The Opportunity Zones Podcast is now on YouTube!
In this webinar, Michael Episcope discusses Origin Investments and how they help investors grow wealth in a tax advantaged manner.
Interested In Learning More About This Opportunity?
You can visit the Official OpportunityDb Partner Page for the Origin QOZ Fund II to:
- Learn more about Origin’s OZ strategy.
- Learn key details about fund and related projects.
- Request more information from the fund sponsor.
- The history of Origin, including its beginnings as a family office and the mission to build an institutional quality platform for individual investors.
- What differentiates Origin among investment managers, including its risk mitigation strategy and the experienced team.
- Origin’s strategy of investing in ground up, multi-family developments in promising markets across the country.
- How the “boots on the ground approach” allows Origin to maintain a local presence and build important relationships.
- How use of a predictive analytic model helps Origin to identify promising investment opportunities.
- Dispelling myths about a “picked over” market for real estate deals in the current environment.
- A look at the cash flows that investors into Origin’s OZ funds can expect, including distributions to cover taxes in 2026 and 2027.
- A look into the deal pipeline for Origin’s QOZ Fund II, including a promising project in Nashville, Atlanta, Charlotte, and Phoenix.
- An overview of expense and preferred returns for Origin’s QOZ fund.
- Q&A session with webinar attendees.
Featured On This Webinar
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
Jimmy: Michael, how you doing?
Michael: Thanks, Jimmy.
Jimmy: Please take it away. And I’ll bug you when there’s about 10 minutes left.
Michael: Okay, awesome. I’ll jump in. I’ll start by talking about Origin and just what makes us as a sponsor tick, you know, why Origin? I think that’s the biggest question that needs to be answered today. And at the core of what we do is we help high-net-worth individuals grow their wealth and generate tax-efficient income streams. And there’s really three differentiators of us.
And the first is alignment. And Origin has…you know, this really stems from my partner and I. And we started Origin about 14 years ago. And in the beginning, it was more like a family office. And we wanted to grow our capital, produce income, invest in great deals. In 2007, there just weren’t a lot of great options. The world looked very different than it was today. There weren’t webinars, investment forums to go to. And so we decided to build it.
And the idea from the beginning was to build an institutional quality platform for individual investors like us. And that still is what guides us today in every decision we make and it’s a distinct advantage because we view the world through the lens of both the investor and the investment manager. And our saying is that we create funds we want to invest in and then we do. And QOZ is no different. We’re taxable investors. We learned about the program several years ago. You know, as we learned more and more about it, it just made a lot of sense to us for a couple of reasons. Number one, because we’re taxable investors, and number two, we only deal with the taxable investor as well.
So I mentioned alignment, and, you know, one of the important things is that David and I, we’re the largest investors at Origin. We’ve invested over $60 million next to our investment partners since 2004, 2007 when we started. QOZ Fund I, we have $10 million invested in that fund, and QOZ II will be the same, right? But we can’t really manufacture capital gains. We have to see what comes along. So there’s no real target here, if you will. As we find gains, it could be $5 million, it could be $10 million, it could be $15 million.
We are a top-decile fund manager and that’s by Preqin. So we’re very proud of that. We’re actually ranked by them. Most recently, we found out through really our investment partners who were doing due diligence on us. So they were the ones who came to us and, and we always ask people, “Well, how’d you meet us?” And they said, “Well, we were actually doing a search on Preqin and we found you, and you were actually ranked number 14 out of 2,000 investment managers.”
So we’ve always subscribed to Preqin, and we look at the individual funds, but this is actually ranking us as a fund manager for all of our past history. Our average equity multiple on our fund deals is 2.1x, average gross IRR is 24%, our realized deals and our funds. And I will caveat that by saying we don’t underwrite to that. This is something that we’re very conservative about the way we underwrite. And, you know, our job is to take care of the downside, let the upside take care of itself. And I like to say that when we miss, we tend to miss on the right side of being wrong, right? So we missed on the upside.
We’ve never lost money on a deal. I think something that we’re very good at is risk management. We stay away from average deals, we stay away from complicated deals. We don’t cross-collateralize debt, and we migrate real estate. And it’s a simple formula and one that’s guided us forever. So, you know, between the alignment and the track record, those are two big differentiators. And then lastly, what I would say is our team. We have 35 team members.
Many of our senior leaders have been with Origin more than 10 years. And when you look at somebody’s track record, you know, that’s an historical look back, but you also have to make sure that the same team is there so that you can repeat this going forward, and they are. And so, you know, we continue to grow, we continue to add to our team as we’ve grown. It started with just David and I, you know, in 2007. And today, we have more than 2,000 investment partners who we serve along the way. So a lot’s happening. We’re very proud of what we’ve built. And our entire base is really made up of high-net-worth, ultra-high-net-worth. The RAA segment is our largest growing line right now, so a lot of clients there as well.
Let me jump into fund strategy really quickly. We engage 100% in multifamily ground-up development. And this particular fund is targeting at 10% to 12% net IRR over a 10-year hold period. The IRR and multiples right around or range, two and a quarter, to two and a half, very similar to Fund I. We’ve tempered expectations a little bit. But again, going back to the track record, when you look at what we’re predicting, right, or what we’re trying to forecast, forecasting over 10 years is incredibly challenging. And what we say is our job is to really put ourselves in a position to win and put ourselves in cities and in deals and in some markets and then execute to, you know, the greatest ability possible.
So this fund strategy is what we call build-to-core. It will be 10 to 12 ground-up developments and sort of the smile states. This is where we invest. And so the fund is going to geographically diversified across these 10 to 12 investments. And we’re targeting a $300-million raise. Find I was $265, $275 million. And, you know, one thing I’ll say is that we have five offices around the country, Chicago being one of them, where you’ll notice from this chart is that Chicago isn’t even on here. And Chicago is not a target market. We are headquartered here, but we can’t ignore the fiscal problems and challenges. We do actually have one deal QOZ I here, you know, in that fund, but you won’t see that in QOZ II. So these are the predominant markets.
And then when we talk about boots-on-the-ground approach, we actually have people in the markets. So we have deal officers in Charlotte, in Nashville, in Dallas, and in Phoenix…or in Denver, sorry. Tom Briney covers Phoenix. And that really serves as that boots-on-the-ground approach that local presence relationship, real estate truly is local and it’s relationship-driven as well.
But the other thing that really differentiates us is that about two years ago, we invested in what we call predictive analytics, artificial intelligence, and we hired two people, two data scientists, from the University of Chicago to build out a predictive analytic model that not only helps augment what we’re doing on the ground, but it helps us make decisions, “Where should we be looking? What cities have the highest growth rates?” Because if you understand how real estate operates, growth is the single most important ingredient to making a model of work. We have to get that right.
And candidly, you know, what’s in the market and the products that you can lease just aren’t that great. So we were forced to actually build it ourselves, and we did. And it’s incredibly accurate. You know, it’s a tool that is only for Origin. It helps us on a day-to-day basis, and it really takes the bias out of that investment decision-making, but I would say it’s one of many things that helps us do our job better and find deals.
Jimmy: And, Michael, I think about 10 more minutes would be great.
Michael: Great, great.
Jimmy: Thank you.
Michael: So this is QOC Fund I one, and the point of this slide is to really share with you our strategy and how it played out in Fund I because Fund II is gonna look very similar to this. So, in Fund I, we started raising this fund in 2019. We raised a total of $265 million. That’s really across a total deal size, project size, of right around $765 million. And that’s 11 projects, so the fund, again, is well-diversified. And the amount we raised in this fund actually puts us in the top 2% of fundraising.
So, you know, when I go back and I think about 2018 and ’19, I think about all these funds and these managers who, you know, were announcing billion-dollar funds and $500-million funds. You know, our fund was…we had actually no cap on it. We said, “Look, we’re gonna raise money and we’re gonna look for great deals along the way.” And there was actually a period of time where we had to shut the fund down because our pipeline wasn’t keeping up with the capital velocity, right? And the QOZ Fund is actually challenging to manage in some ways, especially in those early days when our pipeline wasn’t as robust as it is today.
So, as it turns out, the pipeline, we filled it out, we opened up the fund, we hit our $265-million target. That fund closed about a month ago. And now, we’re moving on to Fund II. But largely, the same strategy. And QOZ II investors really benefit from a lot of the activity that happened in QOZ I. So, you know, what I mentioned back in 2019, where we were looking for a lot of deals and it was unclear, today our pipeline couldn’t be more robust. And I know a lot of people are skeptical about deals being picked over and not a lot of opportunities. That’s just not true in today’s market. There’s a lot of opportunities out there. We have an amazing pipeline that I’m gonna get into in a second here, so trying to go fast.
This is a question we get oftentimes, “How much cash flow am I going to get?” And when you think about the way we’re putting this property together, or this portfolio together, if we have about 12 properties in the portfolio, each one of those takes about three to four years to stabilize before we can get a refinance. So, by the end of 2025, early in 2026, we estimate that we’ll be sending back around 25% to 30% of capital back to investors to pay those taxes.
And then what you’re gonna be left with is really a class-A portfolio of investments that produce quite a bit of cash flow after that period. And the refinance, generally, what we’re gonna do is refinance at the same levels that we refinanced on a cost basis, which is about 65% to 70%. If we go up to 70%, we’ll be able to return a little bit more cash as well, and that’ll be something that we decide at the time of refinance.
All right. So, Jimmy, I think I’m in a pretty good spot right now. The deal pipeline, so this is really what I wanted to touch base on because I think a lot…you know, this is something that you can see and feel and touch. And the deal pipeline starts with Nashville, a mixed-use opportunity that we have tied up. And I’ll just caveat this by saying, I can’t go into a tremendous amount of detail on any of these deals because none of them are closed. Nashville is the one that’s closest to being closed. And this is actually the most exciting deal I think in the pipeline. I think it’s the best development opportunity in the country. And I don’t mean QOZ, I think just hands down, it’s the best development deal in the country and it happens to be in a QOZ in Nashville.
And we tied this deal up about six months ago. We’re going through entitlements. And we just got very favorable news through the entitlement phase as well. We underwrote this project to having about 500 units and we’ll end up with about 650 units. So when you think about how accretive that is to our land value, you know, getting that extra density, your price per unit goes down substantially, which accretes the value of the land. So we’re super excited about this. This is in The Gulch in Nashville. Nashville is growing substantially, and that’s kind of gonna be the lead deal in the fund. We expect to close this sometime December.
Atlanta is a newer deal we just tied up. This really benefits from the BeltLine in Atlanta. And if you know anything about the BeltLine, it’s a 22-mile ring that circles the city, and it’s on an old railroad track. And I would characterize this as similar to the 606 in Chicago, the BeltLine in Dallas, the High Line in New York. And what these become, these are recreational trails that are really huge catalysts for these cities. And you see just all of the development happening around these, and then Atlanta is taking a while to connect to BeltLine. But this property benefits directly from the BeltLine and it’s quite a large property. It’s a multi-phase development.
You can see a total-project cost of $281 million. The land cost alone is $32 million. So the pipeline of this deal alone, right, having…it’s a four or five-phase development. That’s gonna change again. We just tied this up last month. We’re going through due diligence, planning, doing all the, you know, just refining the plans, doing the due diligence, making sure that we have our costs down. So more to come on this. And if this does make it through due diligence, we would end up closing this land in about four months from now.
Phoenix is an incredibly hot market. It has been for a long time. We have more than $200 million worth of deals tied up in that market. And this is really in West Phoenix. So if you think about West Phoenix, just to put this in perspective, new properties that are leasing up in West Phoenix are leasing up at a rate of about 45 units per month. And your typical multifamily property will lease up at 18 to 20 units per month. And that’s how we underwrite to these deals as well. So tons of demand. You’ve got Californians moving to Phoenix and drove. The West Phoenix market is really benefiting from this.
And before I talked about the predictive tool that we’ve developed, well, when we look out at Phoenix over the next five years, Phoenix is expected to grow by 6% per year annually. And that sounds like a ton, but we’re really talking about a city that historically has been affordable, very affordable. And this California trade and other…really, the demographic shift that’s happening from COVID is not slowing down. Now, I will also caveat that by saying we don’t underwrite the 6%.
We would never do that. But when we look at the AI and we compare it to what we’re underwriting it against 3% rent growth, we feel really good about that. And with all of our deals, we are underwriting conservatively and looking for places that we can win along the way. And again, the tool helps us corroborate what we’re seeing on the ground, but when the tool, which is highly accurate, more than 95% accurate, corroborates the growth in this market that we’re seeing and feeling, it just…you know, again, it’s about putting ourselves in the path of growth and giving ourselves a chance to win.
The Colorado multifamily, this is gonna be our third deal with Greystar, Greystar largest multifamily developer in the United States. We’ve done two deals with them here in Colorado Springs. This is a lifestyle market that is really benefiting from both the growth of Denver, or I should say the overgrowth of Denver because everything that made Denver great 15, 20 years ago, the quaint town, the field, you know, it’s sort of getting to another big-city feel, we you have a lot of traffic, we have congestion, so you’re seeing people go south. And Colorado Springs has really done an about-face in the last five to six years, where they went from anti-development to pro-development. And it’s proximity to the front range to just all the lifestyle features.
When you think about people leaving Silicon Valley and leaving some of these major cities, where do they wanna go? Well, they wanna be close to skiing, and they wanna be close to the front range, and they wanna be near transportation hubs. And Colorado Springs is just a fantastic city and one we really like. So this is gonna be our third deal in Colorado Springs. And I’ll just say, you know, when we went through COVID, Colorado Springs was the only city that had positive growth during the whole period of COVID, and that has only accelerated. So we’re gonna continue to look for opportunities here. It is one of our favorite markets.
So, Charlotte, this is another great piece that we tied up a couple of years ago. This would actually be shared by Fund I. It’s along the light rail north of the city. This would be phase three of that development. And this is another piece. I mean, when it comes to the Southeast, we have three of the best pieces of land tied up for QOZ development. So that’s our pipeline. Some of these are in very different stages, some of them have a 90% chance of closing, others are, you know, 10%, 20%. But this is generally indicative of the kinds of properties that we’re finding in the market and that you will see and you can expect in Fund II.
So the last thing I’ll talk about before I jump over to Jimmy is just the summary of terms. We’re raising $300 million in this fund. It will be open until we hit that cap, or until the end of 2023. It is an audited fund. The minimum is $50,000. The annual asset management fee is 1.25%. There is also a 50 basis point acquisition fee and an administrative fee that varies depending on how much you invest, and you can see the chart right there. There’s a 7% preferred return that gets paid to investors, and then a 15% performance fee after that. So that’s the summary of terms. We’re really excited about this fund. Like I said, we’re gonna be investing in this. QOZ II investors benefit greatly from all of the activities that happen in QOZ Fund I. And I’m super excited about the pipeline.
Jimmy: Fantastic. Well, thanks, Michael. Thanks for presenting. We don’t have time for Q&A here in this session right now, but you got a breakout session with us, Michael.
Michael: Great, great. Thank you. Yeah, I can go over all the great details there. Well, Jimmy, thank you. Glad we could get this done even in abbreviated session.
Jimmy: Absolutely, absolutely.