In this webinar, Clint Edgington discusses his “quirky” approach to OZ investing, with a portfolio focused on Midwestern markets that have favorable demographics.

Webinar Highlights

• The history of Nest, a conservative OZ fund completing urban rehab projects in the Midwest;
• A review of the Nest team;
• Nest’s focus on giving back to the communities in which it operates;
• The pros and cons of single family investments relative to multifamily;
• Review of the favorable demographics in Columbus, OH and Lexington, KY;
• Examples of the projects that Nest is pursuing;
• Live Q&A with webinar attendees.

Industry Spotlight: Nest Opportunity Fund

The Nest Opportunity Fund is an OZ investment program designed to not only do well for investors, but also do good for those in the communities targeted for fund investments. The fund invests in single-family homes and smaller multi-family homes because they present a lower risk to investors while maintaining the culture and character of the neighborhoods.

Learn More About Nest Opportunity Fund

• Visit NestOpportunityFund.com
• Pitch Day Materials

Webinar Transcript

Jimmy: Next up is going to be Clint Edgington with the Nest Opportunity Fund. There he is. Clint, how are you doing?

Clint E.: Good, Jimmy. How are you?

Jimmy: Good.

Clint E.: All right, thanks, Jimmy. And thanks everyone for being here today. Getting kinda late in the afternoon. My name’s Clint Edgington with the Nest Opportunity Fund. If you’re looking for a homerun type of investment or something with real glossy pamphlets, take a 10-minute break. That’s not us. So, we are a conservative offering. We focus on residential rehab in urban areas here in the Midwest and in Columbus, Ohio, and Lexington, Kentucky specifically. The reason why we’re in those areas and why we’re built the way we are is because we built it the way we wanted to build it. We didn’t start this as a real estate company or to create a GP asset stream. It’s pretty simple. Just that, you know, our families wanted to…we actually were starting to do rehab work ourselves in these areas a while ago and then in 2018, the legislation came out. 

We were already here, we were already doing exactly kind of what we’re doing. You know, we didn’t have to follow the exact rules we follow now, but this is how we had it structured for ourselves. So, we’re a little bit quirky. We’re more of like a partnership and not necessarily a product. We are conservative and on the quirky side. You know, when you think of conservative, usually you think of income. But I’m really glad…I think it was Kirk that talked about the super raw concept. Although we’re conservative, if we can continue to underwrite at our underwriting standards, we’ll continue reinvesting our capital. So, a little bit quirky, a little bit different, but we’ve enjoyed what we’re doing. We like that we get to do some good things in the community as well, and we’ll talk about that in a moment.

And then like all the presentations, these are all forward-looking assumptions. So, an abbreviated sense of what you said is just, you know, do your homework, talk to us, and make sure you understand what is and what is not an assumption. If our fund is of interest to you, we are having a webinar, December 1st. And so, that’s a way to get a little bit more information on what we’re doing and not so much compressed into 10 minutes. 

Our team, we’ve got our registered investment advisory firm, which is kinda our legacy business. And that really gives us the chastity, that we can kind of provide an institutional level of chastity to a relatively small fund. In addition, we partner with the best OZ people with Midwest rates as well in our areas.

So, as far as the stuff that we try to do, that we’re trying to help communities. I mean, the tax benefits we get from the OZ legislation, it’s kind of so great that we can stop for a second and focus on how do we help, you know, the neighborhoods we’re in and some of the other stakeholders in the community as well. And so, you know, our view on it is as long as it doesn’t hurt our financial metrics, that we wanted to kinda support that. And so, we do share the support that, our operators that operate our Kentucky operations and our Columbus operations, kind of both have a couple of passions. In particular, I’ll let Clint…the other Clint, not me, do a brief discussion about what they look to do.

Clint, he’s got a passion for helping those who have recovered from addiction programs. So, they are on a path to recovery, they’ve graduated from it, but they probably gonna still have some dings in their records, some issues. Getting that first job out is difficult for them. That’s pretty much all he hires, and it can be a little bit rocky at first, but then once they’ve got some skills, we retain them at a great rate. So, it helps them get that first job, you know, and the skills and the trades are great. And then it also helps us with retaining employees.

Clint C.: We are providing safe, secure housing for people to have the opportunity to live their best life. We are providing the opportunity for those in transition to utilize their current skill set or develop a new skill set, so they can live their best life. We are providing on a daily basis, good houses for good people, built by good people, managed by good people, and funded by good people.

Clint E.: So, yeah, that’s what Clint really kinda has focused on, is helping those that have had some recovery issues. And you know, the rest of this presentation I’ll focus on, like, what we’re doing, you know, our execution, what we’re doing with our new fund that’s open. But it’s sometimes nice to step back and be like, “Okay, why are we doing this again?” So, it’s nice to be able to share those benefits with other folks. 

You know, both with a mix of single-family and with multi-family, we think we’re kind of in a pretty conservative space. single family doesn’t give you the income that multi-family gives you, yet it doesn’t have what we’re seeing right now, that price volatility when interest rates go up. You know, for the multi-family, probably the pricing is gonna go down. And what we really want with this is we want capital gain, we want those capital gains at the end of 10 years. And single-family gives that, and then multi-family gives us the income balance.

Our areas that we’re in have good demographics and solid and stable employees. So, in our areas, we have the top five in eight fastest-growing cities, like, within our metro areas. And in addition, we have a very stable employee base. The University of Kentucky is in Lexington, Ohio State University is in Columbus. And those basically create a magnet so that people from, you know, Northern Ohio will move here to go to school, and then a lot of them stick around here. And we can see the areas in blue are what you consider generally stable sectors of the economy. 

With Lexington, in addition, we have a supply constraint. So, I showed you the map with the fastest growing communities, you see the actual city of Lexington is not in it because they have an urban service boundary. They wanna keep that horse-pasture-type look. And basically, until 2028, we know that we have that and so it helps us a lot with knowing that we kind of have a great runway for it.

Backing out of Lexington, just to give you an idea of where our properties are in the Lexington section. A few of you are probably familiar with it. We’ve got mostly single families in Lexington, a couple of duplexes, 31 unit, and we’re in the path of, I think, pretty good expansion. And we’re in an up-and-coming neighborhood that’s not there yet, but it is coming up pretty quick. There’s some pretty big large investments going in. Rupp Arena has a huge expansion in the convention space, which is gonna require more hotels, put more foot traffic in the area. In addition, there’s a kinda cool quirky little artist village, and what was previously a bombed-out bus station is now a very cool kind of open-air market. And Columbus, I won’t walk through this too much. We’ve got more small multi-family in Columbus.

Our fund is a little bit different. Because we’re small, we’ve got 10 million. Our structure is set up so that our Opportunity Zone fund is the same, but investors who invested prior to middle of 2021 were in our Class A subsidiaries and units, and those that invest now are in our Class B. So we share the same fund structure, we can get to share some overhead costs, audit, legal, and whatnot. And then outside QOF, we can just come into the subsidiary level. 

So, I’m gonna talk a little about both the Class A and Class B, but the Class B is what’s open now. But I wanna show you the class A so you can get an idea of what Class B will become. And on that note, so kind all of them combined together, we started with 23 units and we put a half million bucks in, and now we’re at 105 units. And we’ve put three-quarters of a million in. And you can see through time and how we’ve moved down the status of, you know, sitting there in inventory. We haven’t started working on it yet, we’re still working on our permitting to completion. 

So you have the majority of our projects completed now. When you pull out the B series assets, it grows even more as far as the percentage basis. And with the A series assets, we’re starting to see the results of that. So our net rent…our annualized gross rent, sorry, is going up. And we’ve got about 10% gross rent built on those projects. Looking just at the Bs, which just really kind of got capital last December, you can see we’re kind of in the beginning phases of where the series A was. So, we’ve completed one, but the majority are kind of in rehab, and last quarter was actually our highest quarter for property purchase. We’re starting to see some softness, and so we’re looking forward to seeing that. 

To give you an idea for those that might get a little bit scared, here is what a typical project looks like when we buy it. It looks like fun, huh? And then this is in our B series, that same project that we completed. This is what it looks like when we’re done with it. It’s nice. It’s got no chandeliers anywhere, we’re mostly kind of workforce-based housing, but it’s enough, that works for us.

Typical timeframe from acquisition to being placed in services, a question we just had. And highly variable, I would say. Nine months to two years is kind of the range, I would say. A lot of it depends on permitting and inventory issues. So, the vast majority will be between 12 to 15 months from the point in time where we purchase it to when we have a renter in there. 

As far as financials, a lot of you haven’t seen single families. I’m just kinda giving you an idea of how one worked out. The rehab work actually worked out very well. That’s a little bit abnormal. Our rehab appreciation, the appraisal amount above our costs, was higher than we thought. Our costs were higher too. In a lot of our projects, our costs have been higher with COVID increases. But you can see with single families, our gross rent in this case is about 11 grand. Our expenses, which is basically everything except for the white and the blue. The blue is the cash flow we can get, the white is debt payment. They got a good chunk of the actual initial rent, but we can see we just did a rent increase and so that rent increase of about 16% equated into about an 85% increase in our cash flow. And that’s translated directly into kind of our metrics. So, with single families, we really look at that rent growth that I think is helpful.

Won’t walk too much through kind of the financials, but we have a minimum investment of 200 grand. Our fee structure is actually extremely simple to look at and I’m happy to share that with you. And I’ll share a few other resources with you as well. But, you know, we don’t reimburse for office space. You know, our GP pays for the cost of marketing such as this. It’s 1.5% of our net assets per year. And then we have a relatively low pref, 4% pref, but then a relatively low-profit share as well at 15% profit share. Raised about 11.2 million in capital and we’re looking to kind of keep this thing going.

So, I’m gonna just introduce you to a few resources we have here, but I invite you to sign up for our webinar. It’s December 1st at 1:00 PM. Sign up for it. If you can make it, great. If not, we’ll send you kind of a video. But that’s really a way to get an idea, to get to know us. For us, we want, honestly, you know, investors that like our fund. We don’t wanna talk anyone into it because we’re gonna be partners for 10 years. So, you know, we invite you to reach out to us, we’ll spend some time with you even if you’re not gonna be a good fit for us. We’ve got our deck we can share with you. In addition, we do a personalized calculator for folks. So, if you’re at the stage now where you think you wanna invest in an OZ, you have good knowledge of it, but you’re not sure like how much you should invest in an OZ, you know, exactly the amount that’s right for you or even if it’s right for you. We can run an opportunity zone and calculate it kind of as a hypothetical with your personalized tax information in it to give you kinda a little bit more of a better-educated idea for what works for you. With that said, I have some questions.

Jimmy: Yeah, fantastic Clint. Let me moderate the questions here. Let me do my job here, right?

Clint E.: Okay.

Jimmy: That’s all right…

Clint E.: Jimmy was I sharing the incorrect screen?

Jimmy: Thanks for getting that first one. Momentarily, I think you were sharing the wrong one, but we’ll clean it up in post-production. So, we got a few questions here. Sheva has one about rents and value property. So, she asks, “Wall Street projects a uniform drop in rents and value of properties over the next few years. How does that scenario impact your investments?”

Clint E.: They go down. Yeah, I guess what we would like now, like today, is for the value of all properties to go down. And from a purely greedy perspective, distress would be good for us right now. We’ve got some dry powder, we’re buying and we’re building, you know. The price that I can buy out today, lower is better. You know, now in 10 years, I would like to have higher prices and higher rents. But right now, honestly, lower is better.

Jimmy: Michelle doesn’t have a question, she has a comment. So, I’m gonna read it to you. She says, “I just want to say thank you for such a socially-conscious project and fund.” So, well done Clint.

Clint E.: Hey, thank you, Michelle. It’s not this Clint, it’s the other Clint that really does it. I just make sure it doesn’t hurt our investors, but he does a great job.

Jimmy: Hey, now Clint, do you qualify for the Ohio OZ incentive? And maybe you can touch on what that is briefly. We had a question about that.

Clint E.: Yeah, so the Ohio OZ incentive is, if you are in Ohio, an Opportunity Zone Fund that only invests in Ohio-qualified opportunities on a property, you can get a 10% tax credit for your investors. If you invest directly into our fund, you will not get that credit. And the reason for that is that we are diversified, we’re diversified outside the state of Ohio. However, and we’ve got, you know, family office that invests directly into our Columbus subsidiaries. And they do it through their own QOF. And we can help folks with that, and if you’ve got more than a half million you wanna put into that play, it can make some sense, you know. Much less and probably the overhead is not good for you. We’re contemplating introducing kind of a feeder fund that’s just only for the Ohio subsidiaries, but we’re not there yet.

Jimmy: So, what’s the split of the portfolio between Ohio and Kentucky? And do you have plans to expand into any other markets?

Clint E.: We don’t have plans to expand into other markets. I mean, operationally the footprint, it’s hard to have a footprint of two. Two operators that you kind of work as a partnership with, you wanna build up that scale so that, on our exit, it gives us more options. We don’t currently have plans, but we would potentially do, you know, Indianapolis or anywhere that’s good demographics, good growth. But right now, there’s kind of plenty of grass to cut where we’re at now.

Jimmy: Good. We’re running short on time. We’re a couple minutes behind. I want to get…

Clint E.: I’ve got flexibility, Jimmy.

Jimmy: …our next partner up soon. We’re already over, but we’ve got time for two more questions and then we’ll bring on Atlas Real Estate Partners in just a moment here. Sit tight. Thank you for your patience. How has the current interest rate environment impacted your approach to debt?

Clint E.: Yeah, the change wasn’t surprising, the magnitude of the change wasn’t shocking, the speed of the change was surprising. It’s slowing us down. So, like everything in our business model, it’s just simpler. So, we buy with cash, we rehab with cash, afterwards, we’ll refi and then take that cash to reinvest in other projects. So, it really hasn’t created any major issues for us. It has made things a little bit slower on the refi on some of our projects because it’s just really hard to get debt at kind of the current rates. But, you know, we’re fortunate that our business model is just set up. We’re gonna be a little slower starting, like our NAV is gonna be lower the first few years than probably the average OZ fund out there because we move relatively slow as far as leveraging, but it made this much easier.

Jimmy: And final question and then we’ll move along is from Sheva again. Do you see opportunity zone land lots being priced at astronomically high prices by sellers? One property that we looked at was listed at 500,000 a few years ago, but it’s now listed at $5 million earlier this year. Have you seen the OZ incentive artificially…or maybe not artificially, just inflate the values of some of these deals inside of OZ’s?

Clint E.: Yeah, you know, in kinda the smaller space that we’re in, where it’s not lots the large institutions are looking at that are being marketed by institutional folks, I have always seen lots pricing all over the place. Whether it’s OZ, not OZ, last few years, not last few years, lot valuation is just quirky, so.

Jimmy: All right. Well, Clint, thank you for your time today. That wraps us up. Please do get in touch with Clint if you have any other additional questions, Clint at nestopportunityfund.com. Clint, I’ll let you go. Thanks again and hope to see you again soon.

Clint E.: Hey, see you all. I appreciate it.

Jimmy: Thanks, Clint.