Post-COVID Opportunity Zone Investing, with Greg Genovese

Greg Genovese

What can Opportunity Zone investors expect from post-COVID market conditions? And how have Qualified Opportunity Funds evolved since program inception?

Greg Genovese is CEO of USG Realty Capital and Investors Choice OZ Fund, a new Qualified Opportunity Fund offered by USG/OZI.

Click the play button below to listen to my conversation with Greg.

Episode Highlights

  • Post-COVID market conditions and the overall investment environment for Opportunity Zone investors.
  • A breakdown of the four COVID-related investment environments: 1) pre-COVID, 2) COVID, 3) post-COVID recovery, and 4) post-COVID.
  • The evolution of the four types of Opportunity Zone funds available in the OZ marketplace and their pros and cons, from: 1) blind-pool funds, to 2) specified multi-project / multi-asset funds, to 3) project-specific / single-asset funds, to 4) investor-directed multi-project funds.
  • How the investor-directed multi-project investing platform offered by the Investors Choice Fund by USG/OZI represents an entirely new type of Qualified Opportunity Fund.
  • The potential for conflicts of interest to arise when the asset manager is also the project developer.
  • USG/OZI’s investment thesis and the property types and geographies that Greg likes.

Featured on This Episode

Industry Spotlight: USG/OZI

USG/OZI: The Opportunity Zone Experts

USG/OZI is a joint venture between USG Realty Capital and Opportunity Zone Investors Group. Headquartered in Silverdale, WA, USG/OZI launched earlier this year with the Investors Choice OZ Fund, a first-of-its-kind, investor-directed, multi-asset Opportunity Zone investment platform.

Learn more about Investors Choice OZ Fund by USG/OZI:

About the Opportunity Zones Podcast

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

Show Transcript

Jimmy: Welcome to the Opportunity Zones Podcast. I’m your host, Jimmy Atkinson. Joining me on the show today to discuss post-COVID opportunity zone investing, and his new qualified opportunity fund is Greg Genovese. Greg was one of my first ever guests on this podcast way back in January 2019 so I’m very pleased to welcome him back again today. He joins us from Santa Barbara, California. Greg, welcome back to the show.


Greg: Thank you, Jimmy. It’s nice to be back on your podcast.

Jimmy: Absolutely, Greg. Welcome back. Once again, I believe this is your third time on the podcast now. And you were also a participant…a participating fund issuer on my latest OZ Pitch Day event earlier this month so thank you, thank you for participating in that and for coming back on the show. It’s great to have you here. So let’s get into today’s discussion. I wanna focus today’s discussion around post-COVID investing, specifically with regard to opportunity zones. It seems like the COVID-19 pandemic is winding down, cases are way down around the country. States and businesses are opening back up. People are getting vaccinated. So what are we looking like currently here toward the end of March, Greg? And what do you see on the horizon in terms of post-COVID-19 market conditions, and the overall investment environment for opportunity zone investors?

Greg: Yes, excellent question. You know, there’s not a real short, concise answer to that. And let me tell you why Jimmy, and thank you for asking that right off the bat. The way we’ve looked at it, and our company, USG Realty Capital, and our partner in our next fund is a company called OZI, O-Z-I, out of Olympia, Washington, and we really believe, when we’ve had our discussions and put together our platform, there’s really four separate areas of COVID.

We can’t just lump it all together into this term called COVID, when it comes to the real estate investment world, or even in the opportunity zone world, and that is, there was the pre-COVID environment, there was the COVID-19 environment when we were in the heart of the virus and the economic downturn, there’s what we think we’re in now, which is the post-COVID recovery stage, and then later on will be the post-COVID stage. And the reason those last two are important is in the opportunity zone world, we have a long term hold, about 10 years on these projects.

So how we behave and the investment philosophies and methodologies that we put into place today during the recovery, especially with new funds, and especially this year being the last year of the 10% benefit on opportunity zones, how it’s set up today and…is really indicative of how well it’s going to do in the future when we’re truly in post-COVID.

So, very quickly, pre-COVID, the market was doing extremely well. We were in what we would call a late stable stage, moving into the height of the market for real estate, real estate securities. Stock market was in all-time high, lending was very liberal, very good pricing on project financing. However, the equity raising on that side of the fence, even though it was very, very good for opportunity zones, missed the mark from what most of the expectations were. However, the vast majority of the money was raised in 2018 and 2019 was really through private equity firms, large blind pool programs.

And then towards the end of 2019, when the regs, the opportunity zones regs from the IRS, were baked enough, let’s put it that way, where the investment public felt that they were strong enough for the public to start making their own investments, we saw a great amount of equity moving into these markets in October, November and December of 2019, and really even getting stronger in January and February of 2020. Then COVID hit, and we saw a big downturn in the economies. But real estate valuations stayed strong. But lending became very, very tight.

So going into that environment, the equity raising has dropped off, but there was still some fairly good equity raising done in the opportunity zone world during COVID. But the marketplace was very, very challenging from a project and a lender and developer standpoint. But now we find ourselves in recovery. And so the question is how are you looking at this during the recovery phase. We’re seeing now the lenders are getting back into the game, becoming a little bit more liberal, but it’s certainly not what it was pre-COVID, but the rates are there for good sponsors and good developers to get the very best pricing.


And so if anything, we see that late stable stage that we were in in 2019 in the real estate market really being elongated. So how you structure your funds going forward really have to take into account this new dynamic of a little bit tighter lending, having to have a sponsor and developers that are very well keeled from a reputation and a financial standpoint to get the best pricing because at the end of the day the opportunity zones benefits are extremely good. However, the investors really need to be in good funds and good projects that are gonna yield good returns.

So at the end of the day, we all like the opportunity zone benefit. But as we’re in this recovery phase moving to a full recovery phase over the next, let’s say, eight to nine years, how those projects are being funded, developers staying on time and completing the projects, and getting the stabilization in most of these deals is going to be paramount to how the fund ultimately returns to the investor.

Jimmy: That’s great, Greg. A lot to unpack there but thank you for providing your insight on what you’re seeing during the COVID recovery and post-COVID in terms of market conditions and the investment environment for opportunity zone investors. A pretty good, brief history of the OZ marketplace you just gave, so thank you for that. I wanna talk about now the different types of opportunity zone funds, and maybe the evolution of those types over the last few years since the zones were designated back almost three years ago now. What are the different types of funds, Greg? And where does your new fund, the USG/OZI fund, fit in specifically, and what makes you different?

Greg: Sure, sure. Thank you. I think you hit the nail on the head when you said let’s look at the evolution of the funds. Opportunity zone investing really is a new asset class. So there’s not a long history. It’s not the ETF market or the mutual fund industry, but it really is a new asset class, so there’s been a lot of evolution. And I may have mentioned in the earlier segments, the original deals, most of the original…I would say the great majority are probably 90% or more of the original programs that hit the street actually in mid to late 2018, early ’19, even before the IRS regulations have come out, or at least in any fashion that the investing public felt comfortable with, really were blind pool investments.

So the first type of investment were really the blind pool investments. I call them Trust Me Funds, you know, “Give us your money. We’re good asset managers, we’ll find the right projects.” And those raised hundreds of millions of dollars with private equity. Then came almost about the same time but a little in front of the project-specific deals were what I’d call specified multi-project funds. So that’s the second type of fund that evolved at the very beginning, you know, $100 million fund or a $200 million fund, some of them were bigger than that, that invested with developer partners across the country into…some of them were 5, 6, 7, up to 10 separate projects, so you invest your money into that fund, you get to know what those projects are, and you invest across the array equally amongst all those different projects.

About the same time though, the project-specific or the single project funds started coming out, And this is the side that I was very much involved in from the very start of opportunity zone investing because of a philosophy that not only I have, but a lot of other people have, that is being able to know what you’re investing, and being able to do your due diligence, have a strong tax opinion, and be able to invest in a specific area into a specific project. The only issue I ever had with the specified multi-project programs were that the investors didn’t have the ability to decide which one of those projects or multiple projects they wanted to go into.

So when you look at it from an equity raising standpoint, the vast majority at the beginning was raised by the blind pools. We’ll call that type one, I guess. Then type two was the multi-project deals that were specified into multiple projects. And then three was the single project or project-specific programs, which I very much tout and tout even till today.

So you started to see a shift in equity raising, moving from multi-project to single project towards the end of 2019 and going into 2020. You had asked about our philosophy. We believe we’ve, with the challenge that COVID presented to the marketplace…and by the way, what that challenge was, we’ve met that with what we believe is a force type, a new and unique type of opportunity zone investment structure. And that is not blind pool, it’s not specified multi-project, and it’s not a single project deals.

What this is, is the first and unique multi-project, but it’s investor directed, meaning you’ll have a multiple of projects within the fund itself, but the investors actually get to pick which projects they wanna go into, the amount of money they want to invest in each, and they don’t have to actually go into all the projects. They can go into one, they can go into four, they can go into five, whatever the choice is. So that’s why we actually called it…you hit the nail on the head, they actually get…they actually…we call it Investors Choice Oz Fund. So it’s actually…it does give the investors the opportunity to choose their projects and as much concentration or diversification as they want.

Jimmy: Got it, Greg. So that’s interesting. So that’s a quick history of the evolution of the marketplace, from blind pool funds to identified multi-asset funds, to project-specific funds. And now you’ve come up with, I don’t know if hybrid is the right word, but it does allow for some investors’ choice between how much diversification they want versus how much project concentration they want. Why did you do that, though? Why did you see the need to set up the fund the way you did?

Greg: Yeah, another good question. And we didn’t do it to just be different and try to do something unique to capture equity. It’s really the lessons that have been learned during COVID, and then coming out of COVID. And that is the challenges that the investment environment and the opportunity zone world was really faced with coming out of COVID, and that is how to develop a fund where investors are looking for much greater diversification, but they still want those same single project dynamics, and they also wanted to get away from the conflicts of interest that during tough times like COVID, when the vast majority of the funds, the opportunity zones funds are out there are developer-driven, and they’re developer-specified as far as an asset manager, and that really is a recipe for conflicts of interest. And we started to see that happening during the downturn in the economy during COVID.

So the challenge was, how do you develop a fund that allows for multi-asset diversification, which is what the investors want, but also gives the investor the same single project dynamics that they really desired. So how do we get them something that gives them that same project concentration, but also gives them that diversification, and then, secondly, better investment alignment via an asset manager or co-manager with the developer? So how do we do a better job of bridging that conflict of interest, so you have an asset manager who is clearly on the side of the investors and looking out for their interest as an investor advocate, and then also being able to bridge that gap to work in a collegial fashion with the developer partners.

So you have, what we like to call, we have an asset manager and developer dynamic, versus an asset manager as…I’m sorry, versus a developer as the asset manager dynamic. So we really wanted to build something that met the challenge of diversification, also giving the investor project concentration. Give them the choice to decide what projects they wanna go into, and then build in much stricter compliance and oversight and accountability of the developer partners, so that the asset manager or sponsor is strictly on the side of the investor as the investor advocate. So that’s what we attempted to do and that’s what we’ve achieved in doing with our new fund platform called Investors Choice.

Jimmy: Sure. That makes sense, Greg. We got this question during your OZ Pitch Day presentation that we did live on March 9th, and I wanna ask you again now, for those who missed their presentation, one of the attendees asked, “How is your fund, Greg, different than multiple single asset funds that are presented by the same sponsor? Does the investor, in the case of the Investors Choice Fund, have to make a commitment and then choose opportunities as they are presented? Or how does it work differently than that other example?”

Greg: Yeah, that’s…and I do recall that. We didn’t have a chance, I think, to really…but I think we had a breakout session, which I think we dove into that. But for your listeners, I think that’s actually a really important question because off the bat you could hypothetically say to yourself, “Well I’m just going to buy…” I’m just going to make this up, Jimmy. “I have a million dollars and I’m going to buy, you know, five…I’m gonna split it up evenly between five different projects with five different sponsors and five different areas and five different developers. Or I’ll go into five different projects with the same sponsor.”

The reason why we did it here under this umbrella was for a couple of reasons. On one hand, the investors have a one-stop shop for those developments. And by the way, I’m a big proponent of going into projects, not necessarily into funds. So we may have five, or six, or seven projects within our fund, it doesn’t mean that our projects are going to suit everybody’s fancy, so you have…you know, again, you have to look at this project by project. But there’s some distinct advantages to doing it under one umbrella. One, quite frankly, is the cost factor. A fund really cost the sponsor about the same amount of money.

And if you look at where we’re focused, and this is a big point of our program, there’s really four separate types of developer out there. There’s the, you know, I call them mom and pop, you know, the local contractor, I was kind of kidding, we say who drives up at home with his truck and he does spot projects and things like that. And those people are great people and great developers but that’s not really our area. Second would be the local, somewhat medium size developer, has a great reputation in the local areas of developer, of commercial projects, needs probably between $5 million to $10 million per project. And then you have your larger regional developers, and then you have your big, large national developers. The best returns have been marked in the area of that second rung, the medium size regional developers who are raising anywhere from, let’s say, $5 million, to $8 million, to $10 million per project. That’s where the greatest amount of returns are.

So if we went out and started a fund…and that is where our focus is by the way, if you start a fund to raise that amount of money, it’s going to cost you about the same. So here’s an opportunity in one umbrella to go after the developers that have the best ability and the safest ability to give the maximum return on a project, put it into a fund where there’s multiple projects, share those expenses across the board with all the other projects and developers. It lowers the fund costs, lowers the developer’s costs as from an equity raising side, and helps maximize the return to the investor.

So it’s a way to get that line or that vein of developer included into an opportunity zone fund and do it in a low cost manner but also give investors the access. And I think that’s probably the best word, is give them the access to those development projects around the country where the local developers actually have the majority of the influence in those opportunity zone areas. So it gives them that access. I think in a nutshell that really is the answer.

Jimmy: Yeah, that makes sense. That makes perfect sense. You mentioned earlier about a conflict of interest that arises when the developer is also acting as the asset manager. Can you explain that? What is that conflict of interest exactly? How does that negatively impact the LP investor? And how does your fund structure avoid that conflict of interest?

Greg: Yeah, again I hate to keep saying it’s a great question but that really is a great question. So we really have…and I don’t expect your listeners to remember this necessarily, but we have what we call our 244. So 244 methodology and investment fundamentals as far as our tax and investment in opportunity zones. And the two actually at the beginning stands for fund basically bifurcated from developer. The reason why that is paramount as far as we’re concerned is the developers who…the vast majority of these programs are developer-driven. In most cases the developers are…they’re gonna be the developer of the fund, and in 100% of the cases they’re going to be the developer of the project themselves.

So there’s fees to be made as the developer, as the owner’s representative of the project. And then there’s going be money to be made on the asset management side for the investor. And so when you find yourself in a upswing or…you know, when the winds behind your back and things are great from late, let’s say, 2011 through 2019, there’s really no conflicts of interest or it doesn’t appear to be. However when you find yourself like we did in the COVID environment, you wanna make sure that the developer has the best interest of the investor at all times. And so when you have the developer actually controlling, not only the development, and the budget, and the costs, including the management of the fund, in our opinion that’s ripe for conflicts of interest. And we actually did see this occur in a number of projects during COVID.

So the very first tenet in our philosophy, and this is even before we came up with the multi-project Investors Choice dynamic, was to put the sponsor and the asset managers squarely on the same side of the fence as the investors themselves. So on one hand, in our dynamic, we are the fund manager, we are the asset manager. Then from the second dynamic, the two in there, is we are co-managers with our various development partners around the country. So it gives the developer freedom to be able to develop the project, freedom to make a approved budget return on their development from a standpoint of developer fees, etc., but they will co-manage those with us, and then we take care of the securities, the equity raising, the oversight, and the asset management side. And it gives the access to that kind of equity to these, as I told you before, the local regional medium size developer.

So we did this to prevent that conflict of interest, in fact, we don’t have time to really go into it, but we had to develop a scenario or dynamic where the asset manager really is getting paid strictly from asset management fees and in areas that do not present a conflict of interest with the investors. And we believe that’s the better dynamic.

Jimmy: Good. Yeah, that makes sense. Thanks for clarifying that for me and our listeners. I wanna to talk about your investment thesis now. We’ve talked a lot about how your fund is structured, we’ve talked a lot about post-COVID, but what in particular are you actually investing in? It sounds like you’re real estate primarily or maybe exclusively, and then what types of property types specifically do you like, Greg, and why?

Greg: Yes, we are exclusively real estate. Actually I’m a fan of the opportunity zone business dynamic as well. It’s just it’s not our expertise but I would give a little plug for those for you. I think those are good deals as well, but we are focused strictly on the real estate development side. Number one, our focus, developer, as I’ve probably said a few times already, is the local regional medium sized developer needing equity for a project of anywhere from let’s say $5 million to…we can do as much as $20 million on an equity raise for any particular project, but we like to keep it between the $5 million to $10 million, maybe up to $12 million, but really $5 million to $10 million equity raise.

So we’re looking for those developers and we’ve had maybe 25…I think we’re up to 25 or 26 projects that have gone through our filter, but it’s very strict and we’ve only had, I think, 6 of them that have made…or seven now have made it through our filter to this point. And what we’re looking for is A, that developer with that reputation, and has a great reputation from a deliverability standpoint, as well.

Two, the projects are done with public-private partnership with the local communities. That’s another criteria. And we’re really big into honoring what we call the spirit and intent of the opportunity zone initiatives. And so each one of our projects, and the developers have to agree to…we have social impact studies initially on each one of the projects, and then ongoing social impact reporting every year on each project as well. So we wanna see each project actually honoring the spirit and intent of the initiative with truly measurable positive social impact.

Three, it’s all about recession resiliency and return of capital before maximizing returns. We wanna make sure that we have projects that go through our filter, and looking for our preferred returns of anywhere from 10%, as high as 15% or 16%. So we’re expecting high returns on our programs, on our projects. However, we have a two-pronged return of capital dynamic, and that is based on recession resiliency. We wanna be in areas around the country that the demographics have recession resiliency from a trending population standpoint. We wanna make sure that we’re in areas that if we hit a recession or two during the next 10 years, the population growth or the population stability, as well as the demand for that area based on local companies is going to be strong for a long period of time.

The other branch of that is the asset classes. We stick strictly to the asset classes that we believe have the highest degree of recession resiliency, and that is multi-family projects with high barriers to entry. We’re also looking at storage facilities. We’re also looking at senior living. That’s probably our…I would say number one is multifamily, number two is senior living, as far as our menu would be concerned right now, next would be storage, as I mentioned. And then we’re actually doing due diligence right now on a couple of really good manufactured housing or as most people say mobile home communities. So our four major food groups would be multi-family, senior living, storage, and then manufactured housing. We can actually do anything and go anywhere technically but by prospectus, our focus areas are those four.

Jimmy: Okay. Got it, Greg. So, yeah, those four main property types, multi-family, senior living, storage, manufactured housing. But which geography specifically do you like? Which areas of the country are you going after?

Greg: Yeah, good question. Right now we have four projects that are in our, I would say, are in our identified period, and we’ve got about seven more that are going through the due diligence process. So I can’t name the names, but I will tell you about the areas, and investors that look us up and start to kick our tires can obviously see all this information, but I’ll just tell you about some areas that we are really high on. One, and this is high on a lot of people’s list, actually is Reno, Nevada. Reno is a strong demographic. More and more companies are going there. The no state income tax element and it being so close to California has really driven a lot of companies to that area.

So we’re looking at a couple of deals right now in Reno, in Nevada. Also, in certain key areas of Washington State. We’re looking at a senior housing facility right now that is likely to hit our docket here real soon in the Greater Seattle area. And then where the heart of government is, in the State of Washington, at Olympia, Washington, are a couple of projects that we’re really excited about as well.

And all of these demographics, Reno, Olympia, Greater Seattle. Another area that we’re looking at is Fort Collins, Colorado and certain areas around Denver. And then key areas in Texas from Dallas to Houston. We’ve got a couple of projects located there, and even in Austin, where you see a lot of people moving, a lot of companies moving there as well. And then toward…going kind of east, we’re real excited about a couple of projects we’re looking at right now in Nashville, Tennessee as well, and a couple in North Carolina and South Carolina.

So if you look at these areas like Raleigh, North Carolina, and Charlotte, and Greenville, South Carolina, Fort Collins, Colorado, Olympia, Washington, Seattle, or the Greater Seattle area, these are areas that we’re really excited about. And even in California, who hasn’t jumped on board with the opportunity zone initiative, there are some good opportunity zone investments here as well. And we’re looking at a couple right now near Sacramento. So I hope that gives you a good flavor.

Jimmy: No, that is good flavor. That’s quite the diverse range of geographies and different property types. And if you’re an investor interested in accessing that level of diversification, you offer that, but you also offer the ability for investors to concentrate on one or two projects that they really like that are part of your platform. That all makes sense. And I think it’s a really interesting concept you have there, Greg. And it was a pleasure speaking with you today, Greg. We’re winding down the episode now. But before we go, I did wanna ask you, where can our listeners go to learn more about you and the Investors Choice OZ Fund by USG/OZI? Whether they are an investor who might come into the fund as an LP or maybe they are one of those developers that you might be able to work with, how can they get in front of you? How can they learn more about you and contact you?

Greg: Certainly. Thanks, Jimmy. You can get ahold of us at our website, it’s very simple, So

Jimmy: Fantastic. And for our listeners out there today, as always, I will have show notes for today’s episode on the Opportunity Zones Database website. You can find those show notes at And there you’ll find links to all of the resources that Greg and I discussed on today’s show. Greg, thanks for joining me today.

Greg: Thank you very much.