Investing In Puerto Rico’s Opportunity Zones, With Direct Source Wealth

In this webinar Kira Golden discusses the unique opportunities available to investors in Puerto Rico and highlights an industrial complex near one of the island’s busiest airports.

Webinar Highlights

  • Site plans for a unique industrial asset in Puerto Rico.
  • The location of the asset in close proximity to Honeywell, Hewlett Packard, and the Aguadilla airport.
  • The importance of leverage when investing in Puerto Rico.
  • The abundance of Opportunity Zones in Puerto Rico.
  • The long-term approach that Direct Source Wealth takes to investing.
  • Live Q&A with webinar attendees.

Industry Spotlight: Direct Source Wealth

Direct Source Wealth is a real estate investment firm led by Kira Golden. An active investor since the age of 18, Kira has built a portfolio for herself as well as Direct Source’s co-investors. The portfolio includes vacation rentals, large multi-family commercial real estate, and various holdings in start-up companies and alternate ventures. Prior to Direct Source Wealth, Kira worked for a large national brokerage firm as a financial advisor and held her Series 7 and AAMS.

Learn More About Direct Source Wealth

Webinar Transcript

Jimmy: Coming up here is Kira Golden. She is with Direct Source Wealth. And Kira has an industrial building, a little bit different than a lot of the other funds we’ve heard from today. It’s an R&D fund that is on the Northwest side of the island of Puerto Rico in Aguadilla. Very close to my favorite town, Rincon. Kira, there you are. I can see you and I can see your screen. How are you doing today, Kira?

Kira: Good. I’m gonna move a little here to try to not have sun in my eyes. It’s hard to do in Puerto Rico. It’s very sunny.

Jimmy: Yeah, I can see that. Looking good though. And I can see your screen just fine. So I know we’re running behind schedule. We’re gonna give you the full allotment. So take your time and we’ll get going with the happy hour mixer when Kira has concluded her presentation.

Kira: I’m the last thing between happy hour and, you know… Okay.

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Jimmy: That’s right.

Kira: And I’ll be at happy hour with my buddy, Chris. So I’ll be over there, too. So I’ll try to keep this focused. First of all, thank you. Thank you to those who made it through the whole day to the last presentation. It’s always a little like… So I’m gonna keep it focused and mostly just open up for questions. I’m gonna presume anyone on this call, if you didn’t already know all about Opportunity Zones, you know all about them now. So I’m not gonna take you through all those benefits.

I’ll focus on, you know, as, Jimmy, you pointed out, I’m down in Puerto Rico. I’ve lived here eight years. Love, love, love the island and love this opportunity.

So 330,000 square feet of industrial space, 5 minutes from the absolute largest runway in the Caribbean, over a billion dollars earmarked of federal funding going into this zone, including plans to build cold storage facilities. And one of what I think is one of the unique opportunities of Puerto Rico is that while it is an Opportunity Zone, there is also significant intrinsic improvement and growth happening throughout the island.

And so, you know, while we’re an Opportunity Zone, we’re also sitting with neighbors right to our right and left as Honeywell, and HP, and Microsoft, Lufthansa, FedEx. So large industrial tenants that we look forward to attracting here to this Opportunity Zone. I’m just gonna walk you guys through pictures and just a quick overview of the property. You know, we have a good working generator. We have to do some minor improvements on the roofs, paint the exterior, clean up the complex. We’re all in for about $20 million. Based on our triple net leases, we expect to refinance at the stabilization period between $40 and $42 million valuation.

So good strong value upside independent of all the Opportunity Zone benefits, which, of course, you all already know about. So this shows our site plan, our buildings. Technically, it’s three buildings that make up this one facility. We intend to put solar panel generation along the additional land and we’ve got lots of parking, which is pretty special. And as I mentioned, Hewlett Packard and Honeywell as our neighbors. So opportunity to do power generation, as well as a very nice, clean, simple industrial deal. You get a good long-term tenant in there. We’re currently negotiating with two possible tenants. One of whom is likely positioning to take the entire asset.

Some photos of the interior, very clean building. As I said, working electric, working water. So not a lot of heavy lift on this deal. But, of course, due to the size, it’s still a sizeable CapEx. We’re doing significant improvement across the roofs and potential additional development with the solar panel. So as I mentioned previously, you know, here we are subject property, Honeywell, HP, Pratt & Whitney, and here is the Aguadilla Airport, Lufthansa’s plant. So as you can see, we’re incredibly close to those shipping facilities.

The terms of the offering sound a lot like most of my distinguished colleagues here, 8% preferred return, 10% hold, anticipated to refinance after the minimum 2-year period so we don’t run into any return of proceeds issues. And anticipate refinancing after initial cost basis of $20 million on a property worth about $40 to $42 million. In Puerto Rico, leverage is the secret sauce. We underwrite anticipating between a 50% and 60% refinance on the asset after full stabilization.

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So it’s a straightforward blocking and tackling deal. We already own the asset. We’ve already done the initial investment in all of the RFPs. We’ve got our engineering firm redoing as-builts for the tenants’ wireline diagrams. And as I mentioned, they’re already negotiating, providing us expectations of their power usage, their layouts, and we’re beginning to get ready to sign…go into LOIs with them. So given the time and given that I’m the last thing between you and a libation, I will pause for any questions you guys may have.

Jimmy: By the way, so first of all, I should note that the libations are BYOB. So that should be made clear right away. We haven’t figured out a delivery mechanism to get them straight through your USB port. But if anybody has any questions for Kira, please do use the Q&A tool in the Zoom toolbar. We do have a few questions here I’m seeing right now. Someone asks, “Are there any extra tax considerations on Puerto Rico property?”

Kira: There are some additional tax considerations. However, we’ve brought in a management team on this particular asset, and that is their compensation. So Opportunity Zone investors are receiving all the opportunity tax benefits, priority return and cash flow, and the local benefits are going to the local team.

Jimmy: Okay. Joseph asks, “What’s the distribution waterfall beyond the pref?” I think you mentioned the 8% pref?

Kira: Yes. So 8% preferred return and actually, I should mention there’s two share classes. So one of the things I love is really smart, strategic leverage. So we have an equity share class that looks more like debt. We’ve got an A share, that’s got a 20% preferred return. When their money’s out, they’re out of the deal. They’re not participating in the long-term Opportunity Zone benefits and the long-term equity.

And then we’ve got the B share, which is the 8% preferred return. That’s what you guys are all interested in, I presume, and the long-term Opportunity Zone benefits. What that does is it bolsters our IRR and our overall returns because when that half of the capital stack is exited, and right now that we are, about 50% A share, 50% B share, that will increase and bolster the returns for the long-term B shareholders.

Jimmy: All right. Very good. Hey, Christiana’s here. Christiana’s my good friend from Novogradac. She asks, Kira, this is kind of important, “Does your presentation include your contact information?” Maybe we can get your contact information in the chat. There you go.

Kira: I read your mind. I’m typing it as we go.

Jimmy: Hang on. But you only sent that to hosts and panelists, so make sure you drop that down and send it to everyone.

Kira: Oh, I read your mind very poorly.

Jimmy: That’s okay. That’s okay. We’ll get that distributed momentarily, but it’s [email protected] There you go. Now you’re sending it to everybody. Few more questions. We actually have a ton of questions for you, Kira. So by the way, if we don’t get to your question, I wanna try to wrap this up in the next five minutes or so. If we don’t get to your question, please do reach out to Kira directly. You can call her, she gave you her cell phone number. You can text her, you can email her. You got a lot of options there.

But I’ll move on to Richard’s question next. Richard asks, “What is the anticipated equity multiple over 10 years?”

Kira: Yeah. So I’ll shrink that down and I’ll say we’ve got an anticipated equity multiple of 2x over the first 2 years. And then after that, I didn’t really calculate it because I’m okay with that. Essentially, when we refi, you know, it’s anticipated full return of capital, 50% LTV and then ongoing cash flow. One thing I should mention is that I think I’m a bit on the…so a 10-year hold period was nothing for me. I’ve been buying property since I was 18. I’ve sold three properties other than the few thousand flips I bought, which I did intentionally just to buy and flip. But when I buy something to hold, I really only sell it if the underlying economics are getting really, really bad, or I get just an incredibly insane offer that I can’t turn down. So I’ve only sold less than a handful of properties.

When I build a portfolio, and this is where I’ll say some personal philosophy, I believe I will never look out for your money as well as I look out for mine. Even though I say I’m an ethical person, I’m a good person, and I believe all those things about myself, I think it’s human nature. And so instead, I think it’s important to align interests so that when I’m looking out for my interests, I’m looking out for yours as well. So we’re not a fit for every investor. If people are really focused on like an IRR multiple or getting in and out of deals, we’re just not your partner.

We are building a portfolio, and I say “we” because I’ve got a team of investors I’ve been working with that we slowly and intentionally grow year by year that are building a behemoth of a portfolio so that our my grandkids’ grandkids own real estate with your grandkids’ grandkids. So we focus on getting into the assets, stabilizing them, refinancing them to pull out the initial capital within the first three years and then every five years or so, doing another liquidity event to access capital, but we never really intend to exit the property.

Jimmy: All right. Great answer there. And you’re speaking straight to my heart there when you’re talking about aligning incentives. I think that’s always so crucial and you wanna make sure that your incentives are aligned and if they’re not, maybe it’s not a great fit. Let’s see, Mitch asks, “How does this qualify as a QOZ and how much money is being put into it?”

Kira: Yes. So 98% of Puerto Rico is already considered an Opportunity Zone. And one of my soapboxes about Puerto Rico Opportunity Zones is that in most places in the States, Opportunity Zones have to be in areas that have real dire economics, you know, a decrease in the population, exodus out of the area. What makes this so incredible is that Puerto Rico by nature with some of the challenges the island has had was granted the benefit of being a full Opportunity Zone. I mean, we faced a massive hurricane, earthquakes, a bankruptcy, and so the island overall has had some serious challenges and we appreciate the support of the federal government in identifying 98% of the island as an Opportunity Zone.

But to your point, there are pockets within that that are thriving areas, and I believe this is one of them. So I think it’s a very unique Opportunity Zone, no pun intended, in that…actually, it was intended, sorry, totally cheesy. But in that, the fundamentals are really solid on this transaction irrespective of, and then when you add the Opportunity Zone, it’s just an additional benefit. To answer your question point-blank, the purchase of the property is $8 million. We’ve got about $12 million identified in improvements, including the roofs, the painting, the landscaping, the asphalt, and we’ve got 55 additional acres besides the property that are available for solar power generation and other development.

Jimmy: So definitely meeting substantial improvement there, which is, I think, what Mitch was getting at. We’ll ask one or two more questions and then I’m gonna turn everybody loose, get them into the happy hour. I did just post the link for the happy hour mixer. Please do hop over there when we’re done with Kira. I don’t know if Chris is gonna open it up before then. So don’t click it just yet. Couple of quick ones. Let’s see, what is your total desired target capital raise? How much of that is still available? What’s the minimum investment?

Kira: Great question. Okay. So all we have left on investment is about $2.5 million, total offering was $15 million. But we’re not raising the full because we got a construction loan that offsets some of that. So that allows us better leverage. So we’ll be all in on equity between A and B share right around $9 million and about 50/50 A share and B share. So we don’t have a ton of room left.

Minimum investment is technically $250,000. But for investors that are part of the Opportunity Zone fund, we’re doing a relationship analysis case by case. So there’s a lot of great deals in front of you right now. And if you’re looking to spread capital out across more of them, we’re happy to do that. The reason I say case-by-case relationship analysis is what I said before, I’m not looking to sell anyone. I’m looking to find partners who wanna go out and make a lot of money. I’m not as young as I used to be, but I still have at least 30 years of doing this in me.

I’ve been doing it for 20, I started at 18. So there’s all my numbers. And, you know, so I am less concerned about whether you hit a minimum investment amount and more concerned about whether there’s an alignment of philosophy, alignment of interest, and candidly, an alignment of liquidity, so that the size deals we do and the kind of deals we do are something you can continue to participate with us on. So if you wanna come in in this one at a lower number, we can make that exception as long as it’s a good long-term fit for everybody.

Jimmy: Fantastic. Well, I think we’re gonna cut you loose there, Kira. Kick you over to the happy hour. Kira will be available in the happy hour. If you wanna chat with her there, you can. If we didn’t get to your question, you can certainly try to reach her there, or you can email her, call her, text her. She just posted her number and her email address in the chat. So pull that up. Kira, thank you so much for participating today. I really appreciate it.

Kira: Putting this together was amazing, amazing. Like the team, the panelists, the work you guys have put in, super blown away.

Jimmy: Thank you. Thanks for the kind words, Kira. I’ll see you in the happy hour in a few minutes.

Kira: See you there.