The Conservative Midwest OZ Fund, With Nest Opportunity Fund

In this webinar, Clint Edgington discusses the Nest Opportunity Fund and its conservative approach to real estate investing.

Webinar Highlights

  • An overview of Nest, including its history and its focus on single-family homes and smaller multi-family homes in Midwest markets.
  • Why Nest embraces a conservative strategy within what it considers to be a risky asset class.
  • How Nest seeks to “Do Well By Doing Good” by focusing on providing a path to home ownership for the middle class.
  • Examples of properties that Next has remodeled in its target markets.
  • What Nest finds appealing about the Lexington market, including major expansions and upgrades now underway.
  • Q&A with webinar attendees.

Featured On This Webinar

Industry Spotlight: Nest Opportunity Fund

Nest Opportunity Fund

The Nest Opportunity Fund is an OZ investment program designed to not only do well for investors, but also do good for those in the communities targeted for fund investments. The fund invests in single-family homes and smaller multi-family homes because they present a lower risk to investors while maintaining the culture and character of the neighborhoods.

Learn More About Nest

Webinar Transcript

Clint: Hey, Jimmy. Can you hear me?

Jimmy: I can, Clint. How are you doing?

Clint: Good. How are you?

Jimmy: Good. Great to see you again. We just spent some time together and Chris was there as well actually in Cleveland, Ohio at the Novogradac Opportunity Zones conference. So good to meet you in person and good to see you back here at OZ Pitch Day. Thanks for participating.

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Clint: Yeah. Hey, thanks for having me. I appreciate you inviting us and everyone is spending a little time. Apparently, this is the Ohio hour.

Jimmy: I don’t know how that happened. I think it was a coincidence, but I’ll have to ask my schedule maker. Take it away. You’ve got… I’ll give you 10 minutes to walk us through the Nest Opportunity Fund.

Clint: Yeah. Let me pull up my screen real quick here and I can kinda walk you through a presentation we’ve got together. Again, thanks everyone for spending some time with me today. Our fund is… It’s a little different than Chris’s. Chris is obviously a great shop for doing good things here. We started this fund for ourselves in early 2019. Just kind of me and my parents, our operator down in Lexington, we kind of put our money in, about a half-million bucks and we were the original LPs. I feel like we should have some sort of, like, OGs or OZ, or I don’t know.

But, yeah, we put it in. We built it just kind of the way we wanted it because we weren’t anticipating raising any capital. We have an investment advisory firm that we also had some clients who had an interest in investing. So we decided about a year later to institutionalize it a bit. But, you know, at the end of the day, our fund is a bit unique. We’re very conservative. We built it the way that we like it because we built it for ourselves originally and so it’s a good fit, it’s fantastic. I’ll love to have a conversation with you. If it’s not, that’s okay too.

We’re happy to not have a conversation or to have a conversation, refer you to someone that might be good. But we’re gonna be basically kind of conservative and we really focus on being aligned with our partners. So if you take anything away, we’re going to be conservative, like, not just on the risk side, but also the return. And we really kind of focus, even that concepts of, like, we are in the fund as LPs. It is just as aligned as we can be. Our first investors were our family, our next were our kind of long-term advisory clients.

So we kind of built up an institutional chassis. We couldn’t do it alone obviously. We’ve got some great partners, and I don’t want to belabor the point too much. I’ve only got 10 minutes, but we’ve got full bios on everyone on our deck we’re happy to send to you, but I think more importantly for a small fund like us, you know, we didn’t create this to create an asset management stream. We created it because we want to invest in these properties and we were starting to do that even before we even knew these were in OZ census tracts or had heard the term Opportunity Zones.

So, you know, but now where we’re at, you know, originally the idea was we could share some of the benefits with some of the people in the neighborhoods. But now we’ve built it up enough so that it’s such that my job is really to get out of the way of our boots on the grounds because they have kind of unique passions and they help. And as long as it doesn’t harm our investors at all, that’s kind of my job. You know, we want to kind of help harness that as much as we can.

So in Columbus, our chief of operations here, he really has a passion for helping folks who’ve had addiction issues. I get that first job and I kind of…the more I’ve learned about it, the more I realize it can be very difficult when someone graduates from a rehab program to get that first job because they might have a record or whatever it is. But, you know, they’re clean when they start.

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I had concerns about the turnover issue and what we see, the trades generally have high turnover anyways. But we do have probably higher turnover, kind of the folks just coming on board with lower skills. But then once they’ve become skilled up and they’re there, they’ve got an incredible amount of loyalty to them. So… And those are the folks that you really don’t wanna lose. So I’ve been pleasantly surprised about that. I’ll let Clint actually tell you a little bit about it. Well, this is the best… Him talking is way better than me talking.

Clint: We are providing safe, secure housing for people to have the opportunity to live their best life. We are providing the opportunity for those who transition to utilize their current skill set or develop a new skill set so they can live their best life. We are providing on a daily basis good houses for good people, filled by good people, managed by good people, and funded by good people.

Clint: Yeah. And Clint does a fantastic job and it truly is what drives him honestly. As for me, like, we’ve got some path to homeownership programs that I really like. I’m a finance guy, obviously. So I kinda like the idea of giving a path to middle class and we’ve structured that. And the City of Lexington has kind of worked with us, provided some grant opportunities for us that are good for our investors and good for the tenants that we work with.

And then lastly, Jeff Moore in Lexington, he kind of runs the operations there. He really likes, you know, what he says…I couldn’t put the quote on it, but it’s, “Man, I just want to make crappy houses cool.” So he really likes kind of that old architecture and bringing it back to life. And I always say, “Let’s bring this house back to its former glory,” in his quotes. No, it’s not back to its former glory, like, it’s way nicer. So, Jimmy, tell me if this doesn’t come up on the screen. I think it should. You know, here’s an example of a…

Jimmy: It looks good to me, Clint.

Clint: Nice. Here’s an example of a property we bought and then we got the pictures, you know. We’re happy. It’s already downloaded, and it’s actually cleaned up more than it was before. But then, you know, here’s what he turned it into. And so he does a great job of doing it in the area that we’re in, particular in Lexington. We can really buy it, right? And we can get in with some package purchases and, you know, rehab it, right, maintain our costs or…it was more difficult during COVID.

But then come out with a product that is, you know, it’s not the Taj Mahal, there’s no gold toilet seats anywhere. But, you know, they’ll kind of open some stuff up, they’ll do, like, one or two kind of architectural design elements per property. I can’t for some reason show you this, but we’ve got, like, a horse head burnt into our counter, which in these areas is kind of up and coming, but not there yet, which the younger folks, maybe like your local Carista, that’s really gonna kind of work well with them. Now, here’s the trick. I might able to bring it back? Yeah.

And so for the fourth time, I’ll bring the screen up. I’m not going to spend too much time on this because I’m running short on time already, but again if you’re gonna step back, the Nest Opportunity Fund, we’re gonna be a diversified fund in Columbus and Lexington, and conservative. So we have a mix of single families and multi-family. I love the single-family because it is kind of more conservative even when we think of the ’09-time period, there’s still not a 10-year time period where single families have gone down nationally.

Oh, this is like, what we heard before the 2008, 2009. Then we went down from one year nationally, but it’s more stable than other asset classes for sure. And if you kind of close your eyes and think about changes that occurred over the last 10 years, well, you know, industrial, the e-commerce, and the warehousing is completely kind of changed warehousing where now you need the very flat floors, the very high ceilings, where there’s what we were building new warehousing 15 years ago is now considered old-fashioned has been devalued.

Retail obviously, huge changes. Who knows what the next changes will be? If you just think about if an automated taxi force becomes a real thing, how does that change parking? So now do you have, you know, retail facilities or office, or frankly even multi-family to a smaller extent with a building and then a giant kind of decaying asset of a parking lot, which you would think of would be an asset you could sell off, but in fact, every other one around there that’s old is gonna have that asset too. So but the new competitors coming in won’t have that.

So but if you close your eyes and think about single families, yeah, you know, right now we’re kind of knocking down walls and opening stuff up. Maybe in 10 years we’ll be closing it back up if that’s not that expensive. We’ll have to take out what we kind of think of now is the hardest gold and move to something different. But we like having that mix. We get more income from multi-family, and then we get kind of a high probability of capital gains from single-family.

And our two areas, a lot of people think of the Midwest generally is kind of Restovich, and it’s not characterized all that way. So it’s gonna draw a line from Chicago to Cleveland, to Pittsburgh. Above that, it might be somewhat Restovich, and below that it can generally be characterized as the rural areas have kind of populations stagnating, and then the cities are generally growing, in particular the government areas and where there’s large education.

So both Columbus and Lexington kind of fit that bill. We’ve got University of Kentucky in the, you know, in the Lexington, Fayette County, government in Lexington. In Columbus, we’ve got Ohio State. So, you know, even in Columbus our finance, which you should think of as being somewhat volatile, it’s all insured to you. So we’re relatively conservative. We’re just conservative Midwest folks, you know, and looking at kind of the actual population growth, we can see the majority of the city’s growth there in the top growth decile, I guess it will be, are in that or are in Columbus and Lexington, in their states respectively.

One other cool thing about Lexington that I love is, you know, they’ve really tried to maintain kind of that pastoral horse, farm setting. If you’ve made the drive from Louisville to Lexington, it’s beautiful and it looks like what they show on the Kentucky Derby. And if you haven’t made that drive, I recommend you do it sometime. But Lexington, you know, in the decision of trying to reduce sprawl basically kind of drew a ring around the first urban service boundary in the United States, and basically, city services are cut off outside of basically the outer belt.

And there are a lot division restrictions where you can’t subdivide lots beyond 20 acres, well, I think it is. So effectively there’s kind of a ring around Lexington that, you know, large new developments really can’t go into. And then when we peel out even further, I don’t have this graph on here, there’s a huge amount of these horse farms that have sold off, you know, or donated their development rights effectively. So grandpa was saying to the grandkids aren’t gonna be able to sell off the horse farm. And so that’s voted on every five years. And in 2018 was the last vote, and they chose not only to extend it but also not to vote again in 2023.

So we know between now and 2028, we have that. We are urban infill. So, well, there can’t be really growth in that ring or much growth. There are gonna be growth in the outside and it’s creating pressure on development in the urban area. And there’s not a lot of larger shops that have a decent infrastructure that are gonna go into smaller multi-family and single families. And so we like that space, we like the pricing in those areas pretty well. And that’s what we’re focused on. So zooming in a little bit more on Lexington.

There’s the urban service boundary, but zooming in a little bit more, this is just a snapshot of some of our properties. I think it’s about six months old. We’ve bought some since then. The dark star that you see there is kind of a downtown area. UK is right close to there. Transylvania, which is a private university that well-to-do kids go to is also right close to our houses. And there’s just an incredible amount of development going on right now that’s really kind of changed. It’s starting to change the characteristics of the neighborhoods.

I’ve just highlighted a few, but the big ones are Rupp Arena, huge expansion going on, a quarter of a billion dollars. That’s where University of Kentucky basketball plays. KevinGu Game [SP] gets a lot of funds. It’s a lot of fun, but more importantly this town branch park and trail, there’s a huge splash park they’re working on. And then right now it’s just kind of a creek that runs under culverts and stuff around the downtown is going to be brought above ground again, and just have, like, a pretty bike path, walkway, and it’s going to really connect that downtown in those areas in a pretty cool way.

And then when we look up, there’s a bunch of retail and entertainment going in where you see that common market. That’s about a mile what you’re looking at right there. So you can now see this is now becoming bikeable and walkable, which is something that I personally like. Getting down to nitty-gritty, I think everyone here’s got great presentations. We’re very small and we own that, and we’re cool with that. We’re gonna be more of a partnership than a product. I’m not wearing a suit and tie guy. You probably won’t see me wear one, but, you know, we stick to our name and we do our best and we tackle them. And we think if we keep doing that for 5 or 10 years, then we’ll be all right. But…

Jimmy: Clint, sorry to interrupt. We are running short on time. If you wouldn’t mind wrapping up pretty quick here. Let us know how we can request subscription documents. That’d be great. Thank you.

Clint: Yeah. Let me zoom to that real quick. Project financials, they’re fantastic. Take my word for it. We won’t get through fund structure. Yeah. So basically for terms, feel free to reach out to us. We’ve got, you know, all of our terms outlined in our PPM. We have a deck that’s basically with just a little bit more information on it. And then to get a hold of us for more information, you can just call Jimmy, and ask him what and they’ll refer you to us, or you can scan the QR codes that are here and on our deck, and it will send you to our calculator that we create.

And even if you don’t have an interest in Nest, we do advisory work. We’re happy to work somebody through kind of a personalized calculation of does it make sense to do OC, if so how much. And then also our deck and our PPM. So thank you, everybody. I appreciate your time.

Jimmy: All right. Well, that was funny, by the way. You got me with that one. That was a great presentation.

Clint: You didn’t disagree.

Jimmy: Thank you, Clint. Always great seeing you and seeing the Nest Opportunity Fund present here at OZ Pitch Day. I really appreciate it.