces largely capital gain upside and that isn’t necessarily real estate. A lot of real estate receives ordinary income, especially, your double or triple-Nets in your institutional investments. That’s ordinary income spitting out for years, and then they’ll get a capital gains when they sell the asset. But that income stream is only benefited under the OZ law at exit, not along the way.
If you invest in an opportunity zone business, however, and then turn around and invest most of the ongoing income you earn from that business back into the business, then the large majority or the upside you get from that investment is in the sale of that business, which is entirely capital gain. So marrying the two seemed to be the most appropriate answer.
So, some kind of a hybrid model that attaches opportunity zone businesses or multiple opportunity zone businesses within a real estate shell seem to be the perfect answer for what the ideal opportunity zone investment looks like. Starting an opportunity zone business, I can do that independently, or I can do that within an incubator or some type of a real estate campus, anchored by an incubator, and I think that will work best within the confines and framework of the law.
Jimmy: And Jack, in your view, what’s the current state of affairs with the opportunity zone space, based on what you’re seeing? Are people taking advantage of it the way that you’re envisioning is the best use case for opportunity zones, or is that coming, or give me your thoughts there?
Jack: I appreciate the question. And I’ve enjoyed your podcast and some of the previous guests who’ve come on to be interviewed by you and their responses to that question. I think, actually, I’m certain that a long-term law, like the Opportunity Zone law that has max benefits that are defined in decades, not years, is probably going to be evaluated as success or failure over a timeframe that matches that. So one year out looking at how far we are along within the opportunity zone uptake, I have the opinion that we’re just getting started.
The clarity on the law just emerged within the last year, even though the law was passed in 2017, the clarity on the law and how the law is to be used and deployed within the tax code didn’t emerge until April, May, June of last year. So we’ve had not even six months to play with this yet. And huge amounts of capital have already come in, more capital will continue coming in. The max benefit of the law is the 10-year carrot, and you still have six or seven years to invest in opportunity zone real estate and businesses through December 31st, 2026, to receive that 10-year upside, as long as you hold your asset and your investment that long.
So, this is chapter 1 of a 20-chapter book. And we’re just getting started. And frankly, what I see is that there’s a tremendous amount of uptake, there’s a tremendous amount of dollars, there’s a tremendous amount of interest. Industry is now being developed. Service folks are being deployed, investors are being educated, and it’s an ecosystem that’s evolving and growing. And I expect that to continue organically over the next few years and then level off but there will continue to be large amounts of dollars piling into this program for the next 6, 7 years, frankly, because the 10-year carrot is too big not to take advantage of. When we look back at this 10 or 20 years from now, we’re going to say, “Yeah, that law was impactful and valuable. And it took a while to figure out how to use it and measure progress thoughtfully.” That doesn’t mean that won’t happen. It doesn’t mean that the law isn’t going to benefit a lot of people.
Jimmy: Yeah, like you. I’m also quite optimistic about where this can go. I like that analogy. We’re in chapter 1 of a 20-page book. I’ve heard other people refer to this as the top of the first inning also of a baseball game, so a very similar analogy. What are some of the biggest challenges to opportunity zone investing that you’re seeing?
Jack: I think educational process and some of your prior guests said the same thing. Investors are still trying to figure out what this is. Frankly, support communities and advisors are still trying to figure out what this is. As we all figure that out, that’ll go a long way to moving the ball down the field a little bit. The biggest structural challenge I see within the opportunity zone laws, frankly, the investment horizons matching them with capital. You have a requirement for capital max benefit within the law’s framework. Could that capital be long term in nature? The investment horizon needs to be 10 years-plus. And it can go out to 27 years, but that’s generational capital.
If you need to deploy capital and have a IRR within a three or five-year window, you’re not going to look to deploy it within an opportunity zone. That’s a structural challenge, and I think that’s a challenge that is easily resolved. It just needs to work itself out. The other one is frankly, just realizing it’s not a real estate law, it’s a tax law that can benefit a lot of things beyond real estate. And once you take that hat off and put on other hats, and realize that opportunity zone businesses are going to be a huge driver where the benefit of this is lot of communities moving forward, then those businesses can drive real estate growth. But I think the businesses are going to be what drives this longer term. But that’s a structural challenge of the law and education wil help solve part of that problem.
Jimmy: Well, Jack, thank you for joining us today. Thanks for driving into Fort Worth. Before we go, where can our listeners go to learn more about you and Red Carbon?
Jack: Because we’re still emerging and because we’re just about to launch out of stealth mode, the easiest way to find me is frankly, until the site goes up and live here in the next few weeks is to just hunt me down on LinkedIn, Jack Sullivan. My prior businesses have been under the name Emergent Development Group. You can reach me via email at [email protected] Or check out my LinkedIn page and reach out to me that way.
Jimmy: Excellent. And for you listeners out there, as always, I’ll have show notes for today’s episode on the opportunity zone’s database website. You can find those show notes at opportunitydb.com/podcast, and you’ll find links to all of the resources that Jack and I discussed on today’s show. And I’ll also be sure to link to Jack’s LinkedIn profile as well as his email address, so you can get in touch if you’re interested in learning more about Jack or possibly partnering with him on future endeavors. So, Jack, thanks again for joining us today. It’s been great.
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