Since its inception, opportunity funds have captured the attention of investors, asset managers, policymakers, community leaders, and financial institutions, with no sign of the trend abating. In fact, interest has been staggering due to the tax benefits, ranging from tax-free appreciation to capital gains deferral.

But approach and fit are key components to scale and sustain an OZ investment strategy. And selecting the right fund and fund manager is critical to long-term success. Greg Genovese, CEO of USG Realty Capital and Investors Choice OZ Fund, shares his view on investor advocacy and how to ensure alignment and cohesion among stakeholders in the OZ space.

Click the play button above to listen to our conversation with Greg.

Episode Highlights

• Investor advocacy and wealth management approach to opportunity zone investing.
• The importance of collaboration with local experts and developments in OZ investment funds.
• Market trends and investor perception specific to opportunity zones in 2022 and what to keep an eye on going forward.
• Best practices that can help drive investment in opportunity zones and increase profits.
• Pros and cons of vertical integration versus non-vertical integration.
• How to ensure alignment between strategy, financials, and execution with OZ investment opportunities.
• A fund manager’s perspective on new strategies in OZ investing.
• Benefits of attending the upcoming OZ Pitch Day, live and online on March 29th, 2022.

Featured On This Episode

• Greg Genovese on LinkedIn
• Investors Choice OZ Fund by USG/OZI
• OZ Pitch Day

Industry Spotlight: USG/OZI

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

Learn More About Investors Choice OZ Fund by USG/OZI

• Visit InvestorsChoiceOZ.com

About The Opportunity Zones Podcast

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

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Show Transcript

Jimmy: Welcome to The Opportunity Zones Podcast, I’m your host, Jimmy Atkinson. And over these first several weeks here in the month of March 2022, my Opportunity Zones Podcast is going to be previewing OZ Pitch Day, which is our upcoming live online event that Opportunity DB is hosting in an effort to showcase several qualified opportunity funds for accredited investors seeking to defer their capital gains into OZ funds. Joining me today is one of our big partners on that event, Mr. Greg Genovese, who is founder and CEO of USG Realty Capital and the Investors Choice OZ Fund. Greg joins me today from Santa Barbara, California. Greg, how are you doing? And welcome to the show.

Greg: I’m doing just fine. And thank you very much, Jimmy. Nice to hear from you.

Jimmy: Absolutely, Greg. You are a prolific Opportunity Zones Podcast guest. I’ve lost count of how many times you’ve been on this show. We’re getting up close to 200 episodes now. You were one of the first few guests that I ever had on the show way back in early 2019, and you’ve been on a handful of times since then. So I appreciate you supporting my platform and Opportunity DB and thank you for coming on once again. I recall seeing about a year ago, Greg, an article in GlobeSt on your firm and the new approach that you’re taking toward opportunity zone investing. Can you tell us a little bit about what that new approach is and how it differs from maybe the old approach or the approach that others are taking?

Greg: Yeah, thank you so much. But certainly, Jimmy, and thank you again for having me back on your podcast and I’ve been big fan of yours from the start and happy that myself and others were there at the very beginning. I mean, you’ve really grown into, in my opinion, the number one source for information on all opportunity zones. So I’m really happy to have the opportunity to speak today. But yes, there was an article written around April or May of 2021 regarding our platform. And it’s not so much novel as it is just a little bit different in that we really take an investor advocacy point of view to our investing. This particular platform, the Investors Choice platform is our fourth fund since the initiative came out in 2018. And the first three funds were single project, you know, kind of larger projects, one outside of Seattle, two in Olympia. And this is our fourth fund with USG OZ.

And what we decided to do was to really be an investor advocate or at least take it from an investor advocacy point of view in the first three funds. And then if you look at the other funds in the country during the start of opportunity zones till now, the vast majority, including our first programs were really developer-driven programs. And the developer is the asset manager. There’s a lot of vertical integration, which on the surface sounds really good. However, when we went through COVID, a lot of potential conflicts of interest and actual conflicts of interest started to bubble to the surface, which really put the project, the developer, and the investors sort of pitted against themselves sometimes while the cost of the projects began to climb, the performance started to come down, yet there were a lot of fees that still needed to be paid.

So when we came out with this program, Investors Choice, there were a few things that we wanted to do to eliminate those conflicts of interest. And that is, we wanted to make sure that we as the sponsor were completely aligned with the investor as their advocate, while also co-partnering with our developer partners at the project level. And that’s really what we’ve done here. And thankfully, we’ve gotten a lot of great accolades for it from the industry, the Treasury Department and others has asked us to comment as far as potential best practices. And so I can go a little deeper into it if you want, but really that’s the new approach. It’s an investor advocacy, wealth management approach to opportunity zone investing. We are not a third-party manager. We are actually co-partnering with each one of our developer partners in each one of the projects, but again, what makes us really unique is we’re really on the side of the investor and we can do that quantitatively by showing the investors how we actually will make our revenues alongside them. So we’re very much aligned on the investor side.

Jimmy: So you’re not fully vertically integrated. You’re not the asset manager and the capital raiser and the developer, you’re really focusing on that asset management portion and that investor advocacy portion. Why, in your mind, is that better? Tell us about the pros and cons of vertical integration versus non-vertical integration?

Greg: Yeah, yeah, absolutely. And by the way, I’m not against vertical integration, but we do hear it a lot in our industry. There’s a lot of groups that could say, “Hey, we’re vertically integrated,” which is just fine. And I’m all for vertical integration, it’s just how are you vertically integrated? And what I mean by that is when you have a timeline that goes out 10 years, if you are the developer, you are the sponsor, you are the equity raiser, you are the asset manager, we like to say there’s a lot of cost-benefit to that. However, in our opinion, what really counts is where you are aligned on the investor side. So there are times, and if you’ve done a lot of projects…and this is my 34th year in the industry with non-traded real estate in doing development projects, but when you are doing development projects, a lot of things come up and you just wanna make sure that you’re eliminating any potential conflicts of interest.

And so sometimes that vertical integration, when you’re all things to the investor and you have that control over their capital but also have the control over spending the money as far as the expenses, that can produce a conflict of interest. So I’m not against vertical integration, but if we put ourselves in the wealth manager seat, as we like to be, then we wanna make sure that we’re aligned with the investor. That said, you also wanna make sure that a company like us has the expertise to be able to facilitate each one of these projects and build them on time into the best benefit of the investors. And that’s why we partner with each one of our development partners across the country in certain and different demographics. So we are allowing the local expert, the local developers to develop the project, but we do co-manage it and do co-partner with them.

Jimmy: I wanna talk about your pipeline and specific projects that you’re working on within your platform a little bit later in the episode, but first to kinda zoom out, I’d like to get your take on how has the response been to your new approach? It’s been about a year since that article was written about you in GlobeSt and you started raising some attention. And I think your fund wasn’t launched until closer to the end of last year, but what’s your response been so far to this new approach of being investor-centric and not being vertically integrated?

Greg: Yeah, yeah. Sure. And you’re absolutely right. We didn’t really launch until…I mean, technically speaking, it was June, but by the time we actually were able to hit the streets, it was around August or September. So Investors Choice…I’m not here to necessarily pitch the fund per se, but one of the major benefits to being multi-asset under one umbrella and co-partnering with the developer partner at the project level is that we’re focused on smaller projects. Not small projects, but smaller projects, projects that need $4 million, $8 million, maybe $10 million of equity versus the majority of the opportunity zone funds out there looking for $20 million, $30 million, $50 million, sometimes up to a $100 million. We’re much smaller than that. So we have a lot more flexibility.

And the other good reason for that is if we ever find ourselves in another COVID situation per se, or any type of situation where the project could potentially be shut down or stopped for any time period, smaller projects have a lot more flexibility to either pivot and also the price point or cost point of keeping those projects tied off is much lower than it would be with a larger project. And given the fact that you have to hold these projects for 10 years or more, that’s a risk that we try to mitigate out for the investors.

Jimmy: Let’s turn our attention to your open fund now and the platform that you’re raising capital for. And again, you’re going to be presenting this on our OZ Pitch Day event, which is coming up on March 29th, 2022 in just a few more weeks here. And for those listening who are interested in learning more about that event and wanna hear from Greg and our other partners who will be presenting qualified opportunity fund investment options, you can learn more by heading to ozpitchday.com. It’s free to register and free to attend. And we’d love as many investors to show up to that as possible. But Greg, the fund or the OZ investment platform that you’re gonna present that day is the Investors Choice OZ Fund. What makes that unique and what else can you tell us about it?

Greg: Sure. And so to dive right into the fund a little bit now, again, I just wanted to reiterate to you, you know, as far as our platform, we’ve always looked at our fund more as a platform first, and then a fund second. And I think you had asked earlier about, you know, our reception, the majority of our equity is actually raised through the family office wealth advisory community. But with the internet and crowdfunding and more and more people going to, let’s say, events like yourself, we’re starting to see more and more High Net Worth investors come directly to us. So we’re seeing, you know, anywhere from 25% to 30% of our equity in our $50 million offering, actually, our offering is expandable to $100 million, we’ve seen more and more people coming directly to us. But what we’ve developed is a multi-asset fund. We currently have five projects around the country that folks can invest in, but we also give the investors a choice between any or all of the development projects.

So, for instance, we have an assisted care facility in Bristol, Connecticut, right near ESPN’s headquarters. We have a multifamily project in Milwaukee and one of the top opportunity zones in the country. We have a project in Sacramento, California. We have a project just outside the South San Francisco right where Candlestick Park used to be where we’re partnering with Lennar Homes. And we have a project in Houston and Las Vegas that will be coming online very, very soon. So when all is said and done will be a portfolio of anywhere from seven to eight projects, but we actually allow our investors to pick and choose the projects they wanna be in and the amounts that they wanna go into for each one. So you don’t have to be in each one of these projects.

Number two, each one of the projects are at different levels as far as how far along they are. So our top three projects have what’s called the guaranteed max price in place. We don’t go into anything unless the financing has already been prenegotiated on the construction loan, as well as the permanent financing. And the budgets have been what we call fully baked up. So the projects we go into, we’re not looking to deploy the capital at some point. We’re actually looking to go directly into investments and in projects that are ready to go.

And then the last part of it is, as I mentioned earlier, we actually co-partner with each one of our developers at the project level. And for those on the podcast that may be asking, why do the developers wanna do this type of portfolio or this type of platform? It’s very simple in that the developers that we focus on used to need $2 million, $4 million, maybe $6 million worth of equity, most of them have raised that money from friends and family, but they’re finding now that they need $6 million, $8 million, maybe $10 million of equity. And quite frankly, trying to raise it from friends and family is difficult.

Number two, if a single investor were to go in and take it out, they lose a lot of control in the development itself, and then it’s actually too small for an institutional investor. A group like us comes along and says, your cost of capital is zero. We’ll give you 100% of the equity that you need for the development, but our rules are you have to co-partner with us so that we can do proper oversight, risk mitigation, and be an investor advocate. That’s really how our model works. And if you were to boil it all down, it’s really…and it’s the only one I’ve seen in the industry, it’s an umbrella fund, smaller projects, recession-resilient asset classes, recession-resilient demographics, and then at the end, we let the investors pick and choose what they’d like to go into. And it’s all in one fund dynamic.

Jimmy: So an investor could choose to move his or her capital gain into the umbrella fund, I suppose, and it would get distributed among all the different projects, but maybe the investor wants more concentration in project A or project B, maybe just picking and choosing. Is that the situation more or less?

Greg: Yeah, exactly. You hit the nail on head. We do have…I would say maybe 10% of our equity is what we call our omnibus account, and that is investors that have put their money into the fund itself and then just basically want to distribute it evenly, you know, across the entire platform. But for the most part, investors still wanna look at each project, and that’s what we really give them the ability to do. And we’ve had investors that, you know, have wanted to stay away from senior living or stay away from assisted care facilities. So we’re not forcing them necessarily to be in our assisted care project in Bristol, and they’ll go to Milwaukee and to the Sacramento project. Or folks that really do like senior living, they’ll go to the Bristol project.

So again, it’s really…well, somebody once told me it’s like a Chinese menu. You get to pick and choose what you like, almost from an à la carte. And frankly, that really was by design. Number one, the best returns…in our opinion and in our due diligence, the best returns are with the smaller infill project. And the fact that you have to hold these projects for 10 years means that you wanna maximize the demand for that project at the end of 10 years. So, therefore, there’s a thing called a CapEx, which we all in the industry know about, which is how much money do you actually have to put into the property or into the project, let’s say at the time you wanna sell it, to maximize the value.

Well, we all have to remember that in 10 years, these projects are gonna be the older project. They’re not gonna be the newest projects. So we focus on being in infill areas, they’re gentrifying. We do social impact studies on everything that we do, and we wanna make sure that in that area in the 10th year, there’s going to be enough demand to be able to attract a high premium to sell the investment. However, groups like myself aren’t going to come out with a fund just to raise $4 million or $5 million. We will to raise $50 million or $100 million and then spread it out amongst 5, 6, 7, 8, maybe 10 different $5 million to $10 million projects. To us and to the investor, that makes a lot of sense.

Jimmy: Absolutely. That’s one of the unique parts about your fund, your platform is the flexibility that it gives to investors the ability to kind of pick and choose that menu that you mentioned. So I’m looking at the deck that you presented last year on OZ Pitch Day in fall 2021. I’m sure you have a few updates for this one coming up, but I see, you know, just to kind of reiterate the types of projects you’re looking at, looks like a lot of multifamily deals and then the one specialty type of multifamily, if you can call it, is that senior living center in Bristol. Are there any other asset classes in your pipeline that you’re looking at, or do you really wanna stick to that resilient multifamily asset class?

Greg: That’s a good question. So really, Jimmy, it comes to two sides. There’s a lot of talk these days about recession-resilient asset classes. But I’m 57 years old, I’ve been through 3 major recessions myself in this industry. And I can tell you that if you don’t pick your demographic right, it doesn’t matter that you’re in a recession-resilient asset class. So, first and foremost, we’re all about the demographic. For instance, Bristol, Connecticut probably would not have been a place that we would’ve wanted to invest in a multifamily deal. It is a growing area. There’s 12 Fortune 500 companies there, there’s ESPN, but it’s an older area. So it made a lot of sense for assisted care, and there’s a big demand for assisted care facilities. So that’s why we’re in that demographic. And then if you look at the project itself, we have a very good partner in KindCare there, and we’ve actually started that project already.

So if you look at, for instance, our Milwaukee project, that’s an area that is growing. The track 113 in Milwaukee, which is in the downtown area, is one of the fastest-growing areas not only in the state of Wisconsin, but also in the City of Milwaukee and is actually a top 40 opportunity zone in the country. So these are areas that they’re growing very quickly. They’re gentrifying at what I call an even pace. And so multifamily in these areas makes a lot of sense. But our four main food groups from an asset class standpoint are multifamily infill, I would say senior living, it doesn’t have to be assisted care, but we kind of have a little bit of a focus on assisted care, and then storage would be number four. And then our fifth, we kind of combine manufacturer housing and industrial if we have a large tenant. So those are really our four food groups. And we do have a manufacturer housing project and a storage project that’s in due diligence right now, but we don’t have it actually ready to kick out into our platform as yet.

Jimmy: Good. I’m looking forward to hearing about that one and a few of these other projects on OZ Pitch Day on March 29th. What about trends, Greg? I wanna ask you about trends that you’ve noticed in the OZ industry. Maybe we can kind of wrap up with that discussion. You know, we’re about a little more than four years removed from when the legislation was passed at the end of 2017, and close to four years after all of the zones were finally certified by the Treasury Department. So we’ve had the marketplace online now for close to four years where people have been able to invest in opportunity zone funds. What are some big trends that you’ve noticed, some changes you’ve noticed over that four-year period, and what do you expect in the years to come?

Greg: Yeah. Well, actually, you’re touching on, I think, one of the most important points. When the Opportunity Zone Initiative first hit, as I like to say, everybody and their uncle, you know, wanted to launch a fund. I think we’re mature enough now from, you know, early 2018 until now from an industry that I think most investors, most family offices, wealth advisory communities, financial planning community really knows the good, the bad, and the ugly. And a lot of the groups, you know, that came in have actually, you know, exited already. And so who’s really left are the groups that, you know, have taken it seriously, have what I call honored the spirit and intent of the initiative, and have been successful in their equity raising and partnering with their development partners. And knock on wood, we’re one of those people.

But one of the…the standpoint of changing, we haven’t changed very much at all. We see the industry changing. And what I mean by that is from the very start, we believed very strongly that each fund, each project had to honor the spirit and intent of the initiative, meaning that we actually do third-party social impact studies on everything that we do. We want to make sure that whatever we’re doing is accretive to the local community creating a positive social impact, and you have the city and the local economic development alliances on board with you. And so those are some…that transparency and that reporting is something that we’ve been advocating from the start. And we’ve had them in each one of our programs and will continue to do it year after year on each project over the next 10 years.

And then as far as the reporting side, which is really a big deal now, and a lot of groups are being called in to say, what is your reporting, and there’s going to be some guidance at some point on that, that’s something that we’ve been advocating from the very start. Third-party oversight, third-party management, transparency, greater reporting, social impact studies, which brings a full loop to why, at the very beginning, we’ve really been promoting this investor advocate platform where we put ourselves in the position as the wealth manager for the investor who’s there to oversee and manage their equity in each one of these development projects. In our opinion, that’s what makes us unique and special and new in the opportunity zone world. And it’s why we’re getting, you know, the accolades and the traction that we are right now.

Jimmy: Very good, Greg. I’m looking forward to hearing more about your fund and seeing your pitch on March 29th at OZ Pitch Day. And again, listeners out there, if you’re interested in learning more about OZ Pitch Day and you wanna sign up to hear from Greg at the Investors Choice OZ Fund and from our other partners on that event, you can sign up now, free registration at ozpitchday.com. And Greg, thanks for joining me today on the show. It’s been a pleasure speaking with you as always. Before we go, can you tell our listeners where they can go to learn more about you and the Investors Choice OZ Fund?

Greg: Oh, certainly. And it has been a pleasure, Jimmy. I’m available to you anytime you and your listeners want or need. For those that would like to take a look at us, you can find us on our website, which is www.investorschoiceoz.com.

Jimmy: Fantastic. That’s investorschoiceoz.com. And you can also check out the show notes for today’s episode as always on the Opportunity Zones Database website. You can find show notes at opportunitydb.com/podcast, and there you will find links to all of the resources that Greg and I discussed on today’s show. I’ll make sure to link to the GlobeSt article we’ve referenced at the top of the show, as well as ozpitchday.com and investorschoiceoz.com. Greg, again, it’s been a pleasure. Thanks so much.

Greg: You’re very welcome.