Multifamily Investor Expo - Feb 15th
Can university research parks, incubators, and accelerators catalyze innovation in Opportunity Zones?
Brian Darmody is CEO of the Association of University Research Parks (AURP). Many of AURP’s member institutions are located in Opportunity Zones.
Click the play button below to listen to my conversation with Brian.
- Background on the Association of University Research Parks, and how their mission has transitioned to focus more on incubators, accelerators, and other elements of the innovation ecosystem.
- How some AURP members are leveraging the Opportunity Zone incentive to highlight their innovation campus assets.
- The challenge of lack of awareness of the Opportunity Zone incentive, even among relatively sophisticated investors, and the need for continued OZ education.
- The benefits of partnering with a university research park or innovation campus located in an Opportunity Zone.
- Challenges and upside to establishing startup ventures in Opportunity Zones.
- Examples of Qualified Opportunity Funds and Qualified Opportunity Zone Businesses that have partnered with AURP members.
- Discussion of potential legislative changes to Opportunity Zones.
Featured on This Episode
- Brian Darmody on LinkedIn
- Association of University Research Parks (AURP)
- Verte OZ
- Leonard Mills on the Opportunity Zones Podcast
- Bayh-Dole Act
Industry Spotlight: Association of University Research Parks
Founded in 1986, the Association of University Research Parks (AURP) is a non-profit international organization that represents the leadership of research-institute related parks that promote innovation districts, foster innovation, and facilitate the transfer of technology from such institutions to the private sector. AURP currently serves more than 700 research, science, and tech parks and innovation districts in 42 different states.
Learn more about AURP:
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. How can university research parks and university based incubators catalyze innovation in opportunity zones? Joining me today from his office in College Park, Maryland, is the CEO of the Association of University Research Parks, Brian Darmody. Brian, thanks for joining us today. Welcome.
Brian: Thank you. It’s good to hear from you.
Jimmy: Good to hear from you as well. We were on a panel just last week with Egils Milbergs, on an opportunity zone panel that highlighted some of the big opportunity zone operators in the state of Maryland, and quick turn around time here. Now I’ve got you on my podcast because I love what you had to say and I love the work that you’re doing at AURP. So to get us started here today, Brian, could you tell us about your organization, the Association of University Research Parks, or AURP. What is its mission, exactly, and when did you come on as the CEO?
Brian: Thanks. So, AURP’s mission is really, our tagline is creating communities of innovation. So, we’re interested in real estate, we’re invested in companies, we’re interested in building innovation in the triple helix of government, university, industry partnerships. We were started back in 1986 by the heads of the Stanford Research Park, Research Triangle Park in North Carolina, Texas A&M, Arizona State University Research Park, RPI in New York, Edmonton, Canada Research Park Authority. So in some sense, we were started as an international non-profit, and we’ve grown to now represent research parks in 42 states, in 13 countries, and they’re sponsored by, mostly by universities. So we have members that are sponsored by, you know, federal labs, some community, corporations. If you think about it, Amazon HQ2 is being built in northern Virginia. That’s going to be a type of a research park.
And even though our formal title is Association of University Research Parks, since our founding in 1986, it’s really become less about research parks and more about innovation, innovation districts, incubators, the whole innovation ecosystem. So back when we were founded, there was a lot of emphasis on the real estate and these days, there’s emphasis on real estate but also, how do you connect all of those assets that I mentioned? The government, university and industry together. And so you have activation, you have housing built into the real estate, you have telecare, you have hotels, you have all of those assets to really build an innovation ecosystem and we’d like to think we represent all of those folks through the non-profit, as policy change on the federal, state and local levels to encourage more innovation and entrepreneurship.
Jimmy: Good. And so, if you’re a listener out there today and you are an innovative entrepreneur, or you are…you have a start-up firm or you are a fund manager, today’s episode is going to be specifically geared toward getting you to think about some of the benefits of partnering with a university research park, many of which are members in the organization that Brian serves as the CEO of. Brian, how many members do you have and what parts of the nation do they cover?
Brian: So I mentioned, we’re in 42 states. So, we’re from California to the east coast, north to Massachusetts, down south down to, you know, Florida and Texas. We have most of the major large land grant universities like Illinois, Purdue, Florida, Texas, many of the UC campuses, University of Maryland. So, we’re geographically agnostic, so we cover most of the major university centers across the country.
Jimmy: And many of your members, many of those major university research centers across the country, not all of them, but many of them do lie within the footprint of an opportunity zone. So I want you to walk us through now, when you learned about the opportunity zone initiative and when the zones were created a little more than two years ago. How did that come about? What was that like, figuring out which of your members were in opportunity zones and what was the process of informing them like?
Brian: So, I…you know, I was not, did not closely follow the opportunity zone legislation as it was considered by the congress and signed by the president, but I know in Maryland though, when they announced each governor, as you know, selected districts in their, census tracts in their individual states and send them in. And I said, “Oh, look at this. College Park is an opportunity zone. I’d better look at this.”
So, and then I noticed, in Baltimore, Baltimore, where University of Maryland, Baltimore, they have a bio park. That was in the opportunity zone. I noticed, oh look, Johns Hopkins, they have a research park, kind of a research park, adjacent to their medical campus, in East Baltimore. That was an opportunity zone. And I said, you know, I kept looking and I noticed there was an area around a community college in my town, that has an incubator, so that’s an opportunity zone.
And so, it was really the state of Maryland where I noticed a lot of assets, including areas around the National Cancer Institute, in Frederick, Maryland, we have a lot of federal labs, and you know, Morgan State University, even Baltimore, that was an opportunity zone. So, at least in Maryland, each county, you know, submitted ideas and our Maryland Department of Housing and Community Development, aggregated them. I wasn’t involved in any of that, but I just saw the outcome. And the governor submitted them and they were approved by the department of treasury.
So then I started looking at our members, and noticed, oh, University of Nebraska, is an innovation campus, is an opportunity zone, and Lincoln in a rural part, you know, our other members, and then realized a fair number, as you said, maybe a third of our members were in opportunity zones and started thinking what would be the implications of that from a financing standpoint and was interested. And I’m sure our financial folks, our members from the real estate side were paying attention and I know in College Park, Maryland, not in our research park, but investors in helping build new facilities in College Park, Maryland, they used opportunity zone investment to help build some activity in the city.
And so, if you’re doing that in College Park, you know, you can certainly do that anywhere across the country. So, that’s what…we put together a map, which we need to update, of all of our members that were across the country and I started thinking, okay, how is this going to work? How are investors going to learn about investment opportunity? And as you know, it’s, you know, there have been additional policy clarifications on the real estate side, and then more recently, on the operating business side of how the opportunity zone program works, and since it seemed to me, largely on the real estate side, things were going pretty well. I think national developers sort of understand where there are investment opportunities. The thing I was interested in was investing in operating businesses, and since we have a lot of startups based at universities, you know, what’s the opportunity there for investing in operating businesses that happen to be in places around anchor institutions, whether it’s a university hospital, federal lab, all of those are members. Since we have the places to locate and physically have those operating businesses grow, is there an opportunity to kind of create a network of investors and our members to make this a more efficient marketplace, so people know about investment opportunities, especially for operating business, but also for real estate, for that matter.
Jimmy: And so, how have your members organized around the opportunity zone initiative over the past year or so, since they’ve become aware of the fact that for many of them, their incubators or their innovation parks, are located in opportunity zones. What have you seen your members do in the meantime to help highlight their assets?
Brian: So, you know, through AURP, we’ve tried, you know, to create their website. You know, that will get you only so far. But a lot of our members, and I’ve done a lot of educating, right? I’ve said, “Oh, have you looked?” And it’s interesting. Some members, you know, not everyone knows they’re in an opportunity zone. So we’ve been doing some educating on that side. And a lot of this is state based, right? So, the state of Maryland has pretty sophisticated web portals and I make sure some of our companies, like we have a quantum computing company that happens to be in the University of Maryland Discovery District. I don’t know…I mean, they’ve gotten a lot of money. I don’t know if any of it comes from opportunity zone funds, and of course, reporting requirements aren’t that strict yet, so you don’t oftentimes know whose gotten opportunity zone funding. The only thing I know is we need to educate our members to make sure, you know, they know about it.
And then on the, and even on the financing side of it, just to give you a quick story. So, biotech, you know, BIO, the big national conference on biotech technologies, was in…I can’t remember. I think this was in…last time they held it in person. And it was shortly, it was a year after the opportunity zone investing went through and there was a panel of DCs, and they were talking about investing in biotech companies. And you know, they had a Q and A session and I asked them what did they think about opportunity zones around investing in biotech companies, operating businesses because the rules were becoming a little clearer. And, I mean, these were very sophisticated DCs, three of them, and none of them had ever heard or they didn’t know what an opportunity zone was. And so, that gave me…a little lightbulb went off, and I said, “Wow. You know, these guys are very sophisticated. They just hadn’t even considered, they didn’t know anything about opportunity zones.” They thought I was talking about some state investment program.
So, I mean, this just illustrates, I think the folks involved in opportunity zones, especially, I was trying to get people to invest in businesses, you know, collectively, we’ve got a lot of work to do, to make sure people still understand this. I think a lot of the focus has been on in, we’ve heard about gentrification on the real estate side, and I think there is a good thesis to say, wow, maybe we can get some investment in companies that might, you know, help cure cancer, or those kinds of things, that happen to be in opportunity zones. And I think that’s the kind of education, you know, we’re trying to do on a very low level.
Jimmy: Yeah, you’re absolutely right, and that’s good of you to point out that, you know, that at many levels, at every level along the way, really, you know, from the individual investor to the startup entrepreneurs, to the anchor institutions themselves, and all the layers in between. You know, there’s a lot of education that still needs to get done. And this program, or this tax incentive, or policy initiative, I should say, has been in existence for over two years now, and there’s still a lot of people out there who are just unaware of it, or don’t understand mechanically, how it works or why it could be of great benefit to them. So, yeah, keep doing what you’re doing, getting the word out there and getting people educated on what good this program could do.
So Brian, now, if I am a fund manager, maybe I’m an opportunity zone fund manager, or maybe I’m not a fund manager, maybe I’m just a business owner or an innovative startup entrepreneur, why should I consider partnering with a university research park, and maybe more specifically, what are some of the benefits that I could incur from partnering with a university research park located in an opportunity zone?
Brian: Yeah, so, as I mentioned, a lot of our parks have spaces where companies can go and they have lots of university mentorship programs, other kinds of you know, people who know about not just federal opportunity zones, but oftentimes, other federal opportunities like SBIR, STTR programs or even state or local kinds of incentives. For example, I know in Maryland, we have a bioinvestor tax credit. So if you’re a biotech company in Maryland, and you’re an investor, it doesn’t go to the company, goes to the investor…you get a credit on your investment, that’s irrespective of whether you’re in an opportunity zone.
So, the point is, you know, that’s true in Maryland, but you know, there’s folks at universities, at all, most major universities, that know about those kinds of programs and the fact that you have a physical facility where you can grow and be near talent, you know, and technology. So, maybe there’s some adjacent, some technology that comes out of the hospital, the university hospital system, maybe from the university engineering school, or whatever.
You also have talent, so you have students that can be part-time employees. You have faculty, probably at most universities there’s probably an expert in some technology that’s important to the growth of your company. You can sometimes get access to those faculties through just a consulting arrangement, or some sponsored research at the university.
So that’s why, you know, research parks and innovation districts have been a major growth factor and students want jobs, corporations want access to talent, and so that’s why you have this phenomenon of corporations like here, the University of Maryland Discovery District. Capital One, is you know, has an incubation lab, working on artificial intelligence. They also have similar operations at the University of Illinois Research Park. So they help to demonstrate that they’re not really a bank, they’re really a financial innovation company.
And so, you know, the motivation for large corporations, is to gain access to talent and tech and the same motivation is true for smaller startup companies. But especially startup companies need that early financing. And, you know, if you’re in a research park that also happens to be an opportunity zone, that’s a double, you know, double opportunity.
Jimmy: Double opportunity, yeah. Well put there. We talked a little bit about real estate and how that was the one of the initial goals of the AURP was to establish real estate in or near university campuses around the country. Now, the mission of the AURP, correct me if I’m wrong, has transitioned more into providing startup incubators or innovative incubators. Is that correct? Is that fair to say? And what do you like about startups and what are some of the challenges, particularly in terms of doing so in an opportunity zone?
Brian: Yeah, so we have big corporations, we have small companies, so we’re agnostic.
So, I mean, so big corporations, you know, like to come to universities. I mean Amazon HQ2 is a great example, right? When they did their RFP, there was a lot of analysis on talent, where they could get talent. And they located in northern Virginia. So Virginia Tech is now building a huge campus next to that, as is George Mason, as is Marymount. Even the University of Maryland, we’re leasing space in another state to be near Amazon HQ2. This is the university coming to the corporation, not the corporation coming to the university.
Large corporations continue to be important in the research park world, etc. I mean, what I like about startups is, that’s where a lot of innovation takes place. That’s why you have a lot of M and A activity with large corporations merging or acquiring startup companies, but it’s where the smaller companies are oftentimes more agile and more nimble. And that’s why, you know, excited to see what’s happening with quantum computing. I mentioned the quantum computing company in the University of Maryland Discovery District. You know we have companies that are looking at new ways of manufacturing drugs in Virginia Commonwealth University. A whole new process.
And could that be done by a large pharmaceutical? Maybe. But if we can find a more efficient way to create new drugs and to strengthen our supply lines, our domestic supply lines so the next pandemic, we’re not worried about where we’re going to get our antibiotics or whatever. A lot of that, often, that kind of activity is taking place, in this case, biotech companies that are in our research parks and innovation districts across the country.
So it’s why I like startups, and that’s where some of the more interesting technologies have grown from. You know, Google, to Sergey Brin, and Page, you know, they both went to Stanford and were doing research on indexing of library holdings, you know, and came up with the PageRank system which eventually led to Google after many years of additional work.
Jimmy: Yeah. Can you imagine if Sergey Brin and Larry Page had founded Google in an opportunity zone? I know the opportunity zone initiative didn’t exist way back then, but talk about that a little bit if you wouldn’t mind, if you get like a huge multiple on your exit with a startup, talk about how powerful that can be if you if you’re able to shelter those capital gains.
Brian. Sure. So, yeah, I mean, you know, 2x or whatever on a real estate thing, that’d be great. People would be real happy with that. But let me just give an example. Biotech company, right? So you have mature technology that is a new drug or a new medical device or whatever, you know, the return on investment with a successful one can be 40, 50x on your original investment. So imagine being able to, you know, shelter those kinds of gains. And then, I mean the other nice thing, why I think opportunity zones, and particularly biotech companies, there’s a good matchup. They also, to mature the technology, for a biotech company, is very long, right? You’ve got a long regulatory process. You have many barriers. It’s also very expensive … very expensive, all of that. And typically, 10 years is kind of the maturation, at a minimum.
Well, that syncs up very well with opportunity zone investing. And then there’s also the stickiness of maintaining that, you know, opportunity zone investment, a biotech company maybe in a research park, you know. If it works, the company’s going to have to stay there for 10 years. So, from a public policy standpoint, if you’re worried about companies leaving, again, all these things can come together to create a virtuous cycle where the company gets…investors in a company get a good return, because their capital gains are sheltered. The state or locality gets a good return because company stays there because they need you for financial reasons, and then the nation gets new technology, because you know, we have better health outcomes and cure cancer, HIV or whatever, because you have smart people working with technology, surrounded by a lot of other smart people with the right kind of equipment and labs that you have on a research park, or a university.
So all those forces can come together, one would argue, in an opportunity zone that’s in a research park.
Jimmy: So a lot of your university research park members now are likely standing by right there. They’re ready to take in opportunity zone investment from different funds or other business owners. Which funds have your members partnered with, so far? Maybe you have an example or two?
Brian: So, yeah, I mean, part of this is the way the opportunity zone fund works, right? Often I mentioned some of the investment in some projects in College Park. I think some of them came in as opportunity zone funds. You know, so AURP, we represent the park, and we don’t necessarily represent the companies that are in the tenants in the park. And so that’s, oftentimes an individual transaction that occurs between the tenant, and the fund, whether it’s opportunity zone fund, or just regular DC or angel investing. And that sort of negotiation happens at that tenant level.
We wouldn’t necessarily know someone, maybe have a partnership with the park itself, and again, at the park, if not through AURP. But I mean, Leonard Mills, he’s an investor trying to attract investment and he’s been doing investing in startup companies that are in…a lot of them are university startups and many of them are in incubators or research parks in the Mid Atlantic, and I think he has some investments in Atlanta and a couple of other places. So, that’s a fund that’s very focused on investing in startups in opportunity zones with the companies in many of our member parks, but not exclusively.
So, VerteOZ is the name of his company and we need more investors like that. AURP itself, we may not know of the individual investment decisions that a fund manager, family office or whatever is making. But we think our platform of company, and our platform of places that have anchor institutions in them, whether they’re…you know, one of our members is Children’s National, right? That’s in Walter Reed. They have JLABS built in incubation there. There are 13 JLABS across the country. This one’s focused on pediatric cancer. There are technologies related to pediatric, not pediatric cancer per se, but can you imagine investing, you know, having a startup in the JLAB, Children’s National Walter Reed, that’s in an opportunity zone, you know, doing some kind of technology healthcare solution for children, but also you’ve had the advantage of being in an opportunity zone. That’s like…that’s our poster child for technologies, I hope that will be coming out of the JLABS to help support health of children. And I think that will only be made more possible because that happens to be an opportunity zone.
Jimmy: A couple of great examples there, Leonard Mills with VerteOZ fund. Leonard was on this podcast earlier this year, and his fund has the distinction of being one of the first if not the first opportunity zone funds to deploy capital to venture business. So that’s…that’s really interesting that he is partnering with some of your members there.
Brian, shifting gears now want to talk to you about the opportunity zone legislation. There’s some indications from Capitol Hill, that we’re likely to see some opportunity zone reform, regardless of what happens in the election next month, whether Biden wins the presidency or the Democrats take control of the Senate. I think regardless of that we’ll see some sort of opportunity zone legislation changes, possibly toward the end of this year, if not next year.
But Brian, what would you like to see happen? How would you like to see the opportunity zone legislation tweaked?
Brian: Yeah, I know there’s been a lot of concern about the reporting, you know, I’m agnostic on that. So, whatever the policymakers want to do about, you know, increased reporting and making sure, you know, there’s more transparency. Which I think in general, obviously, more transparency is always a good thing. As long as it doesn’t, you know, become so burdensome that you’re not going to have, you know, investors.
I think on the operating businesses, you know, I’m not an accountant. So I would say I don’t know all the nuances of the opportunity zone. I’ll be the first to admit it. I know it’s a tool. It’s not going to make a bad investment perfect. It can help augment investment decisions. So, I just hope they continue to work on clarifying the rules for operating businesses because I think that you know that, there’s been a little bit of disappointment that there hasn’t been more investment in that and make sure as a nation that has a lot of stake in making sure our innovation part of our economy continues to grow. I mean, there’s a parallel effort called the Endless Frontier Act, to create 100 billion with the billion dollar fund, you know, to build these technology centers across the United States and in leading areas like cell and gene therapy or quantum computing or AI, whatever. I just want to, you know, it would be nice to make sure we can see you have alignment so that if the federal government sets up the ventures, you know, opportunity zone investing in startup companies that were aligned with these kinds of technologies would be perfect.
So, I guess hope we, you know, we continue to align, to make sure we build up. Like, we protect the Bayh-Dole Act, you know, which helps give university the right to intellectual property funded on federal research and so that we continue to make sure all of these different policies, all of which help advance the innovation economy are working together and not at …
Jimmy: Excellent. Well, Brian, been a really great discussion today with you, appreciate you joining us. We’ve got just a couple more minutes left and I know the AURP has their international conference coming up very shortly. Can you tell our listeners about that, please?
Brian: Yeah, so we’re looking forward to that. We’re going to be virtual. It’s November 2nd to the 6th, 2020. You can learn more about it by going to www.aurp.net. And we have some great speakers, we have Steve Case, His Rise of the Rest, former CEO of AOL, and you know, DC with his revolution fund. We have Dr. Michelle McMurry Heath, the new head of BIO, and BIO is the world’s largest trade association for biotech companies. She’ll be talking about bio innovation, you know we have a panel on the Bayh-Dole Act. I mentioned that’s celebrating its 40th year anniversary and that helped create a lot of companies out of federal research in a more efficient way. Having universities and VCs as investors and angel investors help mature, you know, technologies from things like Google to all kinds of systems that we are used to today.
So even though we don’t…last year we had a panel on VC, I’m sorry, on opportunity zone investing, we don’t really have one specific this November. But if you think about BIO and Steve Case, I mean all of those represent all of those different aspects, represent much of what opportunity zone is trying to do, at least, investing in operating businesses, new operating businesses.
So if you’re interested, please, you know, sign up, and I think it’s going to be a great program.
Jimmy: Fantastic. No, it sounds sounds really interesting. Give us that website address one more time. Where can our listeners go to learn more about you and and that event and AURP.
Brian: Yeah, it’s aurp.net is the web address, and you can find, you know, my address or I’ll just…my email if anyone’s interested, wanna send me an idea, or wants to connect with us, it’s my first and last name, [email protected] And hopefully, I will get back to you as soon as possible.
Jimmy: Fantastic. Thanks, Brian. And for our listeners out there I will have show notes on the opportunity zones database website. You can find those show notes as always at opportunitydb.com/podcast, and there you’ll find links to all of the resources that Brian and I discussed on today’s show, and I’ll be sure to include that link to aurp.net, as well, where you can read more about the international conference coming up here in just a couple more weeks. Brian, thanks for joining me today. I really do appreciate it.
Brian: Well thank you, and good luck and you’re doing a great job in helping educate folks about the opportunity in opportunity zones. That’s what we all need to do and I appreciate what you’ve been doing.
Jimmy: All right. Thank you.