Free Event - Alts Expo on Dec 13th
How did Origin Investments line up over $100 million for their Opportunity Zone fund in less than 24 hours? And what are some of the biggest challenges and complexities of managing an OZ fund?
Michael Episcope is co-founder and principal of Origin Investments, a private equity real estate firm founded in 2007.
Click the play button below to listen to my conversation with Michael.
- How Origin Investments lined up $105 million in capital in less than 24 hours when they initially launched their Qualified Opportunity Fund.
- Origin’s concept of an institutional-grade platform geared to individual investors.
- Origin’s investment thesis — where they like to invest, and why.
- Some of the biggest misconceptions about investing in Opportunity Zones.
- Fund structuring considerations to create liquidity and flexibility in the fund.
- How Opportunity Zone funds and investors can respond to negative sentiment in news media.
- The 75 percent difference in profitability between an Opportunity Zone investment and an ordinary investment, on an after-tax basis.
- Some of the biggest challenges and complexities of managing an Opportunity Zone fund.
Featured on This Episode
- Michael Episcope on LinkedIn
- Origin Investments
- Press Release: Origin Investments’ Newly Launched Opportunity Zone Fund Lines Up $105 Million in 17 Hours
- Blog post by Michael: The 9 Biggest Misconceptions About the QOZ Program
Industry Spotlight: Origin Investments
Founded in 2007, Origin Investments is a private equity real estate firm based in Chicago. Designed for the needs of high net worth individuals, family offices and wealth management firms, Origin Investments provides the same level of service, terms, and results that larger institutions have enjoyed for decades.
Learn more about Origin Investments:
- Visit OriginInvestments.com
- Origin Investments on Facebook | LinkedIn | Twitter | YouTube | Instagram
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. Toward the end of last year, Chicago-based Origin Investments made headlines when they received over $100 million in capital commitments for their newly launched Opportunity Zone fund, all in less than 24 hours. And here to discuss that and many other Opportunity Zone topics today is Origin Investments co-founder Michael Episcope. Michael joins us from his office today in Chicago. Michael, welcome to the podcast.
Michael: Thank you for having me, Jimmy. I appreciate being on today.
Jimmy: Absolutely. It’s good to be talking with you as well. I actually tried to reach out to you when you were making headlines a year ago, but I think you guys were very busy and obviously had your hand full. It must have been a good problem to have. Can you go over with us what that was like receiving all those capital commitments in less than a day and how were you able to accomplish that?
Michael: Yeah, well, those were busy times. It’s funny because that day seems like it was yesterday. It was a fun day. That was back in December of 2018 and I think a lot of success in business is really about being in the right place at the right time. And it’s not as if we’re a new entrant in this market, but we were one of the first firms to announce our entry into the QOZ space. We’ve actually been investing in real estate for more than 12 years now. And anyone who knows us knows that we’re methodical in the way we approach these things. We’re very disciplined. And I think it was our announcement alone that really validated the opportunity in the space. But it was an exciting night for our entire team and it was one of those nights that was, you know, 5 or 10 years in the making.
But we worked on…you know, from the technology to the email to the strategy, I mean, the strategy started six months prior, but that email and the technology took a few days to put together. And when we sent it out, I would say, I think it was 5:30, or 6:00 that night, the team was really excited to watch the not commitments, but the indications of interest roll in. And I would say between 6:00 PM and midnight we saw our indications of interest increase to about $50 million. And when we woke up the next day, they had increased to $75 million. And, you know, I think we were well over a hundred100 million dollars after the 24-hour mark.
Now, again, we’ve been in this for 12 years and we have built up a lot of really good will with individuals. We’ve got a great track record. And we have more than 15,000 people in our database who have opted in for our emails, who have invested with us, who know us from, you know, different walks of life as well. So we were really well-suited, you know, when this email went out to attract this kind of attention. So I think it wasn’t necessarily a surprise, but I think the amount that came in was a surprise. But one thing to note is in December of 2018, people didn’t know that much about the law. The regulations were still being enacted. They were being refined. And a lot of people who had signed up, you know, this was a soft commitment. They wanted to learn more.
And there were some misconceptions along the way and a lot of the people believed that you could invest after-tax money into a QOZ fund and still receive the benefits. And that wasn’t true. So many people, after we sort of sifted through it, actually dropped out of those commitments. But I would say that we converted, you know, half or more to actual investors during that time. And that was kind of part of the educational process. But I will say that that was an exciting night that I won’t forget anytime soon and neither will the rest of the team.
Jimmy: Oh yeah, that sounds incredible. It’s still very impressive the amount of interest that you received, even if maybe half of those people weren’t fully qualified around it backing out later. It was an incredible amount of money and interest that you able to drum up in your new fund. But you’re good to point out that it wasn’t just an overnight success story. You had been curating this list and conversing and building relationships with these people for months and in some cases, many years. So I just wanna, cautionary anybody listening out there, Michael and his team did not raise a hundred million dollars overnight out of thin air. They had been nurturing these relationships for many years in some cases. So, Michael, I wanna back up for a second and get background on Origin Investments. Can you go into Origins’ story and investment thesis and what makes you guys different?
Michael: Yeah. I’ll talk a little bit about all those. And I would say, you know, the way to describe Origin is that we’re a technology-enhanced real estate investment firm, that we have taken a traditional real estate investment platform and married it with technology to make reporting, communication, just really interfacing with us much easier for the individual investors. And 12 years ago, we started out really more as a family office. And my partner and I, we started the firm together as like-minded individuals who wanted to invest in real estate. And the fundamental reason was because we thought we could build something better than what we were finding out there. And we had both come from different backgrounds, had built our wealth, and we were investing with institutions at that time. We were investing with individuals. And you had pros and cons on both sides, but generally what you found was that individual investors were always treated very differently than institutions.
And so from the beginning, our idea was to create a platform that would really take all the best features of an institutional platform. I’m talking about a team and terms in the PPM and fees and quality of deals and everything and marry that with the individual investor. And it just so happened that the first two were us. So, and I think that’s a distinct advantage for a firm is that we are not from the industry. We’ve actually built around it and our own needs as investors. So I think we’ve always approached this from a very unique perspective and what we’ve done is just hired a phenomenal team behind us of very like-minded individuals, but people who are from the industry. And today, we have more than 30 individual team members who work here and we serve close to a thousand investment partners today.
Jimmy: It sounds like you guys got started off on the right foot, making it very investor-centric and bringing a product that’s typically reserved for institutional investors, real estate investing, private equity, real estate investing to individual investors. Is that fair to say?
Michael: Yeah, it’s 100% and I think, again, it goes back to, you know, why we started the firm. And we didn’t start the firm because we wanted to build a business for ourselves and make a paycheck. We built the firm because we wanted to find a place where we could continue to protect and grow the capital that we had created in our previous lives. And then it was just about bringing friends and families and continuing to build the platform so that we could share it with other like-minded individuals because one thing you learn is that it’s very expensive to run a platform like this.
And if you have a hundred investors, you still have the same amount of fixed costs as if you have 300 investors. And it’s not really fair to charge those hundred investors a lot more money to pay for your fixed costs. So you have to scale in this business. And that’s always been our mindset is investing ahead of growth, scaling the organization. And today, you know, again, we are close to a thousand investors. And from the investment standpoint when we’re out there in the market, we are an institutional investor because we’re taking down multifamily projects that are anywhere between $30 million to $70 million in size with a single check. So to that side of the market, we are viewed as an institution. But from the other side, the individual investor, we’ve made it very easy to invest in our firm by lowering the minimums in our QOZ Fond is $50,000. And then in our income plus fund is $100,000, but we still only cater to accredited investors today because it’s who we are and who we know and that’s kind of the direction that we’ve chosen.
Jimmy: Right. That’s why you built the firm the way you did it sounds like. How about a little bit of background on you personally, Michael? How did you get to where you are today? How did you get your start? You already went a little bit of the reasons why you started Origin Investments, but how about a little bit of background on yourself?
Michael: Well, yeah, I think I hinted at it a little bit. Maybe it’s a little unconventional in many ways where I got to here today. But I was born and raised in Chicago, Illinois. I moved to Florida for high school, came back here for college, went to DePaul University. And I’m probably my dating myself a little bit, but I started there in 1988. And then it was in 1989 in the summer between my freshman and sophomore year, I got a job at the Chicago Mercantile Exchange of which I thought it was really gonna be a summer job. It turned out to be about an 18-year career and I loved it. It was awesome. I kind of worked my way up, developed relationships. I studied finance and economics at DePaul and then I saw the way the markets kind of behaved.
You know, I took kind of the theory and saw how it behaved in practice by watching the markets on a daily basis. So it was a great way to kind of juxtapose theoretical with actual. And it was in about 1996 that I got an opportunity to actually become a trader or a principle, if you will, in an organization. So I went with them and my career kind of took off from there. And I had nine years as a trader on the floors of the Chicago Mercantile Exchange. Did quite well. Accumulated a lot of wealth during that period. And then it was in 2005, late 2005 that I punched out of the business and retired from trading. And I was pretty young at that time. And, you know, one of the reasons why I got out is my risk profile had changed, is that there’s a time in your life when you want to create wealth and then there’s a time in your life when you want to protect and grow wealth. And the world of trading can be very volatile and there’s a lot of leverage involved. And I was also…you know, at the end of my career I was married with kids and I wanted to kind of pursue a much lower level of risk and a different strategy, if you will.
And I was introduced to real estate as a young kid through my grandfather working at his buildings when I was little. And it always made sense because real estate is a time-tested strategy to generate income to continue to protect and grow wealth. And my partner and I, we had known each other for about five years. We were investing together and we decided to formalize the arrangement in 2007 and build Origin. And what we built at that time was very different than, you know, what you see today. I would love to say that we had this vision, you know, of 12 years. And then we came. But I would say the ethos, you know, was the same that I alluded to before, is that we were just looking to create an investment firm where we could continue to find great risk-adjusted opportunities for our own capital. And over and over when we invested with other people, we just kept coming back to the same place where, “We can do better. We can do better.”
And so we built it. And it was kind of out of necessity in many ways because we just couldn’t find and organization, you know, who would really act as the same stewards as we would with our own capital. So that’s kinda how I wound up here today. And then the whole Origin has been a great ride. We started our fund business back in 2011. We’ve had three funds, very successful. We were recently named a consistent top-performing manager by Preqin, which is a third-party provider. And then most recently we’ve launched the QOZ Fund and our Income Plus Fund.
Jimmy: Yes. Let’s talk about your QOZ Fund. I’m curious, what is your Opportunity Zone investment strategy? And by that I mean, what asset types and locations do you prefer typically?
Michael: So we are almost exclusively in multifamily. We’ve done everything at this firm from multifamily to industrial to office to retail, even student housing. But this fund will almost exclusively be multifamily. But it doesn’t mean that if we find a great risk-adjusted opportunity in office, we won’t do it. And everything in QOZ really lends itself to ground-up development because of the requirement of the law to double your basis. So the fund will be entirely ground-up multifamily and today we’ve already identified five assets. We’ve closed on three of them. We have two more tied up that we’ll be closing at the end of this year. And the strategy is no different than the strategy that we pursued in funds one, two, three. We’re in the same markets, in the same areas. And I think that’s maybe one of the misconceptions that people think about is that QOZ is this finite dataset and it is. There’s only 8,700 QOZ areas in the entire country. We’ve limited ourselves to 11 markets, but those 11 markets we’ve been investing in for the past 11 years, 12 years.
And the reason why we even went into QOZ was because as we started looking at the QOZ maps and understanding where we were investing our fund three capital, it turns out that many of our deals in fund three were actually in QOZ areas as defined by the Census Bureau as economically distressed. But I think what people have to understand is that the vibrant neighborhoods today were all once economically distressed. My offices are in The Loop across the river right next to River North. And if you know Chicago, 20 years ago, River North was economically distressed and it was absolutely the place that you wanted to plant your flag and invest.
The Loop 15 years ago was not a place that people considered living. And today, it’s completely turned and you have multifamily properties going up everywhere. And the more they build, the better it gets. So, you know, our strategy has always been focused on transitioning, transforming neighborhoods. And that’s where we are today in QOZ. And when we looked and we did the research and we wanted to make sure that we could execute this properly, we were already there in the markets. And that’s why it made so much sense to us to just continue what we were doing. But, you know, for us it’s business as usual, but now we’re getting paid 75% more on an after-tax basis to take the same level of risk.
Jimmy: Right. And which location specifically are you in? Which markets are… I think you mentioned that you’re in 11 of them. Maybe you can rattle off a few of them where your properties are.
Michael: Yeah. So, you know, we’re actually, we are headquartered in Chicago, but we do very little investing here. But this is one of our target markets as well. But we tend to focus on the 15 or 11 of the highest-growth markets around the country. So we are in Denver and we are in Phoenix and we are in Houston, Austin, and Dallas. And we’re in Nashville, Charlotte, Raleigh, Atlanta, and Orlando. And if you look at those, those are always…those markets are always in sort of the top 15 to 20 growth markets in the United States in terms of population to job growth. This is where people are moving. This is where employers are moving. These are the places where, as a real estate investor, you want to be because the winds are at your back.
Investment performance is real estate and real estate is highly correlated to population and jobs growth. So we always look at things in terms of risk management. And we start with the macro-level or what are the markets? You know, where are the markets we want to invest in, you know, and why? And then we go to the submarkets and what are the submarkets? And the submarkets that we’re looking for tend to be higher-income demographic sub-markets, but up and coming areas. And to us, we wanna be in Class B plus, A minus, A assets on the value add side. But certainly, when we’re building ground-up developments, these are a Class A institutional quality assets. And we focus on more of a renter by choice.
So I think people, you know, when they think about our strategy or any QOZ strategy out there, there’s this idea that economically-distressed equals bad. But most likely if you’ve been investing in real estate for any period of time, you’ve invested in an economically-distressed area as defined by the Census Bureau without even knowing it. You know, this is our strategy that we’ve executed in fund three. And, you know, we wouldn’t be here if we didn’t think there was opportunity because we can go in a lot of other directions. But we firmly believe that this is the best risk-adjusted opportunity in the marketplace for investors who have a long-term outlook and who have capital gains.
Jimmy: Right, that’s a key part of this, right? You need to have capital gains in order to take advantage of this. So you hinted at one of the biggest misconceptions about investing in Opportunity Zones. What are some other of the big misconceptions about investing in OZs and taking advantage of the OZ tax incentive?
Michael: It’s a great question. I mean, I could probably rattle off 10 of them right now. I just wrote a blog on this because we’re talking to investors every day and we hear kind of the objections from them about why they’re skeptical about the program. And I’ll give you three really, and I touched on one of these already. But, you know, a lot of people, they don’t think a QOZ site is where they would want to invest. And I would say that in 90% of the cases that’s true, but in the other 10%, that’s absolutely where you want to be investing because the greatest potential reward happens in the transitioning neighborhoods, in the transforming neighborhoods.
And the key is just understanding where growth is moving. But I don’t, you know, it’s… No one I know is going into truly distressed economic neighborhoods because real estate, it’s not viable to make returns. And you have to keep in mind that this tax benefit only happens at the profit level. It doesn’t help buy real estate. It doesn’t do any, you know, good to supplement the capital structure on that end. So you have to make sure that you’re looking at real estate in the exact same way as if QOZ didn’t exist. And then the QOZ benefit is just an added layer to the profitability to the investor.
So that’s the first thing is, you know, the QOZ sites, you know, are places that you do want to invest, but you have to be selective. And I think the other thing we hear people say a lot is that people are gonna pay too much for QOZ opportunities. That’s true. People will overpay for QOZ deals out there and we can’t help what other people pay for the deals. All we know is that we’re disciplined, but people overpay for market-rate real estate every day. And that’s why in our market you have to look at 500 deals and underwrite a hundred of those and bid on 25 of those to end up buying 5 of those deals. And it’s no different.
So we don’t, you know, know what other people are going to do. And that’s just pure speculation. But I would say in any asset class, in real estate, you’re always going to have people overpay for deals in this market. And I think embedded in that is that people are concerned that we’re already nine years into a run-up in real estate. And maybe there’s concern about getting in now and holding for 10 years. But to us, that’s really an opportunity because I love the fact that QOZ is a long-dated outlook program and that you have to be in it for 10 years because if you understand kind of multifamily real estate and you look at its history, there’s not a 10-year period that it’s ever lost money in aggregate.
And if you think about…you know, if you go back to 2007 and you can say, “Okay, people overpaid for real estate in 2007,” but even if you paid a fair price, you weren’t getting paid for the risk and the market came down. But if you look at that price 10, 11, 12 years later, that is a great price looking back today. You could not reproduce that price because replacement cost has gone up, rents have gone up, everything has gone up. So the key is getting into good quality real estate. We’re not immune from cyclicality, making sure you’re leveraged appropriately, and if the market does turn around that you have staying power in the investment, that you’re not, you know, getting into a deal that has a pie-in-the-sky business plan that has mezzanine and preferred equity and is over-leveraged, so if things go wrong, that you’re gonna end up losing the property. And so that’s one of the ways that we manage risk. But that’s one of the objections we hear.
And the last thing I hear from people this is more interesting, and I think it’s rooted in fear, is that it will end in disaster. I’m not actually sure what people mean by this when it will end in disaster. And I’ve heard…you know, if you’ve ever been to a QOZ panel, there’s always somebody who says, “This is going to end in disaster.” And to me, this isn’t insight and these aren’t people who really understand real estate or, you know, most of the people who are echoing the sentiment have never been to a QOZ site or underwritten a deal or looked at the stuff. It’s just an opinion and somebody who is provoking fear and a lot of this is provoked by the media.
And I think as investors we have to educate ourselves in this area and not just read headlines and make a snap judgment. But, you know, we are looking, you know, at deals in QOZ, but we don’t need QOZ for these deals to work. It’s a great addition to an already good risk-adjusted return for the level of risk that you’re taking in this area. So, you know, I think the idea that it will end in disaster, the market is deep and, you know, QOZ money, there’s just not as much out there as people think. And I think what people have to remember too is that when it comes time to liquidate the opportunities within QOZ areas, most of these neighborhoods will have transformed. And there’s a lot of liquidity in real estate and the program, the earliest redemption periods will be right around 2029 and people, or I would say managers, have until 2047 to liquidate real estate. So when you look at QOZ as a percentage of the overall market, it’s incredibly small. So I wouldn’t worry about this avalanche of real estate coming due in one year. Managers are going to all divest over a long period of time between that window of 2029 and 2047.
Jimmy: No, I think you’re absolutely right. There are certainly, I think there will be some folks rushing to the exits who need to get their money back for whatever reason. But I think you’re absolutely right. I think there’s gonna be plenty of investors who are going to wanna remain in this tax advantage vehicle for as long as possible, you know, toward the end of the 2040s, the 2047 end date that you mentioned.
Michael: Yeah. And it’s actually, you know, when it came to structuring the fund, we actually had to figure out ways to create liquidity to match the different needs of investors because we’ve talked to some investors. And they went out in 10 years and a day and other investors are, “Look, I want the flexibility. I might want out in 10 years and I might want out in 2047.” So what we’ve done is just created liquidity into our fund, but also a mechanism whereby if more than 20% of our investors won out at any one time, then we as managers have to sell deals or refinance assets to accommodate those investors. So you’re not going to be able to please everybody in one structure. But I think under the structure that we’ve created, we can at least have the flexibility so that people wanna stay in the maximized benefits through 2047 if they can. And if they wanna get out in 10 years and a day, they can.
Jimmy: Yeah, no. Creating that flexibility, it makes sense. Earlier, you alluded to a lot of the negativity that’s been publicized in this space, you know, people speaking on panels saying it’s gonna be a disaster. Some of the recent media coverage has been negative. There was that “New York Times” article back at the end of August that characterized the program largely as a boon for President Trump’s cronies. There was news back in October that the SkyBridge OZ fund was slashing their target raise from $3 billion down to $300 million. They haven’t raised nearly as much money as they had first anticipated. There was news also in October about that potential scandal with, involving Michael Milken and his relationship with were dealings with Secretary Mnuchin kind of working around the rules to make sure that his Opportunity Zone in Reno was designated. So there’s a lot of headline risk and a lot of negativity that’s been coming out in the media recently. I guess my question to, you now, Michael, is this. Is there simply just too much headline risk and too much negative public sentiment for this incentive to succeed in the long run?
Michael: I think that there is a lot of negative headline risk, but if you kind of read between the lines, you know, QOZ came out with very…people were excited about it, very much fanfare and you had these mega-funds being announced. And then people really falling flat on their face in many situations, billion-dollar funds that have only raised $30 million. And so there is a lot of truth. I don’t think there has been as much traction in the QOZ areas. We’ve certainly been able to succeed where others haven’t. And I think that’s because of our history of catering to taxable individuals. And so, you know, it’s interesting. Warren Buffet has a quote and he said, “Widespread fear is your friend as an investor.”
And, you know, I think in the case of QOZ, you have to really look at what people are saying, what’s the reality, and read between the lines because, you know, even though there’s maybe not as much demand as we thought, you have to keep in mind that the goal of these publications, these journalists is to gain clicks and fear sells. And it’s very easy to make a snap judgment based on what you’re reading, what you’re hearing, what you’re doing. But, you know, these headlines are about getting people to read articles. And in 2008, no journalists wrote about the, you know, apartment owner or the property owner who was doing just fine. They were all writing about the distress and everything else. And that’s really what headlines are meant to do is evoke emotional reaction. So I think we all, as investors, we owe it to ourselves to educate ourselves, get to the truth, understand this program, dig deeper because the benefits are just too great to ignore in this space.
So yes, there’s a lot of negative sentiment and I think that our job as an investment manager is to educate people and help them understand the difference between what’s fact and fiction. And when you actually have deals like we do in our fund now and you can show these people and walk them through the metrics and how we underwrite and how we look at them and they can see them, I think that goes a long way in changing their perspective, and showing them the neighborhoods, whether …and they might live there and they’re like, “Oh my God, I didn’t realize that was a QOZ area.” So it’s not doomed to fail. It’s just that I think the more and more people who take the time to understand it will become comfortable. But for those who are willing to do that, there is a great opportunity because if you’re gonna read headlines and just make a snap judgment, then, you know, you’re obviously not going to be able to capitalize on this opportunity.
Jimmy: Well, I agree with you a hundred percent there and I hope I wasn’t highlighting too much of the negativity. It was just more playing the devil’s advocate there. I agree with you a hundred percent. I think some of the headline risk has been, well, kind of blown out of proportion a little bit.
Michael: Yeah. You’re not highlighting it because we hear it on a daily basis. And I talked about, you know, the three kind of objections that we hear and the things, and these are all the things that you read about in the headlines every day. So we’re used to it and, you know, it’s our job to educate people. And if they wanna learn more and they’re truly open-minded about this, then we’re happy to talk to them and take them through this. And, you know, look, if at the end of the day they have the information but they still don’t feel comfortable, that’s fine, but at least go and get the information, you know the real information because I don’t… You know, getting investing information from the headlines is just not a smart thing to do.
Jimmy: I couldn’t agree more. Michael, earlier you cited a 75% figure when you were calculating the after-tax returns of this investment vehicle compared to it a typical deal. Can you go into what constitutes that difference and how that math shakes out?
Michael: Yeah. I mean, I guess without having a chart in front of me, I’ll just simply say that when we underwrite our fund, we’re trying to target about a two and a half, multiple over a 10-year hold period. And that is a pre-tax multiple. And when you look at the after-tax multiple of using QOZ dollars versus non-QOZ dollars, the difference in profitability if you had a capital gain today and you had to pay the taxes and then you were able to invest that money afterwards into a market-rate fund and then you paid all the requisite taxes with that, you know, you would get to an amount at the end of 10 years that was very different than investing in a QOZ fund. Because, you know, think about there’s a couple of benefits to the QOZ and I would think that most listeners understand this. But if you had a million-dollar gain this year, you don’t actually owe those taxes until 2026 and you’ll pay them in 2027. So the government is allowing you to use that deferral for seven years and that deferral by itself is worth a lot of money, right? And on top of that, then your profits grow tax-free so long as you are in there 10 years.
And then you have also the step-up in basis that happens after seven years. And when you add all those up and you compare a non-QOZ investment to a QOZ investment on an after-tax basis, the profitability is 70% or more in a QOZ investment. And I’m using 75% because, you know, the way we underwrite, when we’re looking at our base case of two-and-a-half X, it actually comes out to 77%. But the more you make, the greater the after-tax profits are on QOZ and the less you make the less it is. So it moves in correlation with that. We have all this outlined in our QOZ deck ourselves. So it’s kind of, you know, we have it in a chart where we lay out the QOZ fund and investment there versus a non-QOZ investment.
Jimmy: Good. That’s important to highlight that for investors just to show them the difference between a typical deal and versus a QOZ deal. I think that’s smart. What have been some of your biggest challenges with your Opportunity Zone fund so far? Obviously, you guys got off to a roaring start in the first 24 hours after opening all of those with all those indications of interest. But what have been some of your bigger challenges since then? Has it been in raising capital or finding deals or something else I’m not thinking of?
Michael: Well. it’s really, it’s matching capital with deals because when you think about the world of QOZ and the need for capital gains and the finite data set that you’re dealing with to find deals, there’s always a challenge in our business, whether or not you’re using QOZ or not. It’s, you know, you either have too much money and not enough deals or too many deals and not enough money in the market. So the complexities in QOZ though are a little bit different because even if you have a deal that screams and the returns are off the charts, people still have to have capital gains to invest in that deal. So that deal would, you know, normally be able to attract, you know, money with no problem at all. But if people don’t have capital gains to invest in QOZ, generally, they’re not. You can actually invest non-QOZ or non-capital gains into a QOZ fund. You’re just not getting the tax benefits.
And, you know, it’s interesting, even though it is a good, you know, return anyway, we’re just not seeing people do that with non-capital gain money. So that’s one of the challenges is that you’re dealing with these individual tax issues and the 180-day expiration and you’re trying to match deal flow with this capital and all of these individual tax situations as well. And we’re, you know, we’ve created flexibility and some mechanisms within the fund so we can take money early. And we do that through a working capital queue. So if we’ve found a deal or identified a deal and maybe we don’t need the money for two or three months, we can take capital in anyway and then hold that capital so that the investor actually benefits from investing in the funds, locking in their tax benefit and then in two or three months. And that’s true of most funds. That’s how they’re doing it and how they’re actually able to take capital on a continual basis.
And so I think in the beginning we didn’t understand or we weren’t sure about the pipeline of opportunities because it was so new and our team was out there looking and we believed that we weren’t gonna have any issue. But we didn’t know. So you had this avalanche of capital coming in, but this uncertain deal flow and now our deal flow has picked up quite a bit. And so we’re much… it’s a much more balanced approach to matching capital and deal flow at the same time. So there’s definitely nuances about it in many ways. It’s business as usual, but, you know, the complexities of the individual situations does make it challenging.
Jimmy: Yeah. This tax incentive and managing all of the complexity of it isn’t definitely not for the faint of heart. So you sound like you guys are off to a good start though. Michael, thanks for chatting with me today. This has been great. Where can our listeners go to learn more about you and Origin Investments?
Michael: They can go to our website, origininvestments.com and I would encourage anybody going there to register. And when you register you can go to the offerings page. Go to QOZ and you’ll find all of our available documents there. You’ll find the QOZ deck there. You’ll find our information on our track record, our team, virtually anything you need to conduct due diligence. And you can also schedule a call within the portal itself. So if you have questions above and beyond that and you wanna talk to somebody at our firm about QOZ, we have that available. We’ve got an entire investor relations and business development team dedicated towards this program and making sure that our investors fully understand what it is they’re getting into.
Jimmy: Perfect. That’s origininvestments.com. And for our listeners out there today, I’ll have show notes on the Opportunity Zone database website. You can find those show notes at opportunitydb.com/podcast. And you’ll find links to all of the resources that Michael and I discussed on today’s show. Michael, again, thanks for joining me today. It’s been great.
Michael: Jimmy, thank you for having me. I really appreciate the opportunity.