The First Investor-Directed OZ Fund, With USG/OZI

In this webinar, Greg Genovese discusses the Investors Choice OZ Fund by USG/OZI, a first-of-its-kind Opportunity Zone fund that allows investors to choose between a number of project specific Opportunity Zone developments.

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  • Learn key details about fund and related projects.
  • Request more information from the fund sponsor.

Webinar Highlights

  • An overview of USG/OZI, a new multi-asset fund that allows investors to pick and choose the projects they invest in.
  • The tax incentive timeline for the Opportunity Zone program.
  • Features of the various types of OZ funds available to the investing public, including the investor-directed multi-project model that USG/OZI is pioneering.
  • Review of the current fund portfolio, including projects in Washington, Wisconsin, and Connecticut.
  • Impact of Post-COVID dynamics on the investment environment.
  • The importance of “recession resiliency” when evaluating long-term real estate investments.
  • Examples of how investors may allocate investments across projects within an investor-directed, multi-project OZ fund.
  • Highlighted projects within the Investors Choice OZ Fund portfolio, including a multi-family development in Milwaukee and an assisted living facility in Hartford.
  • Summary of offering details, including preferred returns, waterfall details, and liquidity provisions.
  • Q&A with webinar attendees.

Featured On This Webinar

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 USG / OZI

Webinar Transcript

Jimmy: Look at that. He’s got the stars and stripes framed in the background. This is a new view, Greg. I like the new digs you got there. How you doing?

Greg: I’m doing just fine. Thanks a lot, buddy. We moved offices recently. So I’m still… This looks okay. But if you were to look down, you’d see… We’re still moving…

Jimmy: I’ve seen your desk before. I’m sure it’s full of paperwork, and you’re a very, very busy guy. Let me shut down our poll question and share the results. And then I’ll turn it over to you, Greg. So let’s share the results here. So the majority of you, 62% of you have gains from real estate and then a pretty good portion of you, about 40%, who answered have gained from stocks, ETFs, etc. Pretty fair number of you with gains from privately held business, about a quarter of you, and then some from crypto and collectibles as well. So, that’s an interesting poll result there. And with that, Greg, I’m gonna turn it over to you. You’re joining us from Investors Choice OZ Fund by USG/OZI.

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Greg: Thanks a lot, Jimmy. And hi, everybody. And I’m really happy to say this is our I think third time with you on Pitch Day. And it’s been a… And I’m sure others have presented today already. So I hope I’m not saying anything somebody else may have already said. But Jimmy, you’ve done a wonderful job, you and your staff and everybody at OpportunityDb over the last two and a half, almost three years of really being the leader in giving information to the accredited investors in the Opportunity Zone world. And it’s really a good place for everybody to come together. So I’ve appreciated being on the podcast. You’ve done a wonderful job there. So this is really, I think, Novogratac, and you are probably the two places that I go to. I don’t need to give plugs to just two people. But those are really just two great places to go for just about any information you need. And of course, EIG as well.

So, first and foremost, thank you. It’s a great platform for those who are, it’s their first time with OpportunityDb, you’re in great hands as far as an information resource. That said, let me jump into our presentation. I’m really happy to let everybody know. This has been coming for the past four and a half, five months. Our new fun platform is just launched. And it’s a multi-asset program that actually allows, it’s the one and only so far as we know, Opportunity Zone Fund that allows the investors to actually pick and choose the projects they want to go into, and also the amounts of investment that they wanna go into. But I will tell you, just real briefly, let me go off a little bit on the tangent. I really enjoyed watching those poll numbers, because that coincides almost perfectly with what we’re seeing as far as our own equity raising. This is actually our fourth fund with our partner OZI, Opportunity Zone Investments. Between USG and OZI, this is our fourth program together. And it’s about a 60/40 split between real estate and people selling businesses and stocks, etc. So that fits in very, very well.

So kind of to jump in here. We’re a company that launched a few years ago, and they are coming out with our new platform, which is called Investor’s Choice. And before I jump in, I just wanna make everybody…make mention that, again, we do everything through FINRA and the SEC. And therefore, all of our presentations are approved and validated through our managing broker-dealer. But this is not technically an offer to sell. This is truly an informational presentation. And we hope that you can join us in our breakout session afterwards, to dig a little bit deeper into the investment. And of course, there’s always risks when you’re involved with any type of security.

Just briefly, I’ll cover for the group. We all know that this is actually the last year to invest in Opportunity Zone Funds, and still be able to attain the 10% discount in the capital gains tax. The only thing I’ll mention, if you read through this slide, if you invest by the end of this year, you’ll see by the end of the fifth year, you will have to then pay those capital gains taxes, let’s say in April of 2027. But if you keep those gains, I’m sorry if you keep your investment in the Opportunity Zone Fund through 10 years, your entire return from the Opportunity Zone Fund is tax-free. What I will make mention is sometimes people will come to me and tell me that that 10% is really not that big of a deal. And, frankly, nobody should be investing strictly because of the 10% discount. But the way I believe most people should look at this is during the next five years, you’re not paying any capital gains tax on your gain from your sale of your stock, or your business, or your real estate. And therefore, you have 100% of your gains working for you and your Opportunity Zone Fund investment. So if you’re getting, let’s say, an average of 10% a year annualized in your Opportunity Zone Fund investment, come year six, when you owe the taxes, in most cases, there should be plenty of gain there from the Opportunity Zone side alone to pay your taxes.

The slide I wanna spend a little bit of time on is really what differentiates our platform from just about everybody else out in the marketplace. And if you look at the three types of funds that are available to the investing public, there are really three types of funds. There are the blind pool funds, which are the larger, I used to kiddingly call them the Scaramucci deals, meaning the big private equity funds where investors could invest in there, and then they take it and invest where they believe the investment should go. Then there are the specified multi-project programs, where there are six, or seven, or eight different projects within the corpus of your Opportunity Zone Fund, and you invest equally along those projects. Then there are the single project programs. One project at a time you invest up to $20 million, $30, or $40, or $50 million into each project. Personally and our modus operandi is that we support really the single project side, simply because the investors wanna know what they’re investing in. They wanna know that their full investment is going into that project.

However, this is the important part, when COVID hit, what we found is that investors started to want more diversification again. They also a couple of other things, they also wanted to make sure that they were bifurcated from the developer, in the sense of taking away that conflict of interest when it comes to the developer controlling the investment itself. And then thirdly, it was that most of the best returns that we’ve seen, have really come from the smaller to middle-size regional firms, but I’m talking about development firms that have a really good relationship with the local community. They know the local economic development alliances. They tend to have the very best returns and quite frankly, can build projects much, much quicker, but their equity need is really between $5 to $8 to $10 million. And quite frankly to the group, putting a fund out into the marketplace can cost anywhere from $500,000 to a million dollars. So, it doesn’t behoove an investment manager like ourselves to bring out a fund, unless you’re able to raise $20, $30, $40, $50 million.

So what we developed is what we consider a fourth option in the Opportunity Zone world. And that is a multi-project fund, that we co-partner with developers in regional areas around the country. And each one of the project needs for equity are between the $5 to $10 million mark, and it’s incorporated into an umbrella fund of $50 to $100 million. And we’ve seen through our own analysis that these tend to give the better returns, and the demographics are such that you can be in these suburban areas that are adjacent to urban areas where you’ll see a better corporate stability for your long-term gain. So that’s why we invented, and came out with what we call Investors Choice OZ Fund. It’s the one and only multi-project investor-directed fund in the country. We believe it’s a better way to invest in Opportunity Zones. We’ve been doing Opportunity Zones from the very start, back in 2018. Very proud to say that our first fund that we came out with was named the top fund in the country by GlobeSt. And we’ve taken that same dynamic that honors the spirit and intent of the initiative, along with pref returns of anywhere from 10% to 11% to 12% in each one of these pocketed strong demographics, and we’ve taken that and put it into one fund structure.

So to give you an overview, our current projects right now that we’re actually taking money in are three projects, one in Lacey, Washington, which is near Olympia, just outside of Olympia, Washington, where the State Capitol in Washington is, the State Capitol is also the largest employer in the state. But there’s also Costco and Starbucks and all the other ones that you know. Milwaukee, Wisconsin, we’re co-partnering with a company called Ogden & Company for a multi-project deal in Milwaukee. Ogden & Company just happens to be the largest full-service real estate firm in the state. And then Bristol, Connecticut, we have an assisted living memory care facility with KindCare which we’re in the process of launching now. And then projects in Denver, St. Paul, Oakland, San Francisco and Los Angeles, that will be hitting our sheet very, very soon.

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Just quickly, I wanna go over post-COVID and the dynamics that are happening currently in the economy. As we all know, we’re in an environment right now, where we’re at historic highs in the real estate pricing area. So, we believe that we’re at the top of the real estate market as far as pricing. And therefore there’s greater investment risk there. So everything we do, we wanna make sure that we’re performing the projects at the top of the market, and not relying on anything aggressive in the pro formas. For those that understand cap rates, we actually decompress the cap rates in everything we do to get to our high 11% and 12% prefs. We’re also in an environment, like we said, we’re at the end of the real estate cycle. And so, there’s greater bubble risk. So given that you have a 10-year hold in Opportunity Zones, it’s very important as we like to say, we wanna make sure our investors are the same investors owning the project at the end is they are at the beginning. So everything we do has to do with recession resiliency, a recession resilient asset classes, very conservative pro formas, because we do believe there could be bubble risk out there.

And then of course, we’re at an all-time high in the stock market right now. And this gives investors a great opportunity to take that gain off the table, and rebalance it into a tax advantage, investment portfolio like opportunities, which becomes tax free at the end. And then also, we’re in a historic low inflation, I’m sorry, interest rate environment, which gives us greater inflation risk. And unless you’ve been living under a rock the last three months, this is just showing up on everybody’s doorstep. And that is inflation, which gives us much more greater uncertainty in the marketplace. And so, this really precipitates a move towards tax-advantaged hard assets, like you see in real estate, and of course, Opportunity Zones meet that criteria.

The solution as we see it, harvest the gains, it really gives you an opportunity to take the gains off the table in the stock market, or in gains in your businesses. Rebalance the portfolio to reduce your inflation risk and your recession risks. And right now there’s a big flight to hard assets like real estate. And then of course, maximize your tax liability, which of course the Opportunity Zone investing criteria does.

Where we really show the differences between us and in many of the other programs is quite frankly this, if you look at the three types of funds out there, blind pools, multi-project, and single-project, you can see that our fourth choice, our dynamic, actually does everything that investors are looking for. It gives you that multi-project diversification, but also can give you that single project concentration that you want, and you get to choose how much you want to go into each project. We are asset manager driven over developer-driven meaning, we co-partner with our developers at the project level, but where we make our money and where we actually guide things just from the fund level. So we’re truly an investor advocate. We take that conflict of interest away from the developer and the investor. And we put ourselves squarely on the same side of the fence, as our investors, as your advocate. And then of course, you can have a tax opinion on our program, which gives the investor that safety and security of knowing that over the next 10 years, twice a year, you’re going to feel comfortable about passing all the Opportunity Zone regulations. And you’ll have a legal investment by the Treasury Department.

And then, of course, third party oversight and regulatory through FINRA, and our managing broker-dealer. Something we do, which I haven’t seen in others, but what we do is every one of our projects in an attempt to do two things, and that is to honor the spirit and intent of the initiative, and to also show our investors that all these projects on top of the high returns are being a creative to a positive social impact in each one of these communities. And so we have a contract with a third party group called DRC, out of Washington, DC, who does a social impact report on each one of our projects, and then an ongoing report every year after that, so you can actually see how your investment is benefiting the community. And then of course, as I mentioned earlier, you direct your own investment where you want it to go.

So an example of that is let’s say you have the Smiths here with a million dollars, they may choose to put $500,000, or 50% of their investment into project one, 250,000 into project two, they don’t want project three or four. So they put the other $250 into project five for a million dollars. The Jones, you can see how this works, $500,000 decided to go equal amongst all five projects. You have the Petersons here with $100,000. You put $50,000 into two projects. And then you have the Desmond’s, who had $3.5 million. And they decided to put their money into different percentages into different projects. So that’s what we offer to our investors.

And the last bit here, I wanna talk about some of our highlighted projects. Before I do, I wanna make mention of one thing that I believe is very important. Because of our dynamic and our methodology, what we are not is a platform for developers to sell their projects. It’s the other way around. We actually have our own proprietary filter when it comes to due diligence, and demographic filters in our asset class filters and we put those developments through that filter. And then and only then do these projects become eligible for us to co-partner in this multi-project fund.

So three that I’d like to highlight before I open it up for questions. This is Elevation 1659 in Milwaukee, Wisconsin. We’re currently taking investments now in this and we’ve got about half of it raised today. It’s a $5 million equity raise. This is a 76 market-rate unit multi-family project, with the largest real estate, full-service real estate group and developer in the state of Wisconsin. Ogden & company, just one mile from Downtown Milwaukee. Five million dollar equity raise on a $20 million project. The returns in this particular project are built-in, because we do have HUD financing for both the construction loan, and the permanent loan. So this is 221(d)(4) HUD loan that we received through Colliers International. So therefore, the permanent loan after the construction is over is already there. And we expect around a 24% to 25% distribution back to our investors in 2025, with a preferred return of 12% to our investors. As you can see the site is in throwing distance from the heart of Milwaukee. You’ve got Lake Michigan to your left, the Lincoln Center for the Arts, the Central Business District is less than a mile away. And it’s actually the site sits across the street from the Ogden Developer Headquarters.

Next is KindCare, our assisted living in memory care facility in Bristol, Connecticut, 117 units. The developer here is KindCare. And they’re dynamic. We’re very excited to be with them, is focusing on the middle income, middle market, senior living assisted care and memory care marketplace, which is very much underserved. They have a very unique structure that they have actually been able to lower costs to the residents by over 25% in a footprint that’s less than 40% of a normal building. So this is a dynamic that’s going to be taking off across the country. The operators charter senior living, one of the larger senior living operators in very strong prominence in the East Coast. And as everybody knows, Bristol, Connecticut is the home of ESPN, Xerox, and 12 fortune 500 companies. And this is a $10 million equity raise, 26 million in project costs, with a preferred annualized return to our investors of 11%. And as you can see from the site here, right in the heart of Bristol, Connecticut, near the ESPN Headquarters. And also Bristol is an aging population. So this is from a demographic standpoint, you have a strong corporate dynamic here, but also an aging population, which is what drew us to the senior living sector here.

And then lastly, the one I’ll highlight is Martin Village, which is just outside of Olympia, Washington, 180 units, multifamily developer is Dragonwheel. You may or may not know this, but Olympia, Washington was ranked the second-best place to live in the state. It’s also just five miles from the State Capitol. It’s a $5 million equity raise, we’re doing it in three phases. We’re beginning to bring money in on this project. We just launched this one, as a matter of fact, with a preferred return of 12% to our investors. And then you can see that Martin Village is very, very close to Olympia. Close to three universities, St. Martin University, Evergreen College, and South Puget Sound Community College. So, it’s a great place and it’s right in the heart of the Olympia area. So going back to our math before I leave it for Q&A, as you can see, multi projects, you get to pick and choose. And we’ve got more projects coming online very soon. So one thing that’s not on here is that we look to have a Sacramento project come on board here within the next couple of weeks.

Currently, we have current reservations of about 4.5 million. So we still have about 23 million in equity available. The Elevation deal is currently at $2.3 million, so we’re almost half done there. We still have room available there and KindCare at about $1.4 million in equity reservations. So we have some room there as well. Before I get off the stage here, our partners, you can’t find any stronger, I believe, we’ve got ourselves at USG, our partners at OZI, DLA Piper, who does all of our legal. UMB Bank does all of our omnibus accounts for the fund and does all of our fund servicing. First Federal, which is a large regional bank in Washington, does all of our operating accounts. All of our financials are audited for the fund through Mosaic. Pinnacle serves as our managing broker-dealer. And then all of our impact report that we do that through DRC Impact Reporting in D.C. Lastly, it’s a low investment minimum, $50,000 to our investors. Ten percent to 15% in annualized returns in our waterfall distribution is 100% to the investor and zero to us, until we hit 100% return of capital to you, then it goes to 90/10 at that point. And then 70/30, 70 to you, 30 to us once we hit the prefs of anywhere from 10% to 15%.

On the unlikely case that we hit 150% of the pref it’s a 50/50 split, but in all likelihood, it’ll probably be a 70/30 split. And you’ll also notice that our preferred returns are quite high. Lastly, I’ll mention that we are one of the few funds that offer liquidity provision. If you should happen to need to get out of the fund with between now and the end of the 10 years, we do offer anywhere from 92.5% to 100% of your investment back to you during the life of the fund. And because of our structure, we have multiple exit strategies that we can employ. We can do a portfolio sale to a REIT. We can sell the projects one at a time. We can even sell a few of the projects and stay in some of the projects if we want, and the investors are allowed to ride along with us long-term if you should so choose. With that, Jimmy, I kind of went fast, but time goes by quickly. I’ll open it up to questions here.

Jimmy: Yeah, time goes by when you’re having fun, right? I’ve never seen you not have fun, Greg. So tremendous presentation. Thank you. We do have a handful of questions. We got a few minutes to get to them before we spin off into that breakout session. I just posted the link for the breakout session that we’ll be doing with Greg, in a few minutes here. Please do head over there if you have additional questions for Greg. We may not get to them all. But Vicki asks, do you do rural areas with a co-partner?

Greg: Yeah. So really, and I’m looking at some of these other questions I wanna get to them, but thanks, Vicki. The answer is yes. We really look for two things. We look at the asset classes from a recession, resiliency. But in 34 years in the real estate securities world, I’ve always seen deals that work…I always look at the demographics, I let the demographics really guide me. And then I look at the asset class. So, we’re looking for demographics that they have a strong corporate structure around it. So it can be a rural area, as long as it’s close enough for stability for 10 years. But we want better than average population growth during that time period. And we wanna be in an area that the local economy is actually behind it, behind those investments as well. So they’re putting money into the economy as well. So it’s all about stability and long-term benefits of the area.

Secondly, going into your other question from another person about asset classes. Thanks, Phillip. Our main food groups really are we want to be in multifamily with barriers to entry. We want to be in senior living, but we have to really focus on the demographics and the operator, storage. And then we also, excuse me, look for industrial, but it would have to have a good tenant. Those are really our four food groups, but we can do anything we want, but we try to stick with those four food groups. And then the Virginia, Tennessee, Missouri projects are no longer in the pipeline. So we had done due diligence on a deal in Missouri in Kansas City. Virginia, we passed on a deal. And I think somebody mentioned, I forget what the other one was, Tennessee, but we never looked at one I believe in Tennessee.

Is there any deadline to invest in the projects after investment in the OZ Fund? So once you’re in the fund, that’s a good question, Rick. We have a lot of investors who say, “Okay, I’ve got a million to invest. Put $250 into Elevation in Milwaukee, put $250 into Bristol.” And then in the omnibus account, we can keep the other 500. And then you can choose to go into other things that come on board. So you’re not mandated to go into other projects. But we do have investors that will put all the money in the omnibus account, go into where they want. And I will tell your investors this, this is really cool. If you decide that you want out, because technically it’s not in until it’s in the project. So well, this hasn’t happened, but an investor could actually go, “Hey, I found something else. Can you send me my 500 back?” Let’s say from the omnibus account before they decided that’s fine, we send it back, but you can hold it in our omnibus account and wait to invest.

Jimmy: Good. One more question coming from Felipe. When the project includes investment tax credit, how is that absorbed and distributed?

Greg: Yeah, great, great question. So the only way it can be absorbed and distributed, quite frankly, is it goes to the return. So if you have multifamily, you know, tax credits, like we do, excuse me, in some of these deals, it’s absorbed into the fund itself. And it goes directly out to the investor, but in the form of increased cash flow and increased return. And then the last thing I’ll say before I get out of your way, because you probably have somebody else teed up here, and I haven’t been…

Jimmy: We got a couple more minutes.

Greg: Oh, we do. Okay. I usually run out of time.

Jimmy: It’s true.

Greg: Yeah. So I try to talk fast if I can, is when you are… Our model for each one of these projects, I want to hit this home, if I can, again, is we really focus on those regional developers that don’t need $20 or $30, or 40 million, but they need $5, $8, $10 million. It’s a shorter time span to get the project to stabilization, which means, it’s a shorter time to cash flow to the investors, which means it’s a shorter time, as far as a better return to the investors. And by year two or three, we’re looking at anywhere from 20% to 30% to 35% of their investment coming back to them through the refinance. So it’s a lot… It’s more diversification, they can go into what they want. The amounts that come back out to them are much greater. During that time period, that’s all gonna be before they owe taxes. So that’s very accretive to their return. So I hope that was helpful. And I sincerely hope some people will join us in our breakout session. We can have one-on-ones.

Jimmy: Sounds good. Let’s get to a couple more questions before I kick you out totally.

Greg: Oh, yeah. So this person saying anonymous, Tennessee was on page 37. Okay. Yeah. So I think we have that on as a project and due diligence, but we didn’t go through. So I don’t…I think that was just something that was tangential. But thank you.

Jimmy: I’ve got a couple of questions in the chat that you may not be seeing. Andrew asks, “Can you speak to any key person risks you have? And what have you done to mitigate? Ten years is a long time,” he points out.

Greg: Yeah, that’s an excellent question. That’s somebody who knows their due diligence. By the way, we also have a due diligence portal that’s completely loaded for investors and due diligence officers. So we can always send that to people to dive in. So this is a combination of two companies. This is USG Realty Capital, which me and my partners own, we’re a real estate securities company. And you have OZI who is a real estate, basically, development, financial analyst company, so we’ve combined. On the USG side, I’m the CEO and founder of the company. But we do have a succession plan. So we have, right now it’s set up for my partner, if in case I, you know, should go away somehow, you know, get hit by as we like to always say get hit by a bus. And then it goes, we actually are one of the few companies that has an advisory board. So our advisory board, actually will step in to find a successor. But we have a line of founder and CEO, my partner who’s the chief accounting officer, and then chief operating officer. On the OZI side, it’s Kyle Wiese, who’s my partner on that side is the founder and president. and they’re actually a group of seven on their founding board. And their succession plan actually drops down to their chief operating officer at this point. So, you know, it’s not like we’re Microsoft. But we do have a plan in place, in such case, because it is a 10-year-old. I’m 57. I’m not an old man, but I’m 57 I’m not, you know, 37. So I come with a lot of experience and know-how, but on the flip side of that is my runway is shorter than a lot of other people. So we do have a plan in place. So thanks for the question.

Jimmy: Good. And let’s see. Really quick. Simple question here. Catherine wants to know, “Can I invest as an individual investor directly? Do I have to go through a broker?”

Greg: Yeah, thank you for that question because I failed to mention. Our distribution model, you know, we take money and mostly it’s family offices and securities firms. But we have a complete direct investor. We forever we do probably 15% to 20% of each one of our programs direct with investors. They come directly to us. They get into the fund. We actually act as their financial advisor in the deal. And they have us for that 10 years. So about, you know, I’d say every 20 million of every 15 million that we raise, it comes directly to us. And actually, to be honest, that’s growing. More and more people wanna go direct to sponsor. So I expect that to be a bigger number. But yes, we do that a lot.

Jimmy: And that’s why you’re here today. Right?

Greg: Yeah, a little bit. Yes.

Jimmy: Greg, I’m gonna cut you off there. I’m gonna try to keep things right on time. We’re right on time. Thank you for joining me, Greg. I’m posting the link to the breakout session in the chat one more time. It’s the same breakout session link we’ve been using a few other times throughout the course of the day. So click the little chat icon in your Zoom toolbar. And you’ll see the most recent message there from me has that link. Go there now. And Greg, you go there now too. And I know Chris is there. I’ve got him on my other computer right here. I’m looking at him and he’s he’s waiting.

Greg: And I can answer these questions, right? At some point?

Jimmy: Yeah, yeah, you can answer those questions at some point. You may be able to address them in the breakout session right now but I’m gonna kick you off stage now. Get into their breakout session with Greg or stay here and remain here with me and Ashley, while we discuss successful OZ investing tactics, but hope a lot of you do go over to that breakout session now.