The “Investor First” OZ Fund, With USG/OZI

In this webinar, Greg Genovese highlights a fund structure that prioritizes an “investor first” approach while allowing for a unique level of portfolio customization.

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You can visit the Official OpportunityDb Partner Page for the Investors Choice OZ Fund to:

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  • Learn key details about fund and related projects.
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Webinar Highlights

  • The unique approach to managing an OZ fund employed by USG/OZI.
  • A review of the four projects currently open for investment, including deals in Milwaukee, Connecticut, San Francisco, and Houston.
  • Information on projects in the due diligence process which are located in Little Rock and Las Vegas.
  • The differentiated approach taken by ICOZ, including an investor–first fund structure, and partnership with local and regional development experts.
  • Strategies for navigating a post-COVID environment, including a move to hard assets and maximizing tax-advantaged investing.
  • The rationale for the ICOZ strategy of selecting smaller in-fill projects and targeting “recession resistant” asset classes.
  • Live Q&A with webinar attendees.

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 with the Investors Choice OZ Fund, a first-of-its-kind, investor-directed, multi-asset Opportunity Zone investment platform.

Learn More About USG/OZI

Webinar Transcript

Jimmy: Greg Genovese is here with the Investors Choice OZ Fund by USG/OZI. Greg, without further ado, I’m gonna turn it over to you.

Greg: Hey, thanks again. And I’m just gonna go ahead and go right into it. It’s nice to be here again, and I know there’s a lot of people on the line. So let me kick off by saying we’ve been in this space for a long period of time, right from the start in 2018. This is actually between USG and OZI, our fourth fund. Our first fund actually outside of the Seattle area with a group that I had helped start, and my partners had helped start, called Sound West Realty Capital was named the top fund in the country by both “Real Estate Advisor Magazine” and GlobeSt. And we’ve pushed those protocols over into our latest offerings.

So what Investors Choice OZ Fund is, is a one-of-a-kind fund where we actually put multiple projects into a single fund protocol or platform. And these are the smaller infill projects around the country in recession-resilient asset classes and demographics. And then we allow the investors to pick and choose what investments and how much they would like to go into. That’s the dynamic. But you’ll also notice that I have about 25 slides here, about three-quarters of the slides…or actually, that’s wrong, a little over half the slides are dedicated to our processes, our protocols, our investor advocacy, and how we manage your investment. Because at the end of the day, how that investment is being managed is paramount to your returns.

And so let me jump right into it. I do wanna say from the start… For some reason, it’s not allowing me. There it is. If you wanna go visit us, please do so if you can’t hang in there for the whole presentation, at You can email us at [email protected]. You can call us or…some of you have my email already, there’s a lot here that I think know me and you can go right to us. I will mention that this is a 506(c) offering. Everything we do is under the auspices of FINRA and the SEC. And therefore, we have what’s called a managing broker-dealer who reviews and approves all of our marketing materials. And so we like doing it this way because we believe very strongly in third-party oversight of everything we do.

And, of course, we have to display to you that there’s always risks involved in these types of investments. A little information, right at the start, on the fund itself. It is a $50 million offering. We currently have four projects in the portfolio with two more coming on board soon with preferred annualized returns of anywhere from 10% to 12%. All of our projects right now are between 11% and 12% preferred annualized returns to our investors. Very small minimum of $50,000 per investment, but only $10,000 per project.

And then our return profile to our investors is 100% back to our investors until you’ve got all of your money back, your full return of capital, and then a 90/10 split until we hit those high prefs of 11% to 12%. And then 80/20 onward with no…for those who know what catchup is, we don’t do any catchup at all, it’s just each bucket. Like I said before, we currently have four projects available for investment right now. And one is in Bristol, Connecticut, another one in Milwaukee, Wisconsin. South San Francisco, for those that know where Candlestick Park used to be, we’re doing that in partnership with Lennar Homes. And then a project in Houston, which we’ve just put into the portfolio. And two new projects in due diligence, one in Las Vegas and another one actually in Little Rock, Arkansas, that we’re currently in due diligence and likely to be a part of our portfolio very soon.

So you can see here, Milwaukee is Elevation 1659, 76 units with a preferred return of 12%. KindCare, which is our senior living assisted-care facility in Bristol, Connecticut, 117 units with preferred annualized returns of 11%. Enclave at Candlestick in South San Francisco, 97 units, preferred annualized returns of 12%. And Oasis Springs in Houston, Texas, 115 units with a preferred annualized return to our investors of 12%.

As I mentioned at the onset, our presentation, the majority of it is who we are and what we do and why we do it. And the reason for that is I’m now 32 years in the real estate securities industry. And when the Opportunity Zone initiative came out, quite frankly, you don’t know who the good, the bad, and the ugly are. And so whether it be us or any of the other presenters today, or anybody else you’re looking at, what I would venture to say to the entire group, whether you’re a developer out there, whether you’re a registered investment advisor, or you’re an investor yourself, we believe very strongly in who you’re doing business with is paramount to your returns.

And so we ask you, kick the tires, look under the hood. We’re big believers in third-party oversight of even ourselves, third-party reporting, social impact studies, and also making sure that we’re aligned on the same side as the investor when it comes to what we’ll actually make in the deal. So our four pillars, or what we call our ICOZ Differences, who you’re investing with is as important as what you’re investing in. Number two, an investor-first fund structure and an investor-focused asset management structure. What we mean by that is we co-partner with each one of our project developers so that we’re looking out for your best benefit.

Number three, looking at national projects and partnering with local regional expert developers, who…also we have the city councils and local economic development alliances on board, therefore, permitting and getting good pricing from the local community makes a lot of sense. And it also comports well with what we try to do. And it also allows us to go into smaller projects, which can get built quicker, get the cash flow turned on quicker, get to your return a lot quicker as well.

And then number four, execution of a pro forma and a business plan with third-party oversight, which again, we invite. Also, part of the ICOZ Difference, if those in the group or in the crowd here have never seen this article, just ask us, we’ll be happy to send it to you. And this is an article by and it says, “Why USG is Taking a New Approach to Opportunity Zone Investing.” And what it comes down to, you won’t be able to read the rest of that there, but it’s our investor advocacy approach, our investor asset management approach, and the way that we structure our operating agreements with our development partners so that we eliminate any conflicts of interest that could possibly come up between investors and the developers themselves. And so we’ve solved that issue and we’ve built our program and our platform around those protocols.

And just to give you kind of an overview of how this works…and by the way, anybody that would like this presentation, we’re happy to send it to them as well. But if you wanna take just kind of a visual of how we go about doing things, in the red is really how our development partners get involved with us. Their responsibilities are project development, construction management. They have to get the construction financing and put that in place in each one of our projects and be responsible for that, and do the property and asset accounting and take on responsibility for all cost overruns so that our investors do not have to.

And then what we control in partnership with our development partners, in the middle, you’ll see the gold circles there, is we co-partner with our developer partners on each one of the projects so that we, USG and OZI, can actually manage or investor-advocate for you as the investor.

And then we control the pro forma and the budget. We control the equity and debt draws, so all the expenses that are being paid from the money that we raise your investment dollars to make sure that it’s deployed properly. And then, in the end, project disposition, when we actually sell the project itself. And then everything under, when it comes to third-party reviews, fiduciary services, social impact studies, all the sales, regulatory and compliance, asset management, advisory, USG/OZI does all of that for the investors. So it becomes a really good partnership between us and our development partners, where we’re bringing them the equity, they’re instituting the project, and we’re controlling all the expenses.

But what does it look like right now in post-COVID? What does that investment environment look like? And Jimmy asked a poll question earlier that I think makes a lot of sense. And it had to do with, where are we in the marketplace? And if you look at the current investment market, you’ll know that we’re at historic highs in property prices. So you have to develop pro formas, go into projects, control your costs in these types of deals knowing full well you’re already at the top of the market. So there’s greater investment return risk right now in the property sector. So you need to be very careful about which one of these projects you go into.

We are near the end of the real estate investment cycle. So there’s greater bubble risk right now. The stock market in January of 2022 hit its all-time high, but what have we seen? There’s greater market risk in the stock market and we’re starting to see more and more volatility. And the market’s now down, as of yesterday, down 5%. Interest rates were at an all-time low all the way through March 15th, 2022. So there’s greater inflation risk. And we’ve seen a 25 basis point increase in Fed funds rate on March 16th.

And they expect six more increases throughout the rest of this year, which is why groups like us really should, or at least we do, we wanna make sure we’re putting in the construction loan and the permanent financing in place even before we bring in the investment dollars. So we take out that interest rate risk when it comes to the perm financing that comes into play in 2026. And then as I like to say, inflation is here, which creates greater uncertainty. And this is really a recipe for moving more toward hard assets. More and more investors today are harvesting their capital gains. They’re rebalancing the portfolio to combat the risk of inflation and potential recession risks, moving to hard assets, and maximizing tax advantage investing, which really all equates to a real benefit for Opportunity Zone investing.

The last part before I jump into our projects is just, what are investors getting when they invest in Investors Choice Opportunity Zone Fund? What they’re getting is this, number one, the investors select their own projects. You don’t have to go into all of them. You can go into one or you can go into any combination thereof. We’re looking at smaller infill projects with local and regional developers that also have the city council and economic development alliances on board. Why is that important? Because these are 10-year holds.

And so we wanna be in demographics that, in 10 years, we can eliminate the amount of CapEx or what type of capital expenditures we have to put into the project to keep its maximum value up so we can sell it in the 10th year. So that’s why we like to go smaller infill projects, $20 million, $30 million projects that need $5 million, $6 million, $7 million, $8 million of equity.

Next, we co-partner with each one of our development partners so that, again, we can control and advocate for the investors and eliminate any conflicts of interest that may come up between the developer and our investors. We’re looking at not just asset classes that are recession-resilient, but also the areas and the demographics, making sure that these are areas that have greater than average population growth to the United States, greater than average income growth than the average for the United States, and an Opportunity Zone and corporate structure, I should mention, that can stabilize the asset and create the demand over that long period of time of, you know, anywhere from 7 to 10 years.

So we look at everything from a risk mitigation or de-risking the portfolio and de-risking your investment over time. That’s our number one goal. And then as I mentioned before, we have high preferred returns of 11% to 12%. We also do social impact studies with a third party called DRC Impact Reporting out of Washington, D.C. So each one of our projects has a social impact study and we also do ongoing reporting on a regular annual basis, so our investors can see that their investment is in fact being accretive to a positive social impact for the local community.

And then looking at a realistic pro forma based on the economic conditions that are right now. Meaning our pro formas and our financial analysis are making the assumption that we are at the top of the real estate market. So, therefore, we decompress the cap rates and we’re relying on net operating income to drive our pro forma returns. Of course, you can’t use the word guarantee, but again, this is what we do to de-risk our investors’ investment into these Opportunity Zones.

And then lastly, we look at getting construction loans and perm financing put in place before we deploy any of your investment dollars so that we can take out the interest rate risk when it comes to 2026. And we can have a high likelihood, can’t say surety, but a high likelihood that you will, in fact, be returned in 2026 a good chunk of cash to be able to pay your taxes in 2027.

We look for multiple distributions throughout the life of the program. Some of our projects will have quarterly cash flow. And then we’re looking at two big events of the refinance and then the selling of the asset in the 10th year. Higher than average preferred returns than most of the market, anywhere from 10% to 12%. We’re currently at 11% and 12% in all of our projects. And then as I mentioned before, our distribution’s anywhere from 100% back to you to 80% with no catchup at all as far as the returns are concerned.

What we have in the portfolio currently are the projects I mentioned earlier. And I’ll just give you sort of a snapshot. We do have just a little bit of equity left in our first two projects. Number one is Elevation 1659 in Milwaukee, Wisconsin. This is actually known as one of the top 40 Opportunity Zones in the entire country. The 76 units multifamily, the developer is Ogden & Company, which is, our development partner, the largest full-service real estate firm in the state of Milwaukee. It’s just a mile from downtown and we have $6 million of equity for this investment. We only have about $1 million left, and this is probably gonna close out very soon.

So if you do have some interest here, I would suggest getting in contact with us, $24.5 million in project costs with the loan of $18 million and preferred returns of 12%. And you can see that where this is to Downtown Milwaukee, it’s right on the river. To the right there, you’ll see a lot of class-A multifamily, which is all 100% leased. And you’ll see it’s in an area that is very close to downtown. And this actually is an area that has been growing by 13% a year in income levels and in population over the last 10 years. So where I come from in San Francisco, this would be analogous to, let’s say, South San Francisco.

Next is KindCare in Bristol, Connecticut. This is our assisted care facility. We only have about $600,000 left of this investment. So this one, you know, is closing out very, very quickly. So this is the KindCare, Bristol, Connecticut, Assisted Living & Memory Care, 117 units. We’re partnering with a group called KindCare out of Connecticut with the operator being Charter Senior Living, which is one of the largest senior living operators in the East. And Bristol, as you may know, is home of ESPN, also the home of Xerox and 12 other Fortune 500 companies, $6.1 million in equity raised, $27.6 million in project costs.

The loan is already in place. This project is already about eight to nine weeks under construction now. All the loans are in place. The guaranteed max price by the contractor is in place. The developer is taking all the cost overruns and an 11% preferred return.

And you can see by the demographic here, there’s where the site is. You’ll also notice if you go our website, what we do is we also do drone videos and 24-hour cameras on each one of our developments. So I don’t know, I’ll have to check with our operations people, but that should be up and running pretty soon. But in all of our projects, every couple of weeks you’ll see a new drone video. So our investors can be as involved as they wanna be, or not as involved. But we wanna make sure that our investors are keeping an eye on their investment and they can see where it is at any one time as far as progress.

Next, is Enclave at Candlestick. This is in South San Francisco where Candlestick Park used to be. We’re doing this in partnership with Eagle Environmental Construction and Lennar, one of the largest home builders in the West, 97 units. It’s only 4 miles from the San Francisco financial district, headquarters of Facebook, Salesforce, as you know, only 15 miles from Oracle. This is a $10 million…or actually, I should say a $10 million equity raise. We’ve got a few of that million already raised to date.

Lennar and others are actually co-partnering and putting in their own equity into this deal. Thirty-one million dollars in loan proceeds and $48 million project costs with an 11% preferred return to our investors. And this is kind of a neat picture. You can see where old Candlestick Park used to be, and to the right near Candlestick shipyard is where our project site is in the yellow circle.

And then last but not least is Oasis Springs in Houston, Texas. Exciting new project that we just put into the portfolio recently, 114 market unit multifamily with our development partner, AIRE Ventures. This is only half a mile from the University of Houston and only 1.9 miles from Texas Southern. So there’s a lot of desirability and demand for student housing. This is not a student housing project per se, but there’s a lot of demand for student housing, but very close to the headquarters of ExxonMobil, JP Morgan Chase, and many other Fortune 500 companies.

This is a $4.9 million equity raise that we’ve committed from the fund, $18 million in project costs with a $13.5 million loan, which will be HUD financing, and a preferred return of 12% to our investors. So you can see where Texas Southern University is, University of Houston in Downtown Houston, and our project site outlined here. I’m not sure if you can actually see this very well, but this is a snapshot of the projects, what we’ve raised to date and what we do have available.

You’ll see that in Milwaukee, we have about $1.3 million left, in Bristol, Connecticut, $475,000 left, and South San Francisco, which just got started, $7.2 million of the $10 million is still available. And in Houston, we just brought this out. So we’ve gotta think $500,000 or $1 million committed right now, and so another $4 million or so available. You’ll also see on the right-hand side that what we put out as a preferred return and what we actually have pro forma’d are different numbers. You’ll see that in Milwaukee, our most current pro forma is at 13.8%. This is what we would expect. Bristol, Connecticut at 13.3%, South San Francisco, 12.01%, and Houston, Texas at 13.2%.

So I don’t like people to get hung up on the preferred return, what you really wanna look at is what we actually think we’re going to be able to do. So, just to give you an example before I open up for questions, an investor, let’s say, the Smiths who have $1 million could actually invest $500,000 in this sample into Milwaukee, $250,000 into Bristol, Connecticut, $250,000 into San Francisco. The Jones have $400,000. They did $400,00 apiece. The Hansen’s had $100,000, decided to put $50,000 into Houston and South San Francisco. And then the Domkes…and by the way, these aren’t made-up names, but they’re not investors. These are just people I know. But the Domkes with $2.5 million, put $1.25 million into Milwaukee, $500,000 into Bristol, and then $750,000 into San Francisco. So we allow you that flexibility in our portfolio.

So at the end of the day, when you look at all the different types of Opportunity Zone funds out there, the blind pools, the multi-project, the single-project, what we have to offer is something that gives you everything, multi-project diversification but also single-project concentration, asset management oversight of the developer and the project, a favorable tax opinion, third-party regulatory and compliance on ourselves, social impact reporting on each one of the projects. And you, as the investor, get to pick and choose the investments you wanna go into.

Our partners, we feel, are the best of the best Opportunity Zone Investments out of Olympia, DLA Piper, who does our fund legal, UMB Bank as our fund account, UMB Fund Services does all our administrative fund work. First Federal Bank in Washington does all of our project funds. Fully audited financials through Mosaic Financial Group in Chicago. Pinnacle Capital Group is our managing broker-dealer, does all the securities oversight. And then DRC Impact Reporting for all of our social impact studies.

With that, I don’t know if I…I wasn’t keeping track of time, Jimmy. So I hope I came in either under or a little over, but I’m not sure if there’s any time for questions. I apologize if it went over.

Jimmy: You did great, Greg, no need to apologize. You came in a little bit under. We do have time for some questions. And I see we do have a few questions in the Q&A section here. So I’ll fire them off to you. Scott asks, “Does USG/OZI add a layer of fees versus a fully vertically integrated sponsor?”

Greg: That’s a great question. So we hear the term vertically integrated a lot. It’s a cool term and actually, there are some good parts to it because, you know, something that’s vertically integrated tend to have less cost. Us, as a company, we’re vertically integrated. Our developers are vertically integrated, but where we’re different is we don’t believe in the philosophy, quite frankly, that…we don’t wanna be the developer, the sponsor, and the asset manager. Because at that point, then it’s ripe for conflicts of interest. So I don’t wanna go down too much of a rabbit hole on that, but whoever asked that is very smart. That’s the premise of everything we do. We wanna be on the side where we’re managing the asset and we’re co-partnering. We’re looking out for the investors’ investment.

But from a cost structure standpoint, it’s the same. There is no real difference. And, in fact, I don’t wanna get into all the costs right now, I have no issue doing that. But where we really make our money isn’t in the development. We make our money as the investor’s asset manager. So when you look at where people make money and the costs, what you’re going to notice is, looking at us, is number one…and I don’t know everybody else’s programs to be honest with you, Jimmy. So it’s hard for me to say, “Well, these guys do this and we do that.” I just know that our philosophy is to put ourselves as the asset manager for the investor. And from a cost standpoint, you’ll see that we’re either at or under most of the other funds that are out there, at least from what I’ve seen. But what’s most important is our alignment with the investor.

Jimmy: Follow-up question here from Brian just came in, “Are there two layers of carry though?”

Greg: Oh, I see what you’re saying. Brian, good question. The answer is yes, in a way. And what I mean by that is when we go to the developer or the developer comes to us, a general…I’m just giving you a general deal, everyone’s different. We’re supplying through our investors 100% of the equity for the development. So a normal deal for us is to say to the developer, we’re bringing you 100% of the equity. That means that our investors get a 100, they get 0. But then we give them bogies to hit. So a normal bogie would be until our investors get all of their capital back, and let’s say, I’m gonna make up a number, a 15% project-level return, at that point, the developer can then get, let’s say, we now do 90%, the developer gets 10% of the project.

Then if they get it to, let’s say, 18%, maybe it goes 80%/20%. So what happens is originally, our 100% to the investor is 100% of the deal. But with a high preferred return, as you guys know we have, where you’re looking at 11% or 12%, that’s the bogie that we put out for our developers. Our investors need all their money back plus their preferred return. And then at that point, we can start sharing with the developer. I can go deeper into that, but I don’t think you’re…I think it’s, you know, probably for another day.

Jimmy: Maybe you can go a little bit deeper in your breakout session, which we’re gonna…

Greg: It’s funny. I actually forgot about my own break… Right. Yeah. Ask me in the breakout session.

Jimmy: Yeah. We’re gonna open that up in another two or three minutes here. We got a couple of more questions here we’ll try to get to in the main session. There are a lot of questions coming in. I just know we’re not gonna get to all of them. If you have a question for Greg, join him in the breakout session. I’ll post the link for that Zoom meeting in just a minute here. But Greg, question here is, let’s see. I lost it. Here it is. “How is senior living demand in a post-COVID world? Is there hesitancy among seniors or is the demand strong?” What are your thoughts there?

Greg: Yeah. That’s another really good question. So I didn’t have Bristol, Connecticut really on my radar. What we did is a national study, I’m all about demographics, the demand, the areas that…especially in Opportunity Zones. But when you have an area that comes around every now and then like a Bristol, where it’s an older community, it’s still growing by about what the national average is in the United States. But it’s an older community, there’s a lot of Fortune 500 companies around, people aren’t leaving. And so there’s a demand for senior living.

So what you’re seeing now is the demand for senior living is continuing to increase. And it’s really a limited amount of time if you look at sort of the population demographics. You’re looking at the next 20, 30, maybe 35 years, but senior living’s a real tricky area because you need to know the demographic. You need to know what the demand really is going to be over a long period of time, but you also need to know what’s on the drawing board for the area. And so you wanna make sure that that product is gonna be in demand for a long time.

Secondarily to that, because of COVID, you wanna be involved with a company, and we’re not the only game in town, but you wanna be involved with a company that has best-of-class air filtering systems and making sure that they’re killing viruses, making sure that this a facility that’s going to be around for a long time, and actually be helpful to the occupant, which is the group that we’ve gotten involved with, KindCare and Charter Living does exactly that, cutting-edge technology.

Jimmy: Awesome. Well, Greg, we’re gonna wrap it up here. I just posted the link for your breakout session. So you should follow that in a moment here. I’m gonna demote you to attendee first. Greg, thank you so much for joining today. Appreciate it.

Greg: Okay. Thanks, everybody. Talk to you soon.