The Opportunity Zones Podcast is now on YouTube!
In this webinar, Chris Loeffler provides an overview of Caliber’s OZ assets in the Southwest and Western U.S.
Interested In Learning More About This Opportunity?
You can visit the Official OpportunityDb Partner Page for the Caliber Opportunity Zone Fund to:
- View beautiful high-resolution images.
- Learn key details about fund and related projects.
- Request more information from the fund sponsor.
- An overview of Caliber, a full service real estate investment company headquartered in Arizona.
- What makes “middle market” real estate an attractive investment opportunity.
- Caliber’s history of partnering with state and local governments.
- A review of Caliber’s OZ strategy, including the unique opportunities created by the pandemic.
- The key ingredients for an OZ investment, including infrastructure, track record, deal flow, and execution.
- Target returns and key assumptions for Caliber’s Opportunity Zone fund.
- A deeper dive into assets owned by Caliber:
- An overview of the recently-completed DoubleTree by Hilton property in downtown Tucson.
- An overview of Roosevelt Townhomes, a multifamily development in Tempe, Arizona.
- An overview of Caliber’s portfolio in downtown Mesa, which includes 10 buildings.
- An overview of the Rancho Solano
- An overview of the Riverwalk in Scottsdale, which is currently in escrow.
- An overview of the Sierra Bloom medical campus project.
- An overview of the Commons at Mesa, which will include 144 apartment units.
- Q&A with webinar attendees.
Featured On This Webinar
- Chris Loeffler on LinkedIn
- Caliber Funds
- DoubleTree Tucson
- Roosevelt Townhomes
- Behavioral Health Hospital
Industry Spotlight: Caliber Funds
Caliber Funds is the private equity arm of Caliber The Wealth Development Company, an Arizona-based corporation that services the capital of individual investors and disburses them into private real estate assets across the Southwest. Caliber offers a diversified portfolio of commercial real estate properties, real estate-related equity investments and other real estate-related assets, each of which Caliber Funds believes are compelling from a risk-return perspective.
Learn More About Caliber
- Visit CaliberFunds.co
Jimmy: There he is, Chris. Good morning, sir. How are you?
Chris: Good morning. Good to see you.
Jimmy: Good to see you as well, Chris. It’s been a while. It’s been too long. I’m happy to see you here today.
Chris: I know. You’re doing great, Jimmy. Great to be a part of your growing community. You’re doing an amazing job for us, so, thanks for keeping the word going.
Jimmy: Thank you and thanks for participating today. So, I gave you a little intro. I’ll leave it to you. Please take it away.
Chris: Sounds good. Sounds good. So, many of you have seen or heard from Caliber in the past, and so I thought I’d do a little bit different presentation today. I’ve got some of the same types of information as some of the other presenters you’ve heard from, but I wanted to do a deeper dive into the assets that are sitting in our fund right now. For those of you who are already investors, thank you. And for those of you who are still trying to figure out where to place your capital, hopefully our projects will be attractive to you.
Some background on Caliber so you know who we are and what we do. We are an alternative asset manager and our mission is pretty simple. We’re here to build wealth for you, our clients, for our team and for our community, and we do that through private real-estate investment. Opportunity Zone Fund is one of the funds that we offer. We offer other funds as well. Different strategies to fit those needs. And the company is a regional investor, meaning we’re focused primarily in Arizona, Colorado, Texas, Nevada, Utah, and Idaho with most of our assets currently sitting in Arizona and Colorado.
We think that we have a competitive advantage in what we call the middle market, which I’ll explain a little bit more here in a minute. We think that a multi-asset class, multi-investment strategy is the right way to go, meaning, going after different types of real-estate investing, not just investing in one way. We have an institutional structure in the company and the fact that we’re a public reporting sponsor and we’ve got a lot of support for the funds internally, but we still operate what we call an entrepreneurial investment platform, which basically means that we are really close to the ground. We’re still doing our own deals. We still have people bringing their deals to us off market and that’s where we think we have the best combination of that institutional structure with that entrepreneurial platform.
And the company’s team is extremely experienced at this point in time. We’ve been in business for over 13 years, have, as you can see in the slides, over a billion in assets under management and assets under development. And we’ve helped over 1,200 investment families or families in our group invest their capital in the last 13 years.
You’ll see this slide in different formats, in different ways from probably several presenters today. The way that I like to explain this is that you’ve got, you know, essentially a 3X growth in the net profit you can get after taxes on an Opportunity Zone investment assuming the same 8% annual appreciation rate on the investment if the program works. And so, you know, when you’re taking the same rate of risk and you’re getting such a better rate of return on your investment, that’s one of the reasons why you would accept the 10-year, you know, illiquidity, the lockup, the requirement to invest in larger projects that maybe, you know, you’re more comfortable in the market or whatever it is that you do. So, that’s the what’s in it for me as an investor on the financial side, and we’ll talk a little bit about community impact as well.
About 80% of that financial impact is driven by one thing, which is, growing the value of your capital over the entire 10-year period that we hold your funds or longer, depending on how long you decide to invest in the program. And that means if you put a million dollars in, we wanna take it to two million or three million, you know, a higher number, and by doing that when you sell that investment and you realize that gain on your value, you pay no tax on the upside. That’s what drives most of the tax incentive in this particular program.
So, as an investor, number one on your list has gotta be who am I investing with and do they know how to grow the value of my capital over a 10-year period? Do they have a track record of doing that? Do they have projects that look like they’re going to do that? That’s evaluation point number one.
Number two in our opinion is that diversification is an important component of this. A lot of times what we’re doing is we’re making a 10-year bet on a specific asset in a specific market, and no matter how smart we are, a lot of us can’t see around corners in a 10-year period. We might be able to see what next year looks like, or two years looks like, or even five years looks like, but 10 years out, we just don’t know how our neighborhood’s gonna change. So, it’s important to make multiple bets, in our opinion, on multiple different types of assets with multiple different strategies.
Compounding the gains within the fund and maximizing the exit are sort of tied together in the sense that the law does allow us to sell an asset and gives us a 12-month period to find a new Opportunity Zone investment and make a new investment and maintain your tax benefit. So, if you’re properly managing that strategy within a fund, you can build something, build value into it, sell it, harvest the gain, reinvest that gain and compound it over that 10-year period. And then the exit strategy for the fund. Of course, you can wind down the fund, sell off one asset at a time, but you can also roll it up in a portfolio sale and you can potentially contribute the portfolio to an UPREIT, which would give you a public exit and we think one of the best options in terms of maximizing the value of your equity.
As I mentioned, Caliber’s a middle market-focused real-estate investor, and ultimately what that means is that we focus on $25 million projects typically, $5 to $50 million is the range. Projects that are typically too large for the entrepreneurial crowd, too small or potentially too complicated to execute on for the institutional crowd. And by operating in that middle market, we don’t have as much competition from other buyers and other investors for the deals that we’re buying. We’re allowed to do…we’re able to do a lot of off-market investing even in this environment where real-estate investment values are up at all-time highs in certain areas. And it gives us that competitive advantage, as you’ll see as we go through the projects that every single deal we have has a story.
As far as investment locations go, we pursue the same strategy we’ve pursued over the last 13 years, which is to invest in places that are having significant population growth, significant job growth, long-term trends, no fads, and local…at least state and local friendly governments. And so, when you add all those things together, we had that prior to the pandemic, and because of the pandemic, for a variety of reasons, we’ve seen population growth in our region explode.
Our track record is fairly strong in the assets that we’ve sold. We’re realized about a 2.1 net equity multiple, which means an investor who put in 100,000, they got 210 back in a combination of the value growth in their investment and the rents that they received through the whole period. And we look to continue that trend.
And Caliber’s a very active participant, as many of you may already know, in, you know, state, local, and as well as federal government initiatives. Because of the Opportunity Zone program, we’ve become very integrated in what’s going on in that world and trying to balance the needs of the community, the governments that are supporting that community, as well as the needs of our investors. And so, by doing that and by being actively engaged, we’ve been able to stay ahead of the curve with what’s happening with this law and find the best opportunities for you.
And then, last but not least, for those of you who are already clients, thank you, and if you haven’t become a client of Caliber, you’ll find out soon that we have a community that we’ve build and a lot of our investors interact with each other. We do a lot of live events, we do a lot of digital events. Live events are finally coming back. We did our first live event recently, which was a nice refresh to how we used to do business prior to this pandemic, and we look forward to meeting you in person.
So, I’m gonna flip into the fund real quick, go through some fund strategy conversation and then really just dig into the assets with the time that we have left. So, what’s the point of investing in an Opportunity Zone Fund? In our opinion, this is the best opportunity to invest in private assets and specifically real-estate since the 2008 financial crisis that we’ve seen, which is the disruption that has come from this pandemic has caused unique and specific opportunities to buy developments that are in trouble, or assets off-market, or things like that that we can acquire for a great price even in this crazy environment that we are sitting in and build value into them to have a good exit.
On the ingredients for success for an Opportunity Zone strategy, I think these are the three things that I would point you to. As we’re heading into that next panel, hopefully you’ll be in our breakout session, but if you’re not, I’d be looking at the fund’s infrastructure and their ability to execute on all the different requirements of the Opportunity Zone program as well as deliver that to you without messing anything up and causing any sort of tax penalties for noncompliance. Two, track record and deal flow. Probably most important is do they have consistent flow of deals and opportunities coming into the organization or are they just saying, “Hey, we’re gonna raise money and we’re gonna find stuff?” And then three…and, you know, that’s true in life, true in your family, and true in any business is execution. So, are the sponsors that you’re looking at good at finding those deals? Not only acquiring them but then executing all the way through the process of development to construction and then management?
The big highlight here on this slide is pretty simple. The fund is targeting a net IRR, net to investors of 13%, that’s our target. That’s based on our forecasts, and of course targets are subject to risk in execution, but that is our target. Two-and-a-half X multiple is based on the concept of buying everything that we own and holding it for 10 years because that’s a typical multiple you target in a development. If we were to cycle deals and…which we plan to do within the fund, we expect to produce a higher multiple than two and a half.
And then just want to get into some of the deals that the fund owns and those of you who are already investors, hopefully this will be a nice refresh for you, and those of you who are new to us, this will give you a good idea of how we look at the world. So, this is DoubleTree by Hilton. We acquired this vis-à-vis a land lease in a public-private partnership with Rio Nuevo, which is a group in Tucson that’s like a pseudo governmental group. By doing that, we got the land for $1,000 a year and we also got about $7 million in tax incentives. So, our basis of investment into this project is the construction cost less the tax incentives, which is a really nice starting point.
And the hotel is physically attached to the convention center in downtown Tucson. We have completed the construction. We were open in March of 2021. And so, you can have a little view into what the asset looks like that you would own. This is the property. You can actually see right here this is one of the entrances to the convention center in downtown Tucson. So we wrapped the building around it. And it actually won in its second month number one or number two in the 600 DoubleTrees across the U.S. in quality scores. So, it’s done very well in terms of its ratings and currently is outperforming its budget.
Roosevelt Townhomes is an energy-efficient townhome project walking distance to Arizona State University. Thirty-nine units in total, we’ve completed with phases one and three which is a little strange but phase three was a little smaller than phase two. Both of those phases are either fully leased or, you know, actively being leased if we have a particular, you know, vacancy, but in most cases, we stay at 100% occupancy aside from typical downtime for leasing.
And then phase two will be completed next year, which will make this asset fully stabilized producing cashflow and the plan here is to hold these for 10 years and then sell them off since they’re already condo mapped as individual townhomes. We’ll take a little look at the product inside. It’s a beautiful townhome unit. It leases very well. And like I said, it’s built to an energy efficient standard similar to net zero basically.
This is a behavioral health hospital asset that we have. Into it now for 23 million. It’s worth over 30. It’s stabilized, it’s producing income, it opened last fall and has been producing rents ever since according to its lease. And a little look at the asset. Again, we took something that was an existing building, gutted it, renovated it, brought in 96 beds of behavioral health hospital service to the Phoenix market, which was necessary.
This is our portfolio in Downtown Mesa. We actually own 10 buildings in Downtown Mesa, which is a historic downtown that was sort of left behind by the freeway system when that came in 50 years ago. It’s now being revitalized in conjunction with the addition of a new Arizona State University college campus which is actually being built right here and is nearly complete at this point in time. The downtown buildings that we own are mostly in this area here. And then also a building right here, which is one of the ones, the pictures that I showed you. And our friends at Griffin Capital are building about 800 units of apartments in this area over here.
Rancho Solano Schools is a private school that we’re building. It’s a build-to-suit deal with the school and a 20-year lease in place. We’re building it for about 11 million. They’re buying it from us a year later, or that’s the expectation, for about 13.8 million, so we have a locked in profit plus the rental income along the way. And we’re breaking ground very soon.
So, last but not least, I just wanted to give you a little visibility into some of the deals we have coming in. I’ve said it before and I’ll say again, we can probably tell you where the next 100 million of equity will go to. We’ve got about 115 million in the fund so far and we can point to what assets we’re gonna invest into next. The first one is Riverwalk in Scottsdale. This is about 68 acres of development property that we have in escrow at this point in time along the 101 freeway in Scottsdale, Arizona, right next to the Talking Stick Resort. You can see this is actually a top golf right here. We actually own this Hampton Inn here and the property that we have in escrow is the majority of these boxes here, except for box number three which we’re leaving behind with the last…with the seller. So, we’re acquiring this land and we have a development that we’re putting in this piece and we have a development that we’re putting in this piece that you would be spread both as a land owner with a spread in the land as well as a partner in the vertical development going on in what I think is one of the best Opportunity Zones in the country.
And then right next door is the Sierra Bloom Medical campus. This is the campus right here, this yellow box. Again, off the 101 freeway in Scottsdale. We’re building a roughly 88,000-square-foot medical office building to start with and then have ongoing investments we expect to do in assisted living, independent living, surgery centers, etc., to build out this Scottsdale medical campus.
And then the Commons of Mesa is another project we’ve got going in. Again, you saw this view of Downtown Mesa. Well, we have this piece here. We’re putting 144 apartment units in escrow to acquire the land and expect to break ground within three to six months. So, lots of activity going on here at Caliber and I’ll leave you with a little bit on the community impact and a reminder that, you know, our mission here is to build the wealth of our community as well as our investors and our team. And so, doing that comes in the form of impact reporting coming from Caliber showing what we’re doing in terms of GDP growth, business taxes being created, jobs being created, both direct and indirect. So, you get access to this report every quarter and you can see where we’re at so far and where we intend to go.
And I’ll end with a little bit on the fund structure. The fund is an offering, a maximum offering of about 500 million. We think we’ll close it June of next year hopefully at about 200 to 250. We’ve got a 6% preferred return with a catchup, 1.5% in asset management fee, 80-20 split on profit for a million-dollar minimum investment, 75-25 for $250,000 minimum investment, and we’ve got a phenomenal team behind this fund. So, your dollars will be hopefully well protected. So, that’s all I’ve got for today. Thank you and happy to take questions now or take them in the breakout session.
Jimmy: Okay, well, fantastic. Thank you, Chris. Thanks once again for joining on OZ pitch day. You’ve been a partner with us for a long time now and really appreciate your continued participation on this platform and in this program. We do have a few questions for you. Well, let me see if I can start curating those now. And please, again, if you do have any questions for any of us at any point in time during the day, please do use the… What is it called? The Q&A tool down there in your Zoom toolbar. Click that little Q&A icon and you’ll be able to ask any questions. And Chris is also available via email. He’s just posted his email address into the chat, [email protected] So, we’ll start with this question here from… Well, it’s from an anonymous attendee. He or she asks, “Is everything in your fund located in Arizona, are you working to expand outside of Arizona?”
Chris: Yeah. So, everything that I showed you so far is in Arizona. We have made commitments in Texas and several projects that I can’t yet disclose because they’re confidential at this point in time. But certainly, if you become an investor or as you, you know, move down that path, we’ll be able to disclose those. And then we have active negotiations on projects in Colorado and in a variety of other markets that I mentioned in that six-state region. So, if you’re investing with us, you’re gonna have a focus of your capital in Arizona as we already have projects there and that happens to be our home base, so we get amazing deal flow locally. But you’ll also get access to that region.
Jimmy: Very good. Yeah, your investment thesis really calls for investing in I think what you referred to as the greater southwest.
Chris: Yeah. Yeah, I made that up but I think it’s a great region, you know. It’s got a lot of commonalities between those job growth and population growth statistics.
Jimmy: Good. Let’s see. Another anonymous question here comes in. He or she asks, “Are the projects you reviewed in the current fund or in a previous fund?”
Chris: Everything I went through is in the current fund and the projects I showed you that were kind of incoming are ones that we’ve either committed capital to or have an escrow, so, we know for sure that we are gonna acquire them barring any sort of major blowup in the purchase process. We have an additional pipeline of incoming projects coming into this fund that I can’t disclose just because we’re in some sort of active negotiation or something like that.
Jimmy: So maybe you can explain then, this is another question that’s coming in, “Can you explain what is meant by a blind pool fund?”
Chris: A blind pool is a legal term for those of you who are, you know, investing in these types of things all the time. And the difference between a blind pool and a nonblind pool is that you’re making an investment in a fund where you know what you own partially because you know what the fund already owns, but you don’t know what we’re gonna buy next. And I can say, “This is what we’re gonna buy, this is what it looks like, etc.” But you’re taking the risk that I go and buy something that you don’t like. And the benefit to that of course is the diversification of the fund, the fact that you’re picking an investor like ourselves to be your kind of co-owner-for-hire that you believe is good at finding these deals. And for us, the benefit is we get discretionary capital into a fund that gives us the ability to kinda win the negotiating, dealmaking process because we have money sitting in a bucket ready to go versus a lot of our competitors who are trying to do these kind of single asset offerings where they go try to find a deal, they try to get it in an escrow or in contract, tie it up, create an offering and say, “You’re gonna invest in this one project or these three projects.” And try to make this package together structure for you that tells you exactly what you’re gonna own, which is great from an underwriting standpoint. You can know exactly what you’re gonna buy and you can kind of evaluate that from a diligence standpoint. But it actually hampers you in my world of being a great investor because it’s harder to lock down projects when you don’t have capital sitting in a fund.
Jimmy: Great. So, the way I like to describe your fund compared to other funds, Chris, is that there are some funds that are project-specific. You’re investing in one particular building. It’s identified. With you, you have a pipeline of some identified projects, but more than just investing in particular projects, with you, you’re really investing in your team, the team at Caliber, your investment experience and expertise and the strategy behind it, which allows for a little bit more diversification across multiple properties. I think you’re gonna close out the fund with more than a dozen or maybe a couple of dozen different properties if I recall correctly?
Chris: Yeah. And, you know, for those of you who invest in tech or something like the concept of network effects is really kind of one of those things that everybody looks for is do you have a business that creates network effects? Where you make an investment, then that creates more investment opportunities and…or you bring in an investor who brings in their friends and then that kind of creates this really nice cycle. And that’s what we have created at Caliber is by buying one building in Mesa, and then buying 10 buildings in Mesa, and then building a name in Downtown Mesa. Then we start to get all of the opportunities that come from that, you know, whether it’s coming from the city, or coming from local developers or people who have locked down a piece of land. A lot of that stuff comes to us off market. And it’s a network effect.
And so, by investing in this mixed fund strategy, you get to benefit from that network effect instead of just saying, “Okay. I’m gonna try and pick and choose every deal that comes across the pipeline.” Because you may pick the best one that looks the best at that moment in time, but something might change five years down the road and maybe people aren’t driving as much anymore, or people are all working from home, or something like that and that one project may not necessarily work the way you thought it was going to.
Jimmy: Sure, sure. Several more great questions here. I don’t know if we’re gonna get to all of them. I guess we’ve got another…I’ll go for another about 10 minutes here, I guess. We may get to several of these still. You ended early for me, Chris, which was great, so…
Chris: Well, you know, I try to…I’d rather answer the questions than, you know, do a canned presentation because ultimately, it’s what, you know, what your listeners actually care about.
Jimmy: Yeah, this is what’s great about the live format too is there’s…we’re here live, in-person…well, in-person, I guess. But we’re here live and the folks on the line are here live too asking their questions in real-time, so this is a lot of fun. A really great question just came in from Matthew. He says, “Hi, Chris. I invested in your fund after the last pitch day. Do you have an incentive for a second investment?” One thing that he wasn’t sure about to ask the last time is could you explain if you pass along depreciation via a K1 or how the distributions work. So, I guess two questions there. One, is there an incentive for a second round of investment from an LP? And then, two, how do you pass through depreciation and distribution?
Chris: Thank you, Matthew. Awesome to reconnect. So, a couple of things. One, I kinda buried the lead in the fact that the fund’s actually been revalued twice and we’re up 20% now. So, I think you invested at the $1.15 number and we’re now valued at $1.28 a unit, so we have an 11% increase in your investment in that six-month period between the last two valuations. We’ll probably revalue the fund one more time before we close it. So, one of the incentives to get in is catching the value curve. And as the fund gets more mature assets in the fund, typically you’re gonna see value grow. And we think that’s gonna happen, notwithstanding another global pandemic. So, that’s one incentive. The other incentive of course is, if you do get over the million-dollar minimum mark, either in this fund or with Caliber as a whole, we give you a better profit split. So we give you an 80-20 split versus a 75-25 split. Those are the two main incentives that we offer.
And then on the K1 side, all of our funds that are structured as an LP or an LLC structure do produce a K1, unless they’re a lending fund, in which case they produce a 10-99. And typically, when you go into an Opportunity Zone deal, you’re coming in with zero tax basis, which is different than if you come into a traditional real-estate deal. So, as an example, if you put a million dollars into a traditional real-estate deal, you have a million dollars of tax basis. We then do all kinds of fun things to depreciate that tax basis rapidly. So, we do purchase price allocations, and cost seg studies, and then we do a bunch of work around the construction and development so that we’re taking the money we’re putting in to that real-estate deal, separating it between, you know, traditional long-term property, which is I think, what? Thirty-nine-and-a-half years or 29.5-year property down to personal property which is 5- and 15-year property. We accelerate the depreciation and you get a bunch of losses that you get to use to offset other passive gains that you have in your portfolio. So that’s the normal way of doing it.
We do the same stuff in our Opportunity Zone Fund but with you coming in with zero tax basis, we’ve gotta produce tax basis for you, which could come in the form of us selling an asset and producing value gains or producing rents. And then we can depreciate that basis away. So, we sort of hold the losses at the manager level and then we distribute the losses to you as gains come through.
Jimmy: And does…okay. So, we do have about six or seven minutes left before your breakout session starts, Chris. I’ll post the link for that breakout session in the Zoom chat in a minute here. And then running concurrent with that will be my next panel, how to evaluate Opportunity Zone deals. I see all three of my panelists for that segment in the audience right now. I’ve got Greg Genovese, Gordon Goldie, and Jill Homan. The three of you sit tight for another minute. We’ll get you on stage here when we wrap up this segment with Chris.
So, Chris, back to you to ask another question. We had a gentleman, I don’t know if it was Matthew who just asked that previous question a couple of minutes ago or not, but we had one gentleman, I remember now, I’m just recollecting from my memory from last time. He was on day 179 or 180 and I think he made an investment in your fund that very afternoon on OZ pitch day. What is the process like for somebody who makes that decision to learn more and then eventually invest? If I raise my hand and say, “Hey, Chris. I’ve got a capital gain. I’ve got a check I wanna write you.” What’s that process look like? What’s the next steps to actually get that done?
Chris: Yeah, so, that was Matthew.
Jimmy: Wasn’t it? Yeah.
Chris: And thank you. That was a great story. I’m really proud of that team for the execution there, because these things are a little bit more complicated to process. But in essence, when you work with us, we raise a lot of our money or most of our money directly from individual investors and from their investment advisors. And so, to answer the question of I think Jeff Gibson I see here, any incentive for larger investments and are there setup fees. The setup fees that are disclosed in our fund are kinda the minimum cost we have to basically raise capital, but it’s typically a lot less than a product that you would buy through a broker dealer where you’re having to pay a full broker dealer fee and all the other setup costs that come from that. So, we try to minimize the cost coming into the fund so we can maximize the amount of dollars we put into the real-estate which makes it a lot easier to produce a good rate of return for you instead of taking a big loss up front.
And so, because of that, to make a very long story short, we have an internal processing team. We have an internal sales team at Caliber. So, Matthew got assigned an individual rep at Caliber. That rep has a support person, and in a matter of hours, we were able to get his investment basically processed. I think we got the cash in like an hour before the wire deadline or something like that. So that’s kinda the process and it’s all through DocuSign. It’s all digital. Once you raise your hand and say, “I’m interested in the fund.” We send you a full package of information on the fund including, you know, the PPM, and the different…the pitch deck that I put out today and any other information on the assets. If you’re interested in looking at every single financial model for the asset, you can. And then we go back and forth to make sure that the investment fits your needs and then just sign you up digitally. You sign DocuSign paperwork and then just wire funds. And, you know, as I’m sure many of you know, you’ve got 180 days from the day you realize your capital gain to get invested unless it came through some sort of structure taxed as a partnership, in which case you have multiple deadlines you can use.
So that’s essentially the process. But for larger investors who want to, you know, kind of fly out and kick the tires typically, you know, or putting in, as much as you want, really, but if you’re putting in a larger amount, we’ve seen this. People will come out to Scottsdale, they’ll meet with the team. We’ll do asset tours for half a day, go show you all the projects so you can see what we see in each deal. You get a chance to meet the developers, and the managers, and the people who are actually running the fund as well.
Jimmy: I need to get that tour sometime, Chris. That would be great.
Chris: You’re welcome.
Jimmy: A couple of questions on cash distributions. Lucy and John ask similar questions here. Lucy asks, “What is your cash…” I’m sorry. “What is your cash disbursement rate, especially initially?” And then John asks… He mentions that he’s an investor in your fund already. Some fund assets are currently producing income, when do you anticipate distributions?
Chris: So, if you had invested at day one, you would’ve heard from us that we think it’ll be three to five years until you see distributions. We’re now three years into the fund, so we’re now saying sort of one to two years for distributions because we’re right there. John, to your point, we’ve got behavioral health producing income. We have the Roosevelt deal producing income. We have a lease or an LOI on just about every…actually every asset we have in Mesa. So we have about a 12-to-24-month period to do all those TIs and start getting income from those leases. So, we’re pretty close to having a critical mass of assets that would produce income. Right now, the income that we’re making off the fund we’re just using either to pay fund expenses or to reinvest because it’s a small enough number that we didn’t wanna, you know, distribute a tiny distribution. But once that number gets to some form of a critical mass, we’ll start producing quarterly distributions. I would probably guess within the next 12 months, based on what I’m seeing so far.
And then as far as how they come out, they come out once a quarter. We set up the distribution reserve to sort of normalize the distribution to make it consistent instead of just, you know, pushing out random amounts of cash every quarter. And then we use that distribution reserve to cover off on, you know, emergencies if an asset needs funding that we weren’t able to anticipate or something like that. So, once the distributions start, we don’t expect them to stop unless something, you know, materially changes in the economy. But we won’t start them until we’ve got enough critical mass in the income to start distributions.
Jimmy: Fantastic. I think we’ll do one more question here. I’m not gonna get to all of the questions but that’s why Chris has a breakout session immediately after this. We’ll get that opened up in about 60 seconds here for anybody who wants to join. I’m gonna post the link for that breakout session in the Zoom chat as Chris answers this final question I’m gonna pose to him. What are your exit options down the road, you know, beyond that 10-year holding period where investors can take advantage of that third and ultimate tax benefit of elimination of capital gains on the OZ investments?
Chris: Yeah, so you have until 2048 to stay in an OZ fund based on how the law is currently situated, which is a very long time. It’s, you know, 20 however many years from now, 26, 27 years from now. And so, because of that, some investors are looking at this as an opportunity to build, you know, intergenerational wealth for their family. Some investors are like, “I want in for 10 years and I want out year 10 and a day.” Because they need the liquidity and they need the cash. And so, what we’ve decided to do at Caliber is to try to build a fund strategy where investors that wanna get out at year 10, we’ll have identified them in years 8 and 9. We’ll know what that looks like and we’ll be able to either sell assets or acquire those positions from those investors at their current value. So, to get them out. And then for those of you who wanna stay in for 15 years, or 20 years, or whatever, we’re building a portfolio so we could potentially accommodate that so that you could stay in for the longer period and maximize your tax benefit. Because at that point in time, what are you gonna own? You’re gonna own a diversified portfolio of income producing real-estate that’s probably optimized in terms of its cashflows and so you’re just getting a nice distribution and you’ve got tax-free growth.
So, we can do that by just holding the portfolio. We can do that by doing an UPREIT structure, as I mentioned, which is our plan as long as the market would support it at the time, is to take Caliber assets that all conform together, roll them into a REIT and take the REIT public so you just have shares of a REIT that trade on the exchange. You’re able to sell your shares whenever you want, and you’ve got a nice dividend coming off the REIT. So, that’s our strategy or our plan, you know, but we can’t guarantee what it’s gonna look like in 2030… What? 2032 at this point in time?
Jimmy: It’s a ways off still, I know. So, it’s hard to see what…hard to know what the market’s gonna do tomorrow, let alone 10, 11 years from now, so. Well, Chris, I’ll cut you loose there. I’ve just posted the link to the Caliber Fund’s breakout session. Please do join Chris and his team in that breakout session now.