OZ Pitch Day - March 23rd
Opportunity Zones For Family Offices, With Alex Bhathal
Ultra High Net Worth investors and family offices are ideally suited for real estate investments in Opportunity Zones. The long holding period and strategic differences between OZs and other tax-advantaged investments can be complimentary in a large investment portfolio.
Alex Bhathal, founder and executive chairman at Revitate, joins the show to discuss the evolution of Opportunity Zones and how family offices have come to better understand the incentive.
Watch On YouTube
- An overview of Revitate, and their nationwide investment strategy focused on sports, consumer, and real estate investments in secondary and tertiary markets.
- The evolution of understanding and interest in the Opportunity Zone incentive by family offices.
- How the strategies and goals of Opportunity Zone investing differs from most other real estate investment strategies, particularly those associated with 1031 Exchanges and DST investments.
- The popularity of the Opportunity Zone incentive with investors and communities.
- How the Opportunity Zone reform legislation may be a large step toward making the OZ program permanent.
- Market locations and property types that are attractive to Revitate in 2022 and beyond.
- How an equity rush of multifamily in certain markets may put downward pressure on pricing and investor returns.
Featured On This Episode
- IMN Real Estate Family Office Forum – Dana Point (IMN.org)
- New Legislation Would Extend and Improve Opportunity Zones (OpportunityDb)
- Bullish Opportunity Zones Equity Raising Continues Despite End of Basis Step-Up Benefit (Novogradac)
- US housing market is short 5.5 million homes, NAR says (HousingWire)
Today’s Guest: Alex Bhathal, Revitate
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.
Jimmy: Welcome to The Opportunity Zones Podcast. I’m your host, Jimmy Atkinson, joining you from the Real Estate Family Office summit, the IMN Real Estate Family Office summit here in Dana Point, California. And my guest joining me today on-site is Alex Bhathal. Alex is the founder and executive chairman of Revitate. Alex, how’s it going? How are you doing? Welcome to the show.
Alex: Thanks, Jimmy. Great to see you. You’re a real pro here on our panel recently, and Jimmy was dropping bombs of wisdom in front of the crowd as usual.
Jimmy: Appreciate that, Alex. Yeah, we just walked off stage from our qualified opportunity zones panel just a few minutes ago. This conference focuses on all real estate for…specifically geared toward ultra-high-net-worths and family offices, but we were the one opportunity zones show for the day. We just got done, wrapped that up, so we’ll kind of recap that a little bit during today’s podcast episode, and we’ll also get some updates from Alex on his opportunity zone projects that he’s developing nationwide. Alex, maybe you can start us off with some of those updates, tell us a little bit about Revitate, your platform, the funds that you’re working on, and what you’re doing in opportunity zones.
Alex: Sure. Thanks, Jimmy. Thanks for having me here and great to see you as always. So I am executive chairman and managing partner at Revitate, which is our investment management platform spawned out of our family investment office called RAJ Capital. At Revitate, we focus on sports, consumer and real estate investments. Our roots are really in the opportunity zones space where we launched a series of funds dating back to 2019, and we were one of the early movers in the opportunity zone field. We were named Opportunity Zone Investor of the Year back in 2019, top 25 fund manager this last year. So, we’ve done a lot of great things in this space, invested in billion-dollars of new developments across the country. So, we’re really proud of our accomplishments there, and really excited to expand our portfolio of investment products beyond just the opportunity zones into multi-family, and soon to be in the sports space as well.
Jimmy: Right. You’re a family office as well, and you work with other family offices as investors in your fund, or…?
Alex: We do. That’s been the roots of our investor base from the very beginning, was relationships that we’ve had and developed over the years with other family offices, and they were kind enough to believe in our vision, and our conviction around opportunity zones and the family office community was the basis of our original support.
Jimmy: Good. Yeah. A lot of the content that I’ve created on OpportunityDb and the platform that I’ve put out, and this podcast too, speaks a lot of the time to the retail high-net-worth investor. We’re speaking to the family office folks as well, but more of the focus has been on, you know, that smaller retail mainstream investor. So, I want this episode to kind of speak to family offices out there right now. Do you feel as though there’s a huge opportunity for family offices with opportunity zone investing, and are some of them not really grasping what opportunity zones are yet or…what’s your take on the evolution of understanding of the OZ program by family offices?
Alex: That’s a great question. I think it kind of goes to the maxim, if you’ve met one family office, you’ve met one family office. They all tend to have their own idiosyncrasies and different criteria for making investments. What I can share is at the beginning of the opportunity zone marketplace, there was tremendous interest from family offices, there was a steep learning curve for motivating investors to understand what the tax advantages were, and how the opportunity zone program could help serve a social impact goal of investing in historically underprivileged communities. So, you had tax advantages, you had impact. At the same time, there was a hesitancy at the beginning by many families to put money to work in opportunity zones, given that it was a 10-year time horizon, which for family offices isn’t a long time, but it is typically longer than a…it is longer than a typical fund, fund life, and the lack of clarity around the regulations and what this all was going to look like, and would this program work? Would it transition from a Republican administration to a Democrat administration? All those questions have been answered. So, every day, the momentum and interest amongst family offices for opportunity zones increases. It really is less about educating about the program, and more understanding, is this the right deal. And we spend a lot less time talking about opportunity zones as a category and more time, rightly, on whether this strategy is the right investment strategy for the families.
Jimmy: Right. It oftentimes gets compared to DST or a 1031 type of program, I think anyway. There’s a lot of similarities, but quite a few differences as well. A couple of differences, you know, one, it’s a place-based policy, opportunity zones are, so you’re limited to certain geographies, right? Another is the substantial improvement or new use requirement really necessitates it’s got to be ground-up construction in most cases, if not a very heavy redevelopment. You can’t just OZ into a stable cash-flowing situation, so it’s a little bit more of an opportunistic, more focused on capital growth, really, than capital preservation. It’s a completely different strategy, and it’s a little bit different strategy to get your head around, I guess, as a family office, especially given that it is a relatively new program. It’s only been out for four years, and we’ve only had regs for two of those four years, roughly.
Alex: With the pandemic in the middle.
Jimmy: With the pandemic in the middle of it. So, we’ve had some hiccups along the way. Oh, thankfully, maybe we have…this being a perishable tax incentive, too, the clock is ticking, right?
Jimmy: We’re getting toward less than, what is it, less than 5 years now, a little more than 4 years, until the program really starts to sunset at the end of 2026. Thankfully maybe there’s some legislation on the way to the rescue that could extend the program by two years, and maybe it’s the first step toward making this program permanent in the long run. What are your thoughts on the new legislation? I know you’ve been a big champion and an advocate of opportunity zones since the get-go, what do you think of the new legislation and what do you hope for it?
Alex: Well, I hope it passes. I think it’s been a great accomplishment to get it to this point with Senator Booker and Senator Scott agreeing upon the framework and actually the introduction of the legislation. And it goes to the viability of the marketplace. You mentioned just a few minutes ago about current estimates are all over the board, but Novogradac or I think your estimate was $100 billion of equity has gone into opportunity zones across the country in just a few years with the pandemic in the middle of it.
Jimmy: So, which means, I mean, that’s only the equity portion. So, I think maybe there’s $0.5 trillion of OZ projects already.
Alex: It’s amazing.
Jimmy: Yeah, it is.
Alex: It’s amazing. And that shows that this program is extremely popular with investors, it’s extremely popular, especially with mayors because it’s bringing capital in the places that have been historically overlooked and helping…and truly helping to improve communities. So, I think the proof is in the pudding, investors want this, cities want this, the marketplace is maturing. It’s survived transition in parties and government, and now there’s an opportunity to extend it in a bipartisan way. So, I really hope that they’re able to get it accomplished this year, and I hope, to your point, that it’s another step towards a permanent opportunity zone program that can be here for a generation.
Jimmy: Yeah, absolutely. Well, we’re at the IMN Conference, as I mentioned earlier. A lot of family offices here, a lot of project sponsors, and other developers here. What brings you to the conference? What do you hope to get out of your time here, Alex, other than shedding some light on the OZ program during our panel?
Alex: Well, I have to say it’s very convenient for me. I live up the street, so…
Jimmy: That’s a good point, yes.
Alex: So, it is an easy one to attend and we get to see Jimmy and some of the OG opportunity zone players on our panel. So, it’s great to see familiar faces, and just get a flavor anytime we have the opportunity to be in person. I mean, there was a couple years where we weren’t really…we took, previous to the pandemic, we took for granted the ability to press the flesh and meet people and talk face to face and learn, and now we’re back. So, it’s great to be back in person and hear from other panelists on wide-ranging topics in the investment community with a focus on real estate, which is very core to what we do at Revitate and within our family office. So, it’s great to be here.
Jimmy: Yeah. And I think you touched upon this a minute ago, just kind of looking forward for Revitate, you’re about to launch your fourth opportunity zone fund. What can you tell us about that fund? Will it have a similar strategy?
Alex: I think each investment phase that we go through, we get better and we learn more. So, we expect to have an evolution, not a revolution in our thinking about how to invest in opportunity zones. We’ve always believed in investing in the urban core of up-and-coming markets across the country, with a focus on strong, quality sponsors. So, those pillars remain. And now as we’ve grown, I think the size and scope of our projects can take a next step forward as well.
Jimmy: Secondary and tertiary markets, one of your areas that you’re kind of focusing on. You’ve redeveloped a lot of the Arena district in Sacramento, with the Sacramento Kings ownership. What markets do you like moving forward, if I can pick your brain on that?
Alex: Yeah. We’re going through that process right now of understanding where the macro trends post-COVID are most conducive to long-term investment. We’re looking…we’re studying where people are moving to, where the jobs are moving, where the regulatory environments are going to be favorable to accommodate a population of business growth, and at the same time understanding supply and demand in those marketplaces. A lot of people are moving into, or are chasing deals in the Sun Belt. We think the Sun Belt is great because there are certainly a ton of people and a ton of companies moving down there, at the same time there’s a lot of new development there and prices have really run up. So, our mindset has always been focused on value, so making sure that we find the right markets where the demand is there, it’s steady, it’s durable, and at the same time there’s not an oversupply or a glut of new product coming on in the marketplace that are going to affect projected rise.
Jimmy: And in terms of property types, I think you like multi-family, but you’re more or less property type agnostic when you’re going into a new OZ deal, is that right? Can you tell us more about that?
Alex: Yeah. We’ve been focused on identifying the right marketplaces, the right locations within those marketplaces, and most importantly partnering with the right developers who have the experience to execute the business plan according to the size and the scope of what we’re looking to do. And we know that over a 10-year period, different product types will come in and out of favor, multi-family and industrial certainly is the most resilient through the last market cycle and we expect that to continue, but that’s not to say that’ll be the only thing we invest in.
Jimmy: Maybe office and hotel will come back at some point soon. It’s starting to come back, right?
Alex: It’s starting to come back. And I think in select circumstances you can make good investments in those areas. You just have to be ultra-careful.
Jimmy: Right. Yeah, the latest Novogradac survey data, and we’re recording this in early June, so the latest survey data I have from them is from Q1, it showed that, I think if I’m recalling correctly, close to 80% of all qualified opportunity funds had at least some exposure to residential. I don’t know if that’s gonna continue or maybe it will, but you seem to think there’s probably some natural ebbs and flows to which property types are best valued at certain periods of time?
Alex: Absolutely. At the same time, multi-family really has become kind of the core of the opportunity zone investment thesis for pretty much everybody.
Jimmy: It does seem like it, yeah. Well, we are according, to a survey…not a survey, some data from the National Association of Realtors, I think, I don’t know, a few months or a year ago, I’m a little fuzzy on the details, I can’t remember, but they say there’s a 5.5-million unit shortage in this country, which I’m sure you’re familiar with that statistic or something similar to that, which is incredible. So, no amount of multi-family development can really lead to oversupply nationwide, at least. Are you concerned that maybe some areas of the country might be overbuilt, that there may be some equity rush that might heat up supply too much in certain markets, or are those fears overblown?
Alex: Well, I think that’s very real in terms of pricing, of the entry point of the deal. To your earlier point, there’s a massive shortage of multi-family housing and housing in general in this country, and here in California, especially, so we need to build as a country, full stop. And as that supply comes on, it’s gonna come on in an imbalanced way into different marketplaces based upon where developers think they can make the best returns. So, that’s the nature of markets, there’s supply and there’s demand, you have to find the best areas to invest in where you’ll find relative value.
Jimmy: Sure. Always good advice. Alex, it’s been a pleasure speaking with you today. Before we go, can you tell our listeners and viewers where they can go to learn more about you and Revitate?
Alex: Sure. Thanks, Jimmy, Always great to see you. We’re at revitate.co.
Jimmy: For our listeners and viewers out there, as always, of course, I will have show notes on today’s podcast episode on the Opportunity Zones Database website. You can find those show notes at opportunitydb.com/podcast, and there you’ll find links to all of the resources discussed on today’s show with my guest, Alex Bhathal. And please remember to subscribe to us on YouTube and your favorite podcast listening app. Alex, again, pleasure. Thanks for joining me today.
Alex: Thanks, Jimmy.