Inland Private Capital has over $12 billion in assets under management, across over 300 private placements, and they are the nation’s largest sponsor of Delaware Statutory Trusts.

Keith Lampi, CEO of Inland Private Capital Corporation, joins the show to discuss how Inland helped create the modern-day DST, and how they leveraged their success with that structure to expand into Opportunity Zone offerings.

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Episode Highlights

• The birth of DSTs nearly 20 years ago, and how Inland has grown as the DST sector has matured.
• How Inland got started with Opportunity Zones in 2018.
• How Inland’s OZ business compares with their industry-leading DST business.
• Opportunity Zone strategies that Inland finds favorable at the start of 2023, and why they believe a long-term approach is best.
• Trends that Inland has their eye on across the broader private equity real estate landscape at this point in the market cycle.

Featured On This Episode

• Non-Traded Alternative Investments Raised Record $104 Billion in 2022 (The DI Wire)
• Novogradac: QOFs Raised Nearly $10 Billion In 2022, Despite Slow Q4 (OpportunityDb)

Guest: Keith Lampi, Inland Private Capital

• Keith Lampi on LinkedIn
• Inland Private Capital – Official Website
• Inland Real Estate Investment Corp on LinkedIn

About The Opportunity Zones & Private Equity Show

Hosted by WealthChannel co-founder Jimmy Atkinson, The Opportunity Zones & Private Equity Show is the #1 show for High Net Worth investors and advisors who place capital in Qualified Opportunity Funds and other private equity funds.

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Show Transcript

Jimmy: Welcome to the Opportunity Zones Podcast. I’m Jimmy Atkinson.

About 20 years ago, Delaware Statutory Trusts were approved for 1031 exchanges, and that really changed the game for real estate investors. A 1031 could now be fractionalized and owned passively. And more recently, as my viewers and listeners are well aware, Opportunity Zones came into law in 2017 and the zones themselves were designated in 2018, really changing the game once again for investors, particularly investors with gains. And today, I am speaking with someone who has been at the forefront of both of these game-changing events.

My guest today is Keith Lampi, president and CEO of Inland Private Capital Corporation. Keith joins me today from Inland headquarters in Oak Brook, Illinois, just outside of Chicago. Keith, welcome to the show, and thanks for joining me today.

Keith: Thanks for having me, Jimmy. Happy to be here.

Jimmy: Yeah, absolutely, Keith. Really pleased to have you with us today joining the podcast, and we’re gonna dive in. We’re gonna talk about DSTs and how Inland has grown alongside the adoption of that nearly 20-year-old investment vehicle. And we’re also going to talk about how Inland moved into opportunity zones just in the last few years now.

But first, Keith, I wanna make it personal. I wanna start with you. Inland’s really well-regarded and trusted in the private equity real estate industry. And I talk with folks in the real estate industry pretty frequently, and every single person I’ve talked to has a lot of respect for Inland and what you’re doing. You guys are the largest DST sponsor, a lot of clout that comes with Inland Private Capital. So, I wanna know, Keith, how did you manage to become the CEO of Inland Private Capital at a relatively young age? Can you tell me about your career trajectory, essentially, tell me the story of how you got to where you are today.

Keith: It’s nice of you to say. They used to say I looked young, I don’t get that as much anymore. So, that’s nice every once in a while to hear that. You know, my journey’s been sort of one of a kind, I think a lot of people feel that way when it’s personal. But I started with Inland, a little over 20 years ago, about 21 years ago. And when I did, the firm was obviously very well established, as kind of a bigger-picture player in all things commercial real estate. But we were at a very kind of ground level in establishing our securitized 1031 exchange platform. So, I kind of got in at the ground level. I kind of say this tongue-in-cheek, but our organization as a subsidiary of the Inland Group was really more of an idea than a company at the time.

You know, like many companies, we just established one building block at a time, took a very thoughtful, measured approach to growing the business. And that certainly served us well, now having been through a handful of cycles, a couple of black swan events, right, with the financial crisis and then ultimately the pandemic. And, you know, one of the things I’m most proud of is each time we face that type of uncertainty, you know, from an economy perspective, we were able to come out the other side actually stronger than we were when that period of dislocation began. And I think that speaks to the virtues of the team. And I think the values of the principles of the organization, just kinda having a long-term lens through which they view the market.

Jimmy: Great. Well, let’s talk about DSTs now. Inland is obviously been incredibly successful, largely because DSTs have been incredibly successful over the last 20 years. I’m sure my audience of high-net-worth investors and advisors are quite familiar with Inland. They’ve grown as DSTs have grown. But let’s start at square one with regard to Delaware Statutory Trust. And we’ll talk DSTs for a little while before we get into opportunity zones. But, Keith, can you take us back to the beginning? How did DSTs come into existence and come to be known as what we know them today?

Keith: Sure, yeah. Again, a big part of that journey I just described. So, what’s interesting is, yeah, I mean, DSTs are effectively an investment vehicle that anchor on Section 1031 of the tax code, and Section 1031 has been on the books for over 100 years. So, it’s a very well-seasoned provision within the IRS tax code. But there was this idea in the late ’90s, early 2000s around what if a property owner sold an asset and wanted to exchange into a fractionalized ownership interest in real estate? How might that structure work? You know, what pitfalls would we have to kind of think through? And, you know, a group of, you know, industry professionals, Inland was at the forefront here, kind of gathered and kind of came to grips with a structure that it believed worked.

And, you know, white papers were written and we sort of lobbied the IRS to give us feedback on whether or not we were on the right page, the right track. So, initially, in the early 2000s, the TIC structure, tenancy in common structure, was very much in vogue. In ’04, the IRS issued guidance surrounding the use of a Delaware Statutory Trust, which had a lot more investor-friendly provisions within it. So, the industry sort of naturally gravitated toward it. And, you know, Section 1031 was a powerful nuance within the task code that Inland had been using with other funds for a number of years on a property-by-property perspective. But when we received this guidance and feedback from the IRS, it really did sort of springboard the industry into relevance.

There was greater upstream adoption throughout a lot of the financial intermediaries that distribute the product, both broker-dealers and RAAs. And that was really, you know, kind of the birthday, if you will, of our market as we know it today. Similar to the trajectory of Inland Private Capital, we saw our industry sort of grow, you know, building block by building blocks sort of organically over, you know, the early handful of years. Financial crisis obviously set the industry back a little bit, but then it came roaring up, you know, at the gates call of 2012 era. And, you know, when we made the decision to invest in and get into this business, it was very much under the belief that we’ve got a very powerful provision within the tax code that makes a lot of sense for property owners to consider.

And being in a position as an investment management platform to securitize and bring forth that institutional access to investors on a more passive ownership basis, we believed that was very much a play on demography, right? It really was going to resonate with that aging baby boomer segment of the demographic cohort that was maybe familiar with managing their own properties, but maybe getting to that point in life where they wanted to take more of a passive role. And that thesis certainly proved out and, you know, we see the uptake here and the trajectory has been very healthy, now 20 years later. So, it has been a good business for Inland for sure.

Jimmy: Yeah, absolutely. As my friend and business partner, Andy Hagans, calls it at AltsDb, you were on his podcast a few weeks ago. People get sick of dealing with the three Ts, right? Tenants, toilets, and trash. And the DST structure provides that opportunity for conducting a 1031 exchange, but fractionalized ownership and getting the benefits as well of passive ownership. The tax benefits there are incredible, I’m sure my listeners and viewers are pretty familiar with the tax benefits of essentially getting to defer the gain on your real estate investment properties indefinitely, just continuing to kick that deferral down the road, so to speak, and passing on the step up and basis to your heirs upon death, right? Have you guys been focused on tax-advantaged real estate investing strategies since your company’s inception, or did that really begin with DST investing? Obviously, there are other tax-advantaged strategies with just holding real estate in general, but talk to me about how important tax strategies are for your firm.

Keith: Yeah, I mean, Inland had some interaction and involvement with a variety of different tax-oriented strategies over its, you know, many decades in the industry as we sort of reorganized the organization and anchored on Inland Private Capital’s growth. Yes. Our focus very much is on tax-efficient real estate strategies. So, obviously, the DST 1031 structure fits that mold incredibly well. And, you know, that’s largely why we picked up on the legislation that was passed in 2017 with respect to QOZs. And it was a very organic, not even pivot, it was an organic growth opportunity for Inland Private Capital to diversify its suite of alternatives that it brings forth to investors.

Jimmy: Yeah, not a pivot, really just a move into an adjacent market, I suppose, and a nascent market at that as well. You’re right to point out, the end of 2017, the Tax Cuts and Jobs Act was passed, and opportunity zones officially became law. The following summer, over 8,700 census tracts were designated as qualified opportunity zones. This should be no big surprise to my listeners and viewers. I’m sure they’ve heard this story over and over during the past five-year period. But as you mentioned, Inland has also gone into that adjacent market, and you guys have really been an incredible leader in that space as well as you have been in the DST industry. Can you tell me about that starting point for you? When did Inland first become aware of opportunity zones? Was it before the legislation was even passed? Was it after the legislation was passed? How involved were you with that, and how did you get started with opportunity zones eventually?

Keith: Yeah, it was, as you said, kind of a natural organic prog progression for us, and a very exciting one, by the way. You know, from a cultural perspective, you know, at Inland, we’re trained to be very well-read, have a pulse on what’s going on in the broader market. In many respects, that element of research drives investment strategy. But in this instance, I mean, we were tracking, you know, what was ultimately being proposed, and we were prepared as soon as the legislation was signed into law to mobilize and start to sort of visualize what Inland branded opportunities might look like. You know, develop our investment thesis around the, you know, “rules of the road.”

And so it wasn’t all that long before we were in the market with product that anchored on the qualified opportunities on legislation. I mentioned it was exciting. I mean, we had already established a very, healthy pipeline of opportunities on the DST side of the ledger. But what’s interesting is most DST products are income-oriented, stabilized properties. That’s just sort of a nuance of the tax provision. You can’t do a 1031 exchange into a partnership. So, obviously, more often than not, that negates the ability to invest in a development deal which maybe has a little bit more potential from a total return or an IR perspective on the backend. QOZs, on the other hand, anchor almost exclusively on ground-up development, you know, substantially improving a piece of property that you buy in one of the designated zones.

So, it was a really sort of organic, but exciting opportunity for us to parlay our suite of income-oriented products with, you know, more growth-oriented development opportunities. And there was no shortage of deal-flow that we were kind of already parsing through. And, you know, similar to our DST journey, it was one building block at a time. And, you know, you reflect, you look back a couple of years, it’s always nice to see progress and growth. And that’s kind of what we’ve experienced.

Jimmy: Yeah, no, that’s great of you to point out. The tax advantages or the tax incentives of the two different structures, if you will, are somewhat similar on the surface. You start with a gain and you roll the gain over into the investment vehicle, whether it’s QOF, or 1031, or DST, and then you get to defer the gain even further, there’s that gain deferral mechanism in place. There’s a lot of differences when you peel back the onion a little bit though. And one of the big differences is the actual risk factors of the underlying investments. The DST products are core or core plus assets by nature of the law, as you point out, and with opportunities zones, they can’t be core or core plus. They have to be ground-up development or opportunistic at the very least, right?

So, how did that change for your firm internally? Did you not have a lot of development going into opportunity zones the past few years? Was that a strategic shift that you made being more development focused? Are you guys developers, or do you partner with developers? Tell me more about how that played out when you moved into that OZ Arena being so focused initially on income-oriented products and now having to make that shift into growth-oriented products.

Keith: That was great, great question. And, you know, as an investment management platform, we’re generally vertically integrated, right? One of those terms where, basically what I’m saying is we buy, manage, finance, and ultimately sell assets, and everything’s kind of done, you know, from soup to nuts in-house with a handful of exceptions. And as we expanded our DST presence, we began to see opportunities in areas of the market that we didn’t necessarily believe we had core competence in. You know, more alternative-type categories like student housing, and self-storage, hotels. And so we had already begun building relationships with strategic partners where on a stabilized basis for our DST platform, we were identifying opportunities within some of those sectors, closing, executing on our structure, and bringing those opportunities to the market.

So, it was a fairly organic pivot for us to… Now we had a broader reach. Now we had the ability to consider an investment in something a bit more growth-oriented ground-up or a redevelopment-type opportunity that maybe wouldn’t have previously worked for a DST. And, you know, that got us started, and we certainly then, you know, sort of mobilized and began to work toward expanding and finding additional strategic relationships to partner with on the ground-up side of the business.

Jimmy: Good. That makes sense. Yeah. And having the cloud that your firm had with the DST space, it was only natural that you could evolve into opportunity zones and certainly find those strategic partners. I’m sure you had no shortage of options there, and I’m sure you had no shortage in your pipeline as well. I’m curious, Keith, Inland is the largest DST sponsor, you have been for many years, maybe going all the way back for 20 years, certainly one of the largest. But these days you are the largest DST sponsor. How does your DST business compare with your opportunity zone business? Which is a bigger part of your firm’s overall business?

Keith: DST business still is far and away the largest segment of what Inland Private Capital does from an acquisition perspective, growth, and UM perspective. But the op zone growth trajectory’s been pretty remarkable. I mean, you think about it, just a handful of years ago, we started at ground zero, and we’ve already accelerated our growth in a short amount of time at a level in a trajectory that eclipses our early growth in the DST market, that kind of applies apples and apples context. So, you know, it’s a smaller piece of the pie, so to speak, but, obviously, one, we’re very committed to long-term, and we still see a lot of solid opportunity in.

Jimmy: Yeah, sure. I wanted to take a minute actually to bring something up for our viewers to view. If you’re listening to us on Spotify or Apple, forgive me, you’ll have to switch over to YouTube to check this out. But this is a chart, Keith, that shows the equity raised by various alternative investment structures in 2022, last year. And I’m using data both from Robert A. Stanger & Company, which are all of the blue lines here. And then I’m also using data from Novogradac, which is the firm that tracks qualified opportunity funds better than anyone else out there and is really the only measuring stick that we have for qualified opportunity fundraising at this point. Novogradac tracked $9.7 billion of equity raised in 2022, and by their estimates, they’re tracking only about a 3rd to a 4th of the industry.

So, I extrapolated that to get to this $29 billion number, which shows you how much qualified opportunity funds have grown just in a pretty short period of time. They’ve only been in existence for about four-plus years or so, and, you know, they’re already hitting up there with non-treated REITs. DSTs are meanwhile kind of on the lower end here still, $9 billion according to Robert A. Stanger, and you guys are commanding a lot of that $9 billion figure. I don’t know if you have any thoughts on this, but, you know, one thing I see is just the potential for qualified opportunity funds to become a larger part of your business as time goes on and also accounting for the fact that we’re still so early on with the opportunity zones program. I think there’s room for it to grow still, but I’m curious, your thoughts.

Keith: Yeah, I couldn’t agree more. I think, you know, when I look at the chart, one of the missing pieces is, yes, you mentioned Stanger is tracking securitized DST capital raise. But if you were to expand that in a similar way that I think Novogradac did and maybe made some assumptions around what the capital formation number was or the universe of capital formation was around 1031 exchanges, that $9 billion number would probably be similarly muted number compared to the broader universe. So, I think that if you level-set, you know, it does kind of showcase, and my assumption is with Novogradac, they’re getting more consistent reporting from securitized institutional sponsors. And, you know, the rest of the universe is probably more… You know, transactions being done on a one-off, you know, outside of the institutional realm kind of basis, so.

Jimmy: I think that’s right. I think that’s right. Yup.

Keith: But, no, I think you’re right. I think the universe, there’s a lot of room to run. I think with QOZs or qualified opportunities zones, what’s interesting is, it’s any gain. Any gain is eligible, right? With the 1031 exchange, real property has to be sold and then you can reinvest in real property. And so it’s a property, it’s a real estate-for-real-estate type trade, whereas with qualified opportunity zones, you know, you can trade equities and reinvest your gain from a stock sale into a qualified opportunity zone. And that was also a big part of what was so exciting about it, is it also broadened reach and gave us an opportunity to bring a solution to a broader array of clients, not necessarily anchored on just clients that had real estate to sell and gain from that real estate sale to grapple with. So, it’s a equally powerful provision in the code.

Jimmy: Yeah, that’s a great point, that it really allowed you and firms like Inland to expand their capital base significantly. I’m kind of curious if you can put any sort of number or percentage on that. Who are your investors in your opportunity zone platform? Are a lot of them coming from your DST program, and maybe they have a real estate sale and they see OZs, and they think, “Hey, this is a good solution for me. Maybe I want a little bit more of a growth product in my real estate portfolio.” Or is it a completely different type of client? Is it someone who sold their stock portfolio or sold a private business, and you guys wouldn’t have even been on their radar prior to 2018, and now they’ve got this option to defer that non-real estate gain? What’s the breakdown there in terms of those two different types of clients?

Keith: Yeah, it’s a great question. It was a question we had to sort of ask ourselves when determining, you know, to what extent it made sense to get into the QOZ space. And I gotta tell you, we’ve been very, very pleasantly surprised at how, I don’t wanna say little because there is some overlap. You know, we sell all of our investment products through the financial intermediaries, RAAs, broker-dealers, and wirehouses. And as financial planners, they may have the same client that maybe has a different compulsion to look at a different type of client product. So, there’s some overlap, but there’s, I would say a lion’s share of our capital raises in the QOZ realm was not overlapped. It was not a client that knew us because they were doing DST investments with us. So, it did broaden our appeal to engage in conversations. And again, our narrative is always solution-based. So, we had a solution for a client that normally maybe wouldn’t have had the need to have a conversation with us because we have this new product that showed or demonstrated a different appeal. So, it’s been interesting to kind of see that unfold.

Jimmy: Yeah, so definitely a different type of client, different type of capital base. And you mentioned you sell through the broker-dealer network, through RAAs, other types of financial intermediaries. You don’t sell directly to retail investors. I guess I’ll ask that same question, but just framed a little bit differently. Did the OZ program open up your ability to sell to a broader set of financial advisors, RAAs, broker-dealers who maybe had that OZ type of client that maybe you weren’t able to unlock with just the DST, or was that not the case?

Keith: I think the additional access point definitely opened some doors. Inland has had a pretty well-established distribution network, but established and growing. And so having a suite of unique options, obviously, can help kind of make that new conversation with a new partner more engaging. So, yeah, we did find a path toward engaging with some capital partners that maybe wouldn’t have otherwise or just weren’t really focused on the real estate 1031 exchange side of the equation. I think the access and the depth that we had established going in certainly helped us springboard into relevance, right? We had a lot of intermediaries, they already knew Inland, they knew our investment management team, our thesis, kind of how we did things from an operational standpoint. That was probably a competitive advantage. We were able to hit the ground running out the gate in ways that may be a newer firm that was less familiar with the retail investor, you know, the distribution market would’ve had probably a little bit steeper hill to climb.

Jimmy: Sure. So, you know, I mentioned a few minutes ago that, you know, when we were looking at that chart, right? I mentioned a few minutes ago that qualified opportunity funds are kind of holding their own compared to some of those other alternative investment structures. And I mentioned that, hey, they’ve got a way to grow still, but, at the same time, it’s a perishable tax incentive. And unlike DSTs, opportunity zones are set to expire, no gains accrued after 2026 will be eligible for investment into qualified opportunity funds unless legislation passes that extends the program. And that seems to be in doubt, it didn’t pass last year. I know Congress is working on some tax legislation toward the end of this year potentially. But, Keith, I’m curious to hear your thoughts on what may be the future for opportunity zones, or what would you like to see happen unfold in the future for opportunity zones.

Keith: Yeah, the sunset date, you know, the payment of tax at the end of 2026 has been something that has been on the forefront of, I think every investor’s mind. And the closer you get to it, the less compelling the deferral is, right? Now, you still have, and the holy grail behind all of this is if you hold an investment and QOF for 10 years, you get the upside tax-free. And that’s always gonna be there until 2026 when it sunsets. But with respect to extension, yeah, I mean, I’ve been hearing a lot of the same rumblings you just articulated. I know there was talk at one point, there was bipartisan support. My context of Washington have sort of alluded to the fact that because this nuanced idea of extension would be part of a broader tax package, the likelihood of us seeing change at least near-term, potentially before the next election cycle, is probably not likely.

But there’s been a lot of ebb and flow in that conversation. So it’s something we continue to monitor. I mean, we haven’t been running the business counting on an extension. I think it would’ve been a really nice thing to see. And I think it would’ve just extended the useful life of, you know, a very powerful tax provision and kind of given us a little bit more visibility into what the midterm strategy will be in terms of our bringing new product to market. So, as we sit here in 2023, there’s still a runway on deferral. You still have the big tax book of invest, pay your tax in 2026, and then tax-free gain on the backend as long as you hold for 10 years. And that seems to be compelling investors. And I think it will lead to, at least for the duration of ’23, and likely in the before as well.

Jimmy: Yeah, it’s still very compelling, that’s what I like to tell people. You know, there is a misconception floating around out there with some less sophisticated investors and advisors too. I’ve heard people say, “Hey, wait, opportunity zones, didn’t that go away a couple of years ago?” And though that’s not the case, admittedly, every day that goes by, the tax incentive becomes slightly less valuable with that deferral date getting closer and closer. But you’re absolutely right, Keith, point out that 10-year backend escape from capital gains liability on the OZ investments appreciation, that is the big hook right there. That’s kind of the thing that we as an industry need to lead with more often, I think.

You know, with that said, Keith, you know, that’s one of the challenges, I think, of opportunity zone investing and raising equity for a qualified opportunity fund, is that learning curve for investors that a lot of education needs to go into this, probably more so, this program than with 1031s or DSTs that have been around for… 1031s been around for over 100 years, right? Everybody knows what they are. Certainly, the professional advisors are very well-versed in how those work, but opportunity zones are a little bit newer. So, with that said, Keith, what have been some of the biggest opportunity zones, and challenges that Inland has faced in the first few years of the program?

Keith: I think early on, you know, site selection, kind of, yeah, familiarizing everyone with, you know, census tracks, how the lines were sort of drawn, and certainly from an investment perspective, finding opportunities that fell within those op zones that also made sense long-term that were investible. I think we, again, had the benefit of some strategic relationships on other sides of the organization that helped us, you know, springboard into relevance. But then, you know, shortly after the legislation was passed and we kind of got up and running, we found ourselves in a global pandemic, which created, you know, supply chain disruption, you know, a myriad of other issues that presented challenges for completing a ground-up development site. We were so fortunate to be partnered with groups that navigated that brilliantly, but that it certainly didn’t make things easier.

And then there was uncertainty in the market, volatility meant, you know, will there be the types of gains that we were expecting? And I think overall, the industry’s kind of navigated that. We’re now a couple of years removed. We saw a great run-up in the equity markets starting in, you know, the tail end of 2020. So, a lot of the early wrinkles have been sort of ironed out. But there’s always, I think challenges is also opportunity. It’s an obstacle, but your journey is changed to go around that obstacle, and that’s pervasive in any market. And I think we’re at a point where, you know, we’ve established scale and knowhow. And so it probably gets back to your original point. Just education, helping people kind of through understanding the tax provision, understanding the investment thesis, kind of pros and cons and pitfalls. And that’s kind of where we’re at today.

Jimmy: Yeah. One more challenge I might wanna ask you about, I guess the 800-pound gorilla in the room, so to speak, is 2022 was a rough year, I think for investors, overall, right? We had a twin bear market, both the broad publicly-traded stock market was down, bonds were down. Alternatives did okay by comparison. But, Keith, my question for you is that, you know, with the markets kind of in turmoil, especially in the latter half of 2022, we saw less investment into DSTs and into qualified opportunity funds in the second part of the year. And especially in Q4, it seemed like equity raising in both of those structures really slowed down. And has that been a challenge for you, and do you see more of that continuing in 2023, or do you see that trend reversing?

Keith: Yeah, I mean, I think when you see a softening in cap raise, I mean, that always has to be factored into, you know, investment managers calculus. So, yeah, that is a challenge. I think a lot of it was attributed to, you know, the drastic hike and interest rates we saw occur throughout the year. Inflation obviously is in the forefront of everybody’s mind. That created significant market volatility, which I think there was a fear factor that in the traditional markets, we saw a tremendous loss of value, and will that spill over into the alternative categories? What’s been sort of interesting from my perspective is during that same period of time, we had some of the strongest performance on record, and some of these sectors, the strongest performance on record that we’ve ever seen.

I mean, rent growth in the student storage arena, senior living even rebounded, we saw a lot…incredible rent growth in the multi-family arena. So, when I reflect on kind of this period of uncertainty, and you try to connect it with past periods, what’s significantly different is, yes, there’s volatility and uncertainty, but we’re performing as a sector and as a category so remarkably well. It’s kind of like when the Fed looks at data, but the jobs number just…the jobs report comes out, and it’s like, “No, we still have like record level low unemployment.” And I think that speaks to the resilience that the broader economy really does have under its belt. I mean, inflation, you could speculate whether we really are starting to see it cool or if we’ve got a longer journey.

But from my perspective, and what I just try to remind investors is we look at the world through a long-term lens. Real estate investing is, you know, fundamentally long-term in nature. It’s meant to perform and sort of navigate market volatility. Certain sectors do it better than others. I mean, if we let that kind of be the compass that drives our investment thesis, I believe wholeheartedly in kind of what we’re doing near term. So, you know, do I like to see capital raise numbers start to wane? No. It’s not like we’ve been gridlocked, right? I mean, we still have meaningful inflows. And you have to be prepared for that type of volatility, that avid flow, if you will. So, I’m not necessarily surprised or alarmed by it.

Jimmy: Sure. And now we’re sitting here in February of 2023 on the heels of the twin bear market that I just pointed out. So, with all that in mind, that backdrop in mind, Keith, what opportunity zone strategies do you really like right now at this moment? Are there any real estate sectors or markets that Inland is particularly bullish on? Where do you like to build? What do you like to build, I guess, for your opportunity zone strategy?

Keith: Yeah, it’s a great question. You know, and this actually applies to the DSTs as well. I mean, we’ve really leaned into sectors that anchor on demographic demand as opposed to economic-driven demand. So, many of the alternative categories we are very bullish on, we’re investing heavily in self-storage. Which, you know, from a performance perspective, you know, it’s the four Ds. It’s debt, divorce, dislocation, relocation. You’ve got a lot of different life events that drive the decision to rent storage space. Sometimes those events occur in a down market, sometimes in an upmarket, but if you look at historic trends, that’s a sector that’s performed incredibly well during periods of dislocation. I’d apply the same to student housing. Again, record-setting, rent growth, and demand was a little bit of a lack of supply because a lot of construction starts stopped during the pandemic when there was all that uncertainty. So, I think that’s a sector that has a really good runway. And those are the types of, you know, investment ideas we think about. You start with that macroeconomic analysis, and then you let that kinda trickle down into ultimately site selection, deal flow. And that’s really what we’ve been doing a lot of, not only on the op zone side, but also the DST side.

Jimmy: Well, Keith, I really appreciate all of the DST and opportunity zones insight that you’ve provided for me and my listeners as well. Today, Inland, obviously, is a leader in the tax-advantaged private equity real estate industry. So, with that in mind, Keith, what are some of the most powerful trends that you see playing out over the next few years across that broader private equity landscape?

Keith: You know, the volatility that has ensued as a result of a quick and drastic hike in interest rates is gonna continue to be pervasive here near term. I mean, right now, the broader market is experiencing this buyer-seller friction. And that’s not something that just evolves and is resolved overnight, right? Buyers are still thinking about valuations when interest rates were, you know, 150 points, basis points lower. Buyers are looking at real estate saying, “Well, my cost of capital is increased, so I have to adjust pricing.” And I think over time, that will start to come together. But I do think it’ll take time. In the interim, I think there’s good tremendous buy opportunities. You know, it sort of dovetails into my comment about performance.

I mean, having the ability to buy an asset that’s experiencing the type of growth that we’re seeing in certain sectors at a, you know, 100 basis point widening and cap rate. If you believe in future growth, which you have to, makes a ton of sense long term. So, I think transaction volume is probably gonna wane here near term. At least, you know, throughout the first couple of quarters of ’23, maybe even into ’24, I think we’ll start to see an uptick. I think that the markets are generally healthy. I don’t think there’s gonna be a lot of distressed selling, but I think, you know, there’s going to be that point in time where things open up, and that’s when valuations will really be right-sized. In the interim, if you could find a seller that’s willing to transact, and as a buyer, you kinda get your head around the growth trajectory, I think some really good long-term buys, and that’s sort of what we’re leaning into. Maybe lower volumes here near-term, but some very fundamentally sound acquisition opportunities, which it’s our job to scout those, and vet those, and hopefully be in a position to bring those to market. So, that’s what we’re fixated on.

Jimmy: Excellent. Well, Keith, great insights today all across the board. Really appreciate you joining me today on this episode of the “Opportunity Zones Podcast.” Before I let you go, can you tell our audience of high-net-worth investors and advisors where they can go to learn more about you and Inland Private Capital?

Keith: Absolutely. Our website is available to the public, so it’s www.inlandprivatecapital.com. It’s got a full rundown of educational content. You see all of our various assets under management nationwide, so you gotta get a sense for the types of properties we own and manage on behalf of clients. And there’s contact information for individuals on my team on the site as well, so anybody can learn more just by visiting our website.

Jimmy: Excellent. And for our listeners and viewers out there today, I will, of course, as always, have show notes available for today’s episode at opportunitydb.com/podcast. And there, I’ll have links to all of the resources that Keith and I discussed on today’s show. And please be sure to also subscribe to us on YouTube or your favorite podcast-listening platform to always get the latest episodes. Keith, again, this has been great. Thank you so much.

Keith: Thanks for having me.