Inflation And Opportunity Zones, With Chris Loeffler

Inflation recently hit a four-decade high of 9.1%. The stock market is down double digits year to date. The U.S. economy is likely in a recession. What do investors need to know right now about Opportunity Zones and macroeconomic turbulence?

Chris Loeffler, CEO and co-founder of Caliber, joins the show to discuss how investors should consider these issues, and whether there may be opportunities to take advantage of.

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Episode Highlights

  • How Caliber is adjusting its Opportunity Zone investment strategy in reaction to this year’s economic turbulence.
  • How investors should protect against downside while at the same time seeking opportunities from periods of uncertainty.
  • How rising interest rates and may lead to falling asset values, and why this may lead to more opportunities in buying existing assets vs. new construction.
  • The impact of inflation on Caliber’s operations.
  • Why interest rate increases are leading to Opportunity Zone projects needing more equity.
  • The importance of tax planning with your financial advisor, and some ideas for what to do with triggered capital gains.
  • Updates on Caliber’s OZ Fund I close and OZ Fund II launch.
  • The prospect of mergers and acquisitions in Qualified Opportunity Funds.
  • What pending Opportunity Zone reform legislation may mean for investors and the OZ marketplace.

Today’s Guest: Chris Loeffler, Caliber

Chris Loeffler on the Opportunity Zones Podcast

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 Atkinson: Welcome to the opportunity zones podcast I’m Jimmy Atkinson and well, what do you need to know right now about Opportunity Zones and inflation. That’s one of many topics that we’re going to be covering on today’s episode. Joining me on the show today is my good friend in the OZ world Chris Loeffler. He is the CEO and co founder of Caliber the wealth development company and he joins us today from his office in Scottsdale, Arizona. Chris welcome to the show how you doing.

Chris Loeffler: Doing great it’s nice and warm it’s summertime in scottsdale so it’s 187 degrees outside and all of us are cooking but now it’s been.

It’s been a good summer for caliber so far, notwithstanding all the inflation and everything else that everyone’s concerned about, but our business is actually doing really well, which is exciting at this time.

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Jimmy Atkinson: No that’s great to hear, I was gonna make a joke about whether you are keeping warm down there.

Valley of the sun, but I guess you already beat me to it.

I mean costs inflating prices inflating temperatures right.

Chris Loeffler: It’s all all of the above and the longer you live in Arizona, the more you realize that heat is just a social construct.

Jimmy Atkinson: it’s a good way of looking at it, I like.

That we’ve got plenty of hot weather here in Fort worth Texas as well not quite 187 I think we’re at about a buck oh five out there, right now, last I checked.

Maybe a buck oh six well let’s dive in today, Chris as i’ve been covering for the last several weeks on this show, and also on our.

Alternative Investment podcast my other show that I co host with Andy hagen’s we’ve been talking about the economy, the macro economic turbulence that.

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has been unfolding over the past few months here markets are way down I the the s&p 500 had its worst six months start to the year since the 1970s, if I recall correctly, inflation just hit 9.1% we’re recording this in the middle of July, so we just got that CPI print day or two ago.

in interest rates are on the rise, we might be heading into a recession, a lot to think about there, how does caliber adjust its strategy in reaction to all of these events and economic uncertainty or turbulence and and how should investors, think about it.

Chris Loeffler: yeah I think about the investors first, and you know I think if you look at past recessions let’s just assume we’re in a recession, I think that’s a fair assumption at this point in time, if we’re not in a recession, I think it would be a.

Very you know big surprise to the majority of people, I think we all agree that this is where we’re at.

And if you look at past recessions, especially in the 2008 financial crisis, you saw some of the greatest companies and some of the greatest deals done in those years, and so.

As an investor, you should be waking up one day thinking about how do I kind of protect the downside, and make sure that I do the best I can to make my way through this but.

Also, you should wake up the next day and say where’s The opportunity is going to come from this, and in my position to take advantage of it.

and obviously that’s self serving as a company that raises capital and manages capital, but you I think it’s important to state that, because caliber strategy really hasn’t changed.

we’ve always followed a very similar playbook which is.

When we once we’ve deployed capital, we do everything we can to protect that capital and we make sure that you know we’re as creative as possible to manage our way through every deal.

Including you know, of course, in the last year or so we faced a lot of increasing costs, construction and all those things and we’ve had to do a lot of things to hedge against that.

Having said that, we are one of the most entrepreneurial companies in our space constantly looking at.

Okay, everything has fundamentally changed in the last three or four months that’s new that creates a lot of disruption and a lot of new opportunity and how do we position ourselves to go after it on behalf for clients and so.

that’s what’s on our mind our strategy has always been to be agile and to be focused on jumping after those opportunities and not questioning the change just sort of going with the flow.

there’s a great book called the clipper ship strategy which is sort of an old book talking about the economy, and you know it sort of.

looks at the Keynesian view and looks at you know the I guess the Austrian Economics view of the economy and the concept is you want to be a clipper ship meaning, you want to be.

This little agile shift that can move and shift each time.

The either the economic situation changes or the government changes, and right now we’ve had both we’ve had.

A dramatic change in government, a dramatic change in the economy we’ve had a black swan event and all three of those things are different headwinds pushing in different directions so.

As much as possible, you don’t want to be looking at things from a rigid perspective to say hey look.

we’ve been doing affordable housing for 30 years that’s all we’re ever going to do want to say okay well, maybe that’s not going to be the best thing to do, maybe we should be doing medical right now, maybe we should be looking at.

Infrastructure for manufacturing because that’s that’s a big push right now so that’s what we’re doing internally is we have those conversations all the time.

And I can share more with you Jimmy on what we think, where we think the opportunities are why we’re going in the direction we’re going but.

I will say I will tell you that we have, after the last three or four months we have definitely modified our thinking around where the opportunities are going to be going forward.

Jimmy Atkinson: Well that’s great because I actually like to hear a lot more about that yeah from crisis oftentimes comes great opportunities or I guess another way to put it is you got to make some lemonade from these lemons.

How well how what what are you guys doing differently, where do you see the opportunities one thing about.

Your qualified opportunity fund, one which just closed and we’ll talk a little bit more about that a little bit later in today’s episode is that.

you’re mostly property type agnostic if i’m if i’m recalling correctly you’re you’re geographically focused in the greater south west.

But you’re not really locking yourself into just multifamily or just office or just industrial so you’ve got a little bit of flexibility there with regards to your investment thesis or investment mandate, if you will, where where do you see the opportunities ahead, though, Chris.

Chris Loeffler: yeah so fun one just closed big deal for us, we raised about 200 million in that fund, and that will end up owning about $500 million worth of property so congratulations to all the fun one investors.

Last valuation had it up 35% and you know, notwithstanding the change in pricing and financial assets in the last couple of months we don’t see those asset values coming down we actually see them continuing to progress so that’s.

that’s a great great thing for us and what it did, interestingly enough, because we were very loud and we were very.

Early in the opportunities on space is that fun one basically seated a very large pipeline of additional follow on investments for fun too.

So one thing that’s not changing in some degree, is our second fund is basically going to pick up where the first fund left off in the pipeline that we’ve built a development projects and partnerships and continue to fund into those.

What is shifting out in in the second fund strategy is a little bit wider geographic diversification, most of our assets in the first fun we’re in Arizona we’re adding in Texas we’re looking at stuff in salt lake city right now in other places and.

I think there will be some interesting opportunities in existing assets versus new development, and the reason why is because.

You know when the market is here, and you can build at this cost and there’s a spread that’s what you want to do.

But when the market drops and there’s a good likelihood that real estate assets will drop in value at some point in time, in the near future.

The construction prices are a lot more durable.

The cost of Labor the cost of materials they’ll come down some but they won’t come down nearly at the same level as asset values will and that’s just that’s just the way the market works.

So what will happen is that existing assets tend to drop pretty far, especially if there’s issues in the debt markets, and so I think as i’ll just give you a simple example.

In the last five years, the fat across the country has been buying multifamily assets with bridge financing.

Okay, so a bridge loan is a three year long with one or two one year extensions and if you were buying multifamily in the last three to five years, with three year loans with one or two extensions.

And you’re using bridged at two and a half percent interest thinking you were going to refinance with Fannie or Freddie Mac and Fannie Mae Freddie Mac at 3% interest you’re now.

Maybe able to refinance that loan at 6% interest and probably for not the same loan proceeds, so your loan costs have doubled and the amount of proceeds you, you are going to get are less and so your pro forma just doesn’t work anymore.

So anyone who’s been buying income producing multifamily and thinking, they were going to either hold it or turn it around is probably going to be in the market soon trying to dump it.

And if it’s not them it’s going to be the lenders who took it over that are then selling it.

And that’s what causes these disruption and pricing and that’s where caliber wants to enter and buy these things because that’s where the spread is even though the market might have come down in value there’s still a new spread at the bottom and a lot of things.

Jimmy Atkinson: That probably cause a huge glut of supply on the market.

that’s going to drive down prices.

Chris Loeffler: It does it does is sort of like a it desktop spiral is an overused term but that’s what happens is more stuff comes on the market which lowers valuations even further, which causes the issues to compound.

Having said that a lot of this stuff because it’s commercial assets and it’s not the same thing as in the 2008 financial crisis, when it was all these single family homes.

it’ll actually trade institutionally behind closed doors pretty quickly and the problem will probably clear out faster than what most investors will realize.

But that creates opportunity to for caliber to think about buying existing assets and that exists in all the hot categories like multifamily self storage industrial.

Any of those asset classes that were the really favorable classes are going to be the ones that we’re going to be, you know, keeping an eye on.

And, as you know, as long as you do, substantial improvement to those properties, they can qualify in an opportunity zone structure so.

If there’s a class B multifamily asset that falls, and we can do a really nice Renault that can be a qualified deal so we’re going to be.

Certainly, continuing to do ground up developments in opportunity zones, because that is the nature of the program but, having a tighter focus on existing assets as well.

Jimmy Atkinson: Sure, no that makes perfect sense you got I like that.

The hand gestures, you were making if you’re if you’re listening to this podcast on on apple podcast or spotify you’re missing the hand gestures that we’re making right now, you should be watching us on YouTube but.

You know, Chris has his hands far apart there’s a there’s a spread between new construction being much lower than buying buying up existing assets, but that spread starting to.

come down the I think it does Chris I don’t know if you touched on this, I may have missed it but i’m also thinking.

The substantial improvement will requirement isn’t nearly as burdensome if asset prices come down, you have a lot less capital that you have to put into improving the building it makes it more likely, because for a long time right, I mean it was very difficult.

To attain substantial improvement in most markets, particularly in multifamily that’s why you see so many rosie projects are I don’t know what the number is but I got imagine it’s it’s north of 90% ground up construction versus.

buying up existing assets and rehabilitating them in my off there, am I am I right.

Chris Loeffler: that’s right yeah and and the way to think about that is almost like what’s the market for assets so cal.

One thing that won’t change about caliber strategy for fun one to fund to is that we’re still focusing on this place based strategy of.

pick census tracts and opportunities owns that we like location wise and build what is necessary to build in those census tracts so understand the market.

and invest in or build assets that makes sense, considering what’s going on within that market that’s why we’re a mixed asset fun.

versus a lot of our competitors are saying well we’re we’re only doing industrial or we’re only doing multifamily or something like that so.

We were doing the same thing, but now the pool of investments, we could buy has expanded as those asset value start to adjusted it to your point, it gives us more optionality to buy existing assets.

The other thing that will be really interesting to look for and we already are doing that this currently but we’re going to be looking for more of it is conversions.

Through an adaptive reuse strategy so taking office buildings that are now functionally obsolete due to the pandemic.

and converting them to housing apartments same thing with hotels being converted to housing.

Right now work we’re currently converting the hotel to housing and we have a partner that’s converting an office building housing so.

we’re seeing that happen, right now, as we speak, and those are great deals in both cases we’re into those projects for less than it would cost for us to build ground up.

Jimmy Atkinson: And then you’re able to meet substantial improvement on those.

Chris Loeffler: In the conversion you’re doing enough work on that building to hit the substantial improvement clause.

Jimmy Atkinson: yeah well that’s that’s probably a big need to I would imagine there’s a housing shortage in most markets all over the country, and probably a oversupply of office, given the the you know just what’s unfolding over the last 24 plus months coming out of the.

Chris Loeffler: yeah especially suburban office, and when you talk about Community impact take a suburban office this hasn’t paid its property taxes for four years, because it’s.

vacant and bankrupt and convert it to housing at an affordable level that all of a sudden fits that affordable housing or you know at least workforce housing or sort of.

Low end of the market rate so it’s still approachable I guess they call it attainable housing all those things are all positive it starts paying property taxes again and you’ve now.

provided a service to the community that’s needed so adaptive reuse is going to be a much stronger strategy now going forward and existing assets are interesting we don’t we don’t know if there’s going to be a big pile of them, but we think they’re coming.

Jimmy Atkinson: And it may very well be time will tell, but.

But there may very well be that that pile of great deals coming on on existing assets, like you, like you pointed out, what.

Chris Loeffler: Is a.

question for the for your for your audience to think about is is the opportunities own fund manager that i’m investing with or that i’m planning to invest with are they.

Do they have a track record of investing in distressed assets adaptive reuse renovations or are they only a merchant builder or something you know if they’re only if the only thing they’ve ever done is build the same building over and over again.

you’re they’re going to struggle, because building right now is going to make less and less sense.

Unless something changes.

Jimmy Atkinson: Well, some definitely some good topics to think about there Chris well let’s get back to inflation, we wanted that to be one of the main focuses of today’s episode.

Everything is going up in price right a lot of rising costs and construction i’m sure, maybe in in acquisition values, notwithstanding our conversation about.

You know, some assets, probably being report price to your at some point in the future, but what impact has inflation had on caliber if you guys have experienced any delays or modifications or.

Have you found that some projects suddenly need more funding now what what what what take do you have on inflation and and its impact on your operations of caliber.

Chris Loeffler: what’s interesting because in the last report it was at 9.1% year over year, but there was also buried in that one thing that I think is kind of strange and a little scary is that.

average wages were down 3%.

Which is odd, normally, you know, in the past when we had significant inflation back in the 70s, or so wages were inflating at a similar rate, so this was what was what it was, but that that really calls into question.

The need for things like affordable or attainable housing that we already had a big need for and most opportunities own communities before the pandemic and then this that’s going to just put even more pressure hourly wages are down 3% and costs are up 9% you know.

Jimmy Atkinson: that’s a big and housings up in rental rates are.

too, but maybe that’s not sustainable, with given what you’re pointing out.

Chris Loeffler: Well yeah it’s what point in.

Time does that.

break and you think about the average household income in the US is around $87,000 and the average cost her up around 8000 a year 8000 a year for household making $87,000 is roughly equivalent to their entire food budget for the year.

So, like just take a moment and think about that, like just because rents are up right now.

doesn’t necessarily mean they can continue to to stay with inflation so as you’re in your underwriting you have to think through that you have to say okay.

If building materials costs are going up and Labor costs are going up, they can’t go up forever so when do I want to start my project at a point in time.

Where that that bubble is going to release and caliber has done our forecast and we think that’s going to happen in May of next year.

there’s enough things between supply chain issues and just the the the unlikely possibility that those costs can continue to rise, that we see an actual real drop off in the building supplies, you know.

lumbers already coming down, but other other components of building and then Labor softening and so Labor laborers work willing to basically work for less money at a lower cost.

So everything or buying now we’re we’re thinking about.

let’s make sure we don’t start these projects until June or July of next year and construction and let’s not fix our bids on anything until we’re a little bit down the road so we’re that’s how we’re thinking about it going forward and.

You know, maybe everybody else thinks the same thing, and maybe.

Jimmy Atkinson: you’re in wait and see mode a little bit you’re not rushing out to the market looking.

Chris Loeffler: we’re we’re aggressively buying projects because there’s a lot of fear.

And then there’s fear that’s that’s when the good prices come.

But we’re not aggressively trying to start construction and placing the GMP contract and that kind of stuff because.

We see a lot of opportunity for cost to come down in some of those components now The other thing that you mentioned is, are you having to put more equity into projects, the answer is going to be 100% yes, because.

That costs are going up to a point where, if i’m going to pay 6% for money from a bank or 10% for money from private lender i’d rather just pay my equity investor.

Jimmy Atkinson: 8% 9% exactly look a lot cheaper doesn’t.

Chris Loeffler: Right funded all with equity, you know why take on the risk of debt if that’s going to be expensive and so.

Jimmy Atkinson: you’re planning on using substantially less leverage on your deals going forward for a while here.

Chris Loeffler: We had in our first fun, we only limited the leverage to a maximum of 50% ltv and we’ve never actually broken past 40%.

And we did that, for a risk management tool because investors who had seven plus figure exits from businesses were investing in our fun.

And they needed to protect that capital, and so we figured well, while we build these things will run it with very little debt and then, once their cash flowing will bring up the debt.

This point in time, once their cash flowing we might not bring up the debt nearly as much because other than funding and up in the distribution to help them pay their taxes, if the debts expensive there’s no point.

fun too yeah we’re definitely thinking much more equity across the board and investors, I think if you’re an equity investor you’re going to benefit from that because you’re going to have bigger distributions and and better safety in this environment.

Jimmy Atkinson: yeah good good points there, so you mentioned the cost of debt has has gone up what looking at construction costs, and you know, the need to have more equity in.

what’s what’s causing some some of the costs in construction to go up is it, I mean obviously it’s it’s materials and it’s Labor but is one having a bigger impact than the others, is what i’m trying to get at.

Chris Loeffler: I think they were both horrible I think materials are starting to come down, which is typical they’ll come down first.

they’ll never come down to the level they were pre all of this because there’s never been a time in history when they go up and they come back down.

But they’ll certainly come down to level it’s lower than today Labor always takes a while to reset if you’re a you know finished carpenter and you’re used to making 6070 bucks an hour and now.

The best job out there is going to pay you 32 that’s a tough pill to swallow, so it takes a while, for that to come, but you know it comes, and so we think.

that’s why we’re that’s why we’re planning for the summer of next year to move for a lot of our projects in terms of construction.

But having said all that, I think that, like I said the buying opportunities now that’s you want to invest at the point of maximum fear in the market, because that is where.

You know, as an example, a developer, who might have been working on a project for the last three years realizes it’s going to really be really hard to get it funded in is looking at the fact that they’ve got a million of their own money invested in this project.

That they’re going to lose it’s going to turn into vapor if they don’t get it funded or taken over by somebody else that’s when they hand us the project for very little.

And we can finish it off, you know so there’s there’s real opportunity in the market, right now, and that’s why, if you’re an opportunity zone investor.

And you just sold something you sold out of the stock market or you sold your crypto you sold your business or whatever.

And you’re saying, should I put money in a fund now or, should I just wait and see what happens to the economy, if you wait and see what happens with the economy you’re going to miss a lot of the opportunity.

Jimmy Atkinson: yeah no I think that’s a great point and it’s a it’s part of a story that i’ve been telling over the last several months is hey.

stock market, especially for stock investors typical I like to use the the example typical 6040 stock bond investor probably you’re overweight it in stocks, you have your your your you have very highly appreciated low basis gains that are unrealized maybe now’s a good and again.

This is not investment advice, but maybe now, this is just for general information purposes only.

Make that caveat not giving anybody investment advice, but I think there’s an opportunity out there for those types of investors to you know, take a little bit off the table, certainly, it was a better opportunity, six months ago, before the market tanked but.

You know, nobody has a crystal ball, but like a little bit off the table and divested into some real estate and why not do it through an opportunity zone fun that’s that’s kind of the drama i’ve been beating on over the past several months here, Chris.

Chris Loeffler: Well, and I think that’s right and I, and I say, I would say, out of all the investor conversations I have the one thing that consistently gets people’s eyebrows to raise is this concept of sort of gains shaving out of your stock portfolio so.

I mean if if you’re if you’re an average investor like the ones I talked to you may not even know that you have capital gains coming to you because your advisor did do some selling in the last couple.

months.:

Chris Loeffler: So you might have a quarter million dollars of capital gains that they have harvested in order to get you out of stocks and to the rescue, which is great.

Jimmy Atkinson: And then they don’t even tell you about it.

Chris Loeffler: And then they don’t tell you about it, so you have the tax bill.

Now, and and if you don’t get it invested within 180 days of those sales are going to lose so you know any you should be talking to your financial advisor making sure that you understand, have you harvested any capital gains if there’s anything out there.

Take that put the game component into an opportunity zone fund.

That further diversifies you gets you out of you know, a correlated investment and gets you into a real estate investment but also gets you the tax savings so again i’m not giving any financial advice either.

But I have that conversation with a lot, a lot of investors and a lot of very sophisticated investors.

And one thing they that their advisor typically doesn’t know is that you don’t have to net the gains and losses, so you could have.

500,000 and capital gains from selling activities 400,000 and losses.

from selling activities, you can take 500,000 invest that into an opportunity on fun take the 400,000 and games and roll it forward and use it in the future in your portfolio so.

it’s a very interesting moment to have a have a sit down with your CPA your financial advisor and have a meaningful discussion of what’s happened in your portfolio and what could happen as well.

Jimmy Atkinson: As a really good strategy, a good good idea they’re not advice obviously no but but good good things to think about.

Chris Loeffler: consult professionals.

Jimmy Atkinson: Please do please do consult your professionals, before making any investment decisions, of course, we like the caveat that that’s our that’s our disclosure oh so we talked about some of the opportunities that the current.

Climate or conditions, if you will, are presenting to you certainly some challenges as well with respect to.

Cost of everything going up and just economic uncertainty in general has its challenges are there any other challenges that that you’re facing lately Chris or that you anticipate you may face as a.

fund manager.

Chris Loeffler: I think investors should be concerned about the cost basis that they’re into a project for or that they could be into a project for.

If we have an extended recession and other types of issues if you in an opportunity on fun if you invest in something that’s maybe 30 or 40% above what it’s worth at the time.

And you spend the next 10 years recouping alive that loss you’re going to find that you got locked into a 10 year investment.

And you were in for a long time, but because you didn’t have much gain in the value of your investment from the beginning till the end because you got into the wrong basics, in the first place.

you’re not going to have very much tax benefit either, and so I think it’s just something for people to be aware of that, since asset values are shifting quickly.

you’re going to want to make sure that you’re investing at the right cost the right level so you’re not overpaying for land you’re not building at the worst possible time, all of those things are things that that matter.

And then, beyond that, for for caliber and specifically for our own funds and risks that we’re concerned about.

i’m not overly concerned about our first fund or second fun because we’re using so little debt that we can ride out any particular bad weather that we’re going to experience.

What I am always concerned about is that investors stop investing and stop in sort of freeze because we’re we’re opening fun to as of July 2022.

Trying to raise about 250 million this fund, and what happens with investors when there’s a lot of fear in the market is they tend to just do nothing they don’t buy they don’t sell they just do nothing.

And that’s why we want to get the word out to say, this is the best possible time for you to empower me as your fund manager to go cut deals and bring in some great quality projects, because when you’re fearful so is everybody else.

Jimmy Atkinson: that’s when the best opportunities arise quite.

Possibly well let’s let’s talk about your funds now and your opportunities own platform at caliber I think it was just June 30 a couple weeks ago we’re recording this in mid July.

yep you closed you guys closed fund, one after raising about $200 million in equity and, as you mentioned a few minutes ago, probably roughly $500 million in total project size.

Can you tell what what what else can you tell us about that fund your capital deployment strategy, you know what buildings have you acquired, to date, I saw I saw some news.

Forgive me, I don’t have it pulled up, I saw some news come across a couple days ago that you guys your first buildings underway now what.

Tell us much as you can about about fun one.

Chris Loeffler: Yes, a fun one was great one really fun projects in the fun eclectic group the you know the highlights, are we built.

The number one doubletree out of 600 in the country or actually I think in the world in terms of quality scores doubletree Hilton Hotel in tucson attached to the Convention Center.

In downtown tucson and it’s a beautiful property very successful it’s beating its current budget and it didn’t get completed until after the whole coven mass had mostly.

surpassed us so we didn’t sit there and take operating losses, while we were going through the pandemic you just opened after that so it’s been doing very well.

And you know, even though hotels, have not been a favorable asset class in the last couple years I think they will become very favorable because we adjust the rents there every hour so as prices are inflating so our hotel rates.

And then, other than that we’ve got a you know we went for deals that we felt were.

Had a risk mitigation, because we were a little bit concerned about this type of an environment, we find ourselves in so.

What one of those major mitigates is having a 20 year lease with a with a tenant so we’ve got two of those one is a private school.

With a school that’s been in business for close to 50 years and another is a behavioral health hospital with a successful hospital operator that’s a private equity fund and.

operator of I think probably around eight facilities now.

So those two have both been great the behavioral health is done and operating and producing cash flow the private school is in construction and and then we have.

kind of a like a turnaround or transformation of a downtown so the third largest city in Arizona we bought most of their downtown.

bunch of historic buildings for average price for $80 a square foot we’re renovating all those buildings we’ve placed tenants into nearly all of them, either in leases or an LM Weiss at the stage.

And we’re starting to move people in and all of this is getting done at the exact same time is Arizona State University opening a new innovation campus and downtown Mesa so.

You college campus right on the downtown we own the core of the buildings.

And then we started to draft off of that investment to do additional investments so we’re building workforce housing one block south of that hundred and 44 units of apartments.

we’ve got some other plans in the downtown Mesa area, I think the guys at Griffin capital are building 350 units as well in downtown Mesa so that one’s cool transformation of a downtown very impactful very much in the spirit of opportunities on investing.

And then, our largest project today is an escrow to close fun one will likely fund, the majority of the equity fun to may find a piece of it.

But is a roughly 100 acres of projects in the opportunity zone that is in the Center of scottsdale it’s on the Indian community land right on the one on one freeway in the middle of scottsdale, which is a great city in Arizona.

And this is going to be a mile of frontage on the freeway mixed use development of entertainment medical office retail cetera.

And it’s a development it’s enough land for us to do at least half a billion dollars for the development over the next couple years and so.

it’s great thing because we buy the land, we control that entire site, and then we can build in fun one and fun two projects that are ready to build over the next couple years as we get through the the initial development process.

Jimmy Atkinson: Now that’s great and I, if I recall correctly, that Article I read earlier this week was about one of your projects and mason I think it was your first building that open there, I think it was a Co working space I.

Chris Loeffler: wanted yeah yeah it sounds familiar.

yeah it’s really cool it’s like mid century modern kind of design it’s gorgeous and it is opening.

Actually, I think.

Next week, think it’s next week so.

Jimmy Atkinson: we’ll we’ll have a link to that article in our show notes for today’s episode if anybody wants to read more about that, so a fun one the collective, as you mentioned.

The strategy they’re really about picking the right zones, the right locations, not so much being invested in one particular property type as as we talked about Chris.

How many different projects total will fund one capitalized when all is said and done over the next few years is about a couple of dozen or or so.

Chris Loeffler: yeah from a project standpoint it’s.

Roughly 10 projects but it’ll be probably around 30 or 40 buildings.

And then fun to probably be a similar slice slightly bigger, it makes sense to just raise them.

In these pools deploy them keep the deployment really high that way that investor capital not sitting around you know waiting for a project.

And then just keep opening and closing new funds, so we plan to continue this process for the foreseeable future, as Jimmy, as you know, we’re adding in some additional strategies around co investment around merging smaller funds and hours to help those smaller fund managers.

Maybe gain access to good quality projects or take the burden of reporting off their shoulders or anything else that that may come down the road so.

we’re trying to be a long time, durable player in the opportunity and space, because the more stickier you are in the space, the more that the opportunities sort of land in your lap and the good ones are.

The best ones that walk in typically walk in the door, so we’re we’re dedicated to the space, and I think you know, even in the current set of laws opening funds, all the way up until 1231 2026 makes sense to me, and then you know if we get extensions we get extensions.

Jimmy Atkinson: yeah well, I want to talk about extensions and I want to talk more about your your merger concept or platform in a minute here, but I want to talk a little bit more about fun to.

just say you guys were raising 250 million for that one and, and so the investment thesis I guess the the geographic footprint a little bit broader going into salt lake city and in Texas, but what what else is different about fun to compared to fund one.

Chris Loeffler: So what let me answer, what is the same, and then i’ll answer what’s different so what’s the same is we’re still going to be location bias towards location.

bias towards investing in very specific opportunities and census tracts that we know really well and that we know are growing so there’s a lot of growth path there we’re not developing in an area that is you know, a desert for developments or something like that.

And what also is not changing is we’re still using lower levels of debt.

we’re still doing a mixed fund or a mixed asset class fund what is changing, is our our geographic focus is expanding and that’s just.

By nature we’re just getting a lot of opportunities from abroad or source of areas, so we want to make sure we have good geographic diversification and then to is.

we’re going to be focused on more opportunities and existing assets and adaptive reuse strategies, because we think now’s a good time to do them.

We were at a really great development cycle for fun one and coming into fund to with interest rates going up and with some distress in the market, we think there could be a an opportunity for adapter for us.

Jimmy Atkinson: And maybe buying a.

favorable values for the for the buyer as well.

Chris Loeffler: that’s the idea I mean.

Jimmy Atkinson: Talking about yeah.

Chris Loeffler: I mean again a strategy that doesn’t really change is by the best possible price, so our cost basis is lowest possible which maximizes the the value of the tax incentive.

And then the other thing that we’re doing with fun one and fun too, and the other funds that caliber has that we manage is, we have a long term strategy to roll these funds together and exit them as a public read and so that gives investors when they hit their 10 year mark.

The best possible sales price if we do it right.

and liquidity and it moves the decision from our hands to their hands on when they want to sell their shares in the fun, and so we think that’s the right move.

You know, will abandon that strategy if, for some reason, the public markets are in turmoil like they are today at the time, or if we can get a better price by selling off assets, individually or as a portfolio.

But we think we’re going to get the best possible price for each project by selling them to the public, we are read and if you do that right.

Then it’s a text for exchange for the investors in the oC fun, they can hold their shares for 20 years if they want and then, when they sell those shares they pay no tax on the value growth of the share.

Jimmy Atkinson: And well you’ve got about 10 years or so, to figure that out anyway.

Chris Loeffler: yeah it’s a while.

Jimmy Atkinson: But not locking change over the course the next decade we’ll we’ll see what happens as time unfolds, but you hinted a.

few minutes ago about.

Potential extension of opportunity zones, when you mentioned that 2026.

end date, the extension of course is one of revisions in relatively new opportunities own reform legislation that was introduced to the House and the Senate, a few months ago i’ve.

i’ve talked about this reform legislation on this podcast on numerous occasions over the past several weeks and.

Chris Loeffler: i’ll be more than you want to write talk probably we did a webinar on it.

Jimmy Atkinson: A few months ago, as well, but Chris how are you thinking about the reform legislation, how are your investors thinking about it, what happens if it gets past, what happens if it doesn’t get past what what are your thoughts.

Chris Loeffler: But you know my job is to find opportunities for investors and execute on them right, and so, if the reform legislation passes.

The execution piece of that is going to be affected, and it could be affected by the fact that we have enhanced reporting.

So what are we doing we’re already doing the enhanced reporting, or at least we’re doing what we think it’s going to be so we’ve already got the infrastructure in place.

We just sail right into that process and it doesn’t slow us down or cause us to lose you know focus when we should be focusing on doing other things.

And we do that with gtc and we’ve got our own little proprietary way that we’re doing our reporting.

The other thing that this legislation could do is it could offer investors who invest today.

Some of those benefits that they’ve lost theoretically.

On you know the step up in basis so that’s why we’re doing the best we can do, encourage investors that say look, if you want to own real estate portfolio, if you want to avoid paying taxes.

make the decision now sooner that you invest the sooner you start accumulating a preferred return.

And if this does pass, then you might pick up a nice tax benefit that comes from that so we’re trying to get the word out of course for that.

And then, most importantly, is we’re trying to build channels of capital, the cheaper, it is for me to raise capital, the more capital I deploy in the projects.

The better those projects perform, basically, and if this fund of funds thing goes through, and we can now.

have opportunities own funds invest directly into calibers funds as long as we build our funds out to accept that capital and manage it appropriately.

It means we’re going to raise more, and faster and probably at a cheaper cost because we’re not marketing for capital and we’re not doing all the things you do when you’d market for capital.

Which just means that we’re going to see better fun performance so i’m excited for that i’m hoping, I hope it goes through.

we’re advocating for it, I think it’s good bipartisan legislature, at a time when that’s rare to find and so we all expected or hoped that it will go through.

Having said all that, if it doesn’t it’s really not going to affect our existing investments and we’re going to just keep keep moving forward in the current roles.

Jimmy Atkinson: yeah just be a nice to have if it if it does get passed and.

yeah I i’ve talked with with several other fund managers and some of my contacts and Washington DC and.

And and elsewhere across the nation, and it seems like the consensus is, and this is all just speculation, of course I don’t really have any inside knowledge, but from what i’m hearing is if it does get past it’s most likely to get past.

As part of some larger tax extenders bill probably toward the end of this year after the midterm elections, but for this session of Congress gets out.

there’s just a lot more opportunities for bipartisan cooperation on content on diff on various different tax programs, and this opportunity zone reform legislation to just get bundled into that so that’s what i’m hearing, because I get that question a lot so just just wanted to.

Add yeah that didn’t went out there.

Chris Loeffler: I missed, one thing that we’re doing as well, which is caliber has started making individual one off investments and do operating companies and the opportunities on space.

Because we think this legislation if it passes, especially because of the fund of funds concept will offer us the ability to launch a venture focused or venture.

venture capital fund in the opportunity on space, because the fund of funds concept is a very important concept to raise venture capital.

And yet, as one of the early opportunities on investors, we get a lot of interesting opportunities to invest in operating businesses and opportunity zones.

But it’s just been very difficult to raise of vc focused oC fund, so I think that that actually makes it easier that’s why we’re making individual investments now.

And starting to build a track record investing and operating companies so that again if the legislation passes, we could open adventure focused opportunity.

Jimmy Atkinson: yeah they’re saying that they disallowed fund of funds in the first place, but hopefully.

that’s remedied when this new legislation gets passed fingers crossed well I hey let’s talk about.

We got a few minutes left you’re going a little bit long but that’s all right i’m enjoying the conversation Chris and hopefully our listeners and viewers are as well talk about.

something you mentioned a few minutes ago this newer mergers and acquisitions program that you have on your rosie platform essentially I think it’s going to allow you to merge with other smaller individual or captive Q ios and just essentially giving.

Individuals that they have their own qf some strategic alternatives to getting placed are getting their capital allocated appropriately tell us more about that, what are you doing there exactly what does that program look like.

Chris Loeffler: yeah so we developed a program basically like a kind of a one sheet and a white paper on this so that anyone who wants it can just reach out to the company and we’ll we’ll distribute it to you and show you what it is that we’re doing.

But what we did was we took a we took a look back at what was happening in 2018 when the law was passed in 2019 and even into 2020.

What what advice, where investors being given opportunity zones and the advice was pretty pretty much the same from almost all lawyers and CPA which is.

will form a fun for you put your money in the fun and then we’ll figure out what to do with it later, and it was, I think it was good advice at the time it was.

It was maybe a little bit too conservative for my taste, but at the end of the day it was helping investors gain the tax incentive right.

But you know once that’s done the lawyer in the CPA or out of your life.

And then you own a $3 million llc that’s sitting around looking for projects, maybe you found one deal you like, but you’re not an.

expert at finding these types of deals and executing on them and $3 million is not nearly enough money to do a decent development, so you got caught, you know and a lot of people caught in that space.

And I think if you’re a CPA or a lawyer and you put a lot of your clients into this, you should talk to them about this particular program because this gives them an out and.

And for it doesn’t really matter to us whether they’ve deployed, the capital of the fun or not.

I think, in most cases we’re seeing they made one investment that they were excited about and they still have excess cash sitting around trying to find a home.

that’s kind of the average, but even if they fully deployed it into one or two projects and we, like the projects it’s still a candidate for the program but.

Essentially, what we’re doing is we’re saying you have a qf you have this thing, do you want to continue to report on it and manage it for the next 10 years or would you rather emerge that qf into our larger fund.

get a diversified portfolio of projects, you like our projects we like your projects and then put it on our shoulders to finish the deployment of your capital into.

New assets and so by having two funds available, essentially because even though fun one is closed for new investments it’s available for this merger Program.

We have essentially two options for those candidates, which is a mature fine with most of the assets identified and money fully deployed.

or a new fun investing at the lowest possible cost basis, so you get to kind of pick and choose.

But we just think it’s a good moment in time to aggregate these funds together put them under a single layer of management cut the cost and the pain and suffering that the small fund managers are dealing with.

And and get all of us prepared for a much bigger exit down the road.

Jimmy Atkinson: Here, well, I think it’s a great concept really smart idea.

Chris where we run out of time it’s been a pleasure speaking with you today if.

Any of our listeners or viewers out there are interested in learning more about that merger program or just your qualified opportunity fun platform in general, where can they go to learn more about you and caliber.

Chris Loeffler: pretty easy it’s caliber co COM caliber co COM you just put an inquiry on the website, it will filter the right people can find us, let us know you guys through Jimmy it’s always helpful and and if you’re looking for me i’m easy i’m Chris at caliber co.com so it’s not hard to find me.

That actually is my email it goes to me, and so I will respond to you or or make sure that somebody the right person responds to you so.

Again it’s caliber co.com and it’s been fantastic to see you again Jimmy I can’t wait to see it in October, hopefully, you make it out for the opportunities on Expo.

will be a sponsor there, I think we might do if we have time we might do a property tour in Arizona, like the day before the Expo so if anybody’s going to come out for that.

Come come with us on a property or come see some opportunities and projects.

Jimmy Atkinson: that’d be great I’ll try to drum up some more support for that there.

cons Chris and and for our listeners and viewers out there, of course, as always, we will have show notes available for today’s episode.

At the opportunity db website, you can find those show notes at opportunity db.com slash podcast.

And there will have links to all of the resources that Chris and I discussed on today’s show, and also, please be sure to subscribe to us on YouTube or your favorite podcast listening platform to always get the latest episodes Chris thanks again it’s been great.