Combining safer asset-backed real estate with high-multiple venture investments in untapped markets may be an optimal Opportunity Zone strategy for investors seeking risk diversification.

Kelly Ann Winget of Alternative Wealth Partners and Rachel Vass of Syzygy Cities have teamed up to form the EPIC OZ Fund. They join the show to discuss how their fund is unique, and the importance of aligning incentives within public-private partnerships when developing venture real estate.

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Episode Highlights

• The importance of aligning incentives within public-private partnerships.
• What venture real estate is, including examples of current projects within the EPIC OZ Fund’s pipeline.
• Why now is a great time for public-private partnerships, with the abundance of government grants, tax credits, and local subsidies that are currently available for developers and investors.
• Energy industry trends, and why fossil fuels are still essential to power the transition to renewable energy.
• The future of community development.

Guests: Kelly Ann Winget & Rachel Vass

• Kelly Ann Winget on LinkedIn
• Rachel Vass on LinkedIn
• Alternative Wealth Partners
• Syzygy Cities
• EPIC Dev Fund

About The Opportunity Zones & Private Equity Show

Hosted by OpportunityDb and WealthChannel founder Jimmy Atkinson, The Opportunity Zones & Private Equity Show features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in Opportunity Zones and the broader private equity landscape.

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Show Transcript

Jimmy: Welcome to the show. I’m Jimmy Atkinson. And today we’re talking about a new topic, venture real estate in Opportunity Zones. What is that exactly? We’re gonna find out. I’m joined on the show today by Kelly Ann Winget and Rachel Vass of the EPIC OZ Fund. Kelly and Rachel come to us from Dallas, Texas. Ladies, thanks for coming on the show. How are you doing?

Kelly: Great. We’re actually currently sitting inside of an Opportunity Zone. So, we wanted to make sure that our scene fit the podcast.

Rachel: Yes. So excited to be here. Flew in all the way from New York just to be in Dallas to do this. No, I’m…

Jimmy: Fantastic. I’m gonna ask you much more about the exact location you’re in. We’ll talk about Opportunity Zones plenty today. The two of you came together recently to form the EPIC OZ Fund, and EPIC is an acronym that stands for Energy Partnerships and Infrastructure and Community. It’s a diversified Opportunity Zone fund that’s going to combine what you refer to as traditionally disparate assets of real estate and venture capital into what… We’ve titled the episode today around this term, venture real estate. We’re gonna spend a lot of time discussing your Opportunity Zone strategy later on in the program today. But first, I wanted to see if I can get a little bit of background on each one of you, because I wanna hear about your journeys up until this point. Kelly, I’ll start with you. A lot of my audience of high net-worth investors and advisors may already be familiar with you, and Alternative Wealth Partners because you have participated at some of our Alts Expo events at WealthChannel in the past. But for those who may be unfamiliar, can you tell me about Alternative Wealth Partners and your role there?

Kelly: Sure. So, I’m the CEO and founder of Alternative Wealth Partners. It’s a Dallas-based private equity company. We manage private equity funds that create diversified opportunities for investors to get involved in all things alts. I’ve been primarily and exclusively in alternative investments at the beginning of this career of mine almost 13 years ago. In 2020 I launched my own firm to give a more boutique experience for investors because I had this crazy network I had built over the last 10 years of deal flow and being able to structure those deals creatively to benefit the investors more than they were getting in traditional PE investments. I lowered that barrier of entry from having to have hundreds of millions of dollars of net worth in order to participate in private equity. So now I work with, you know, just regular millionaires, I guess, to access opportunities and alts. I’m five generations in oil and gas, so I did start in the oil and gas. It does have a special place in my heart. She just recently rented a Tesla and is now gasoline forever.

Rachel: No. Just for long drives.

Kelly: Just for long drives. So, there is going to be kind of this inner woven concept of, you know, the transition needs to happen, but we have to do it in a space of reality. And that includes, you know, still participating in these traditional asset classes while we blend in these more venture-forward progressive investment strategies.

Jimmy: Yeah, we can’t just go green overnight. We can’t just electrify everything overnight. It’s gonna be a transition over time. We still need oil and gas. I love the oil and gas industry. I love them as investments too. That’s so cool that you’re five generations in now. And, you know, the story you tell about Alternative Wealth Partners and its role is kind of the same story we’re telling at OpportunityDb and at WealthChannel is, hey, these alternative investments were traditionally historically only available to institutions and very, very ultra-wealthy or family office type of individuals. And now, the asset class has been democratized quite a bit. It’s not appropriate for everybody, but once you hit that millionaire status, you know, ordinary main street millionaires, I guess, you know, it’s certainly available to a lot more people today than it had been previously, even just 10 or 15 years ago. Rachel, I wanna turn to you now. You’re the founder and CEO of a separate organization, Syzygy Cities. Can you tell me a little bit about Syzygy Cities and your role there?

Rachel: Absolutely. First of all, hats off to you to pronouncing it correctly. I actually designed…

Jimmy: I had to practice that, yeah.

Rachel: It’s part of my game because I get to walk…you know, being a young woman in the finance world, I get to walk into a room with established men and teach them a new word, which obviously is an exciting new way to set the tone. And usually, they ask me how it’s pronounced and I tell them it’s Syzygy, and it’s an actual astrophysics term that means the perfect synergy between not two, but three or more bodies, typically referring to a planetary system of the sun, the earth and the moon. So, the world experiences a syzygy at least twice a year, but in my business’s case, it is referring to the perfect alignment between business, government and community, and the unlimited possibilities unlocked from that. It’s also the only word in the English language with the letter Y in it three times, which is my favorite question.

Hi, I am Rachel and I’m the CEO and founder of Syzygy Cities. And what we have been doing historically is sort of this intersection between marketing and real estate, really trying to drive economies through foot traffic similar to the attention economy, but in the real world. And we do this mostly in the impact real estate development world. So, often in public-private partnerships, really working with historically disinvested or undergrown communities that really need a little bit of a catalytic economic engine. So, I like to say most developers build pretty buildings and hope wealthy people move in, but we build wealthy people and hope they make our buildings worth a lot more. And that’s kind of the underpinning.

And my background just really quickly to explain this is, you know, starting out in financial services at Morgan Stanley, I learned a lot about how wealth creation and wealth preservation and family offices operated. And I sort of took that knowledge with me and wanted to bring it to, similar to what you said at the beginning of this episode, more of the basic millionaires, the Main Street millionaires, and really understand how to create wealth in places that they’d been historically left behind in these wealth-creating opportunities. And so after Morgan Stanley, you know, I had been friends with John Mack, the CEO and chairman of the board at the time because his office was next to mine and I was shameless in saying hello. And I ended up going in one of his venture capital portfolios where the entire underpinning was using media to activate underutilized space, which they called remnant perishable inventory. Basically, if you don’t use the space in a period of time, you lose the value of that period of time.

So, I got really intrigued by this and it was all through the portal of experiential marketing. Like, how do we take a New York public library and make it a Robinhood Foundation event space at night and add $40,000 to its revenue stream, you know, a month? How do we, you know, take the nightclub during the day and make it a high-end cocktail event for, you know, 10,000 people? So really, it was all about real estate during a time when in New York even, real estate was dying, and even the SoHo retail was dying. And yet I ended up, you know, my next job working in an experiential marketing company where the Googles of the world and the Amazons of the world were like, “How do we get retail in SoHo?” While all of it was not being used, and this market just wasn’t meeting.

And I got really intrigued by this experiential component of real estate, recognizing it was an entire market that wasn’t being tapped. And ultimately, it wasn’t until I was in the room with a large tech company that I will not name this time, and they basically were sitting in the room stroking their chin hairs going, “What economy should be saved this year with our $300 million event?” And I watched as Detroit’s mayor sort of, you know, put together this amazing presentation in 2015 about how they’ll add 15 new subway stops and turn this pile of rubble into an art gallery, and all these amazing things. I’m like, man, this would really change the face of Detroit. And it was so sad to me when they decided, you know, oh, this sounds cool, but like, you know, let’s go back to Menlo Park.

And so, I ended up, someone who worked with me at the company at the time, oh my goodness, it’s hysterical. My company at the time, I took one of the most talented creative strategists from there, and my next job was at TED Talks where I essentially got, you know, all of the relationships with the corporate social responsibility and impact marketing folks. And after being a global partnerships manager at TED, me and my co-founder who was from this experiential marketing company were like, “You know what? Let’s take this big black book of business we have in the world of experiential marketing to real estate, to communities that have been historically left behind. Let’s bring that $300 million event to that Detroit and let’s take this giant black book of, you know, corporate social responsibility marketing organizations we have from TED and let’s get them to subsidize some of the costs of the businesses that are coming into these buildings so that we can make local businesses, minority and women-owned businesses and other sort of historically left behind businesses capitalized and partnered with like a growth, you know, team that would like the credit for that positive impact they’re having in the world.” So that’s how Syzygy began.

Jimmy: That’s fantastic. And well, now my goal for this podcast is to have a syzygy form between the three of us, right?

Rachel: Yes. Thank you for using the word in a sentence.

Jimmy: There we go. So, how did the two of you meet? Rachel, did you just hop in your Tesla a couple days ago and drive out to Texas to meet up with Kelly, or how did the two of you come together?

Rachel: If I had to drive from New York to Texas in a Tesla, I wouldn’t be alive today. I’d be somewhere in a ditch. That was impossible to charge all the way. But no, our origin story is awesome. Kelly really flipped my world upside down. I met her in Sallie Krawcheck’s apartment. We were both investors in Sallie’s Series B. And we’re in the room, and I don’t know what your audience makeup is, so this could or could not be a popular or unpopular thing to say, but basically, I heard this woman in the corner saying, “Blah, blah, blah, guns and ammo, blah, blah, blah, oil and gas, blah, blah, blah, Texas.” And I was like, okay, I’m walking in the next direction. And as I’m walking away, you know, I’m a New York City progressive, and I was like walking the other way. And then I was listening a little further and she was talking about how she takes the dividends from oil and invests them into long-term renewable because we’ll never get to the renewable transition if we do not include and actually do it on the coattails of the oil and gas sector. And I was like, “She’s right. This is brilliant.”

And then, you know, I pressed on the ammo and she goes, “Well, somebody has to sell bullets to Ukraine.” And I was like, “Cool, I’m on board.” And then, you know, we ended up talking. We had dinner and I was sort of had this image of her as this person with completely different values of me just because she had different politics from me. And the reality was is that she had the same values as me. And that actually, you know, this gun-toting lesbian from Texas and this New York City progressive, you know, we’re actually trying to do the same thing. We just had different sides of the aisle listening to us and we’re like, you know what? The world needs this right now. We need to bring these aisles together in a way that we all have the same goal. We all wanna see success. So, why are we sitting here wasting our time doing anything else but taking these two horses that are pulling the cart in two different directions and bringing them together so we can go twice as far, twice as fast?

Kelly: Yeah. I think the returns live in this blended reality. And I think that there isn’t a sentiment on, you know, the more conservative side of anything that doesn’t want to continue making money and investing in things that, you know, our traditional makes sense, conservative, whatever. But as we move forward into the future, there’s going to have to be technology, there’s going to have to be transition, there’s going to have to be, you know, diverse leadership teams involved. And it’s just because the population is changing. And I think that when you pull back all of the different layers to things that everyone is really on the same page. And so we get to kind of tout that message of like, we don’t really care about the diverse…you know, like the pulling part, the distance, the division. It’s, you know, we have a goal, we have a vision, and if we can stay on path, then everybody’s gonna make a lot of money and a lot of people will advance forward. That’s the best thing about accessibility in general is that it doesn’t hurt anybody to make things better and more accessible. It like helps everyone.

Jimmy: Yeah, you’re right about that. I love it. I love the origin story. Rachel, you tell it well. I wanna hear more about where you two are physically located right now at this moment. The sign behind you, above you says, “It was all a dream.” Is it a dream or is this real? Tell us a little bit more about where you’re located right now.

Kelly: So, when Rachel and I met, like, we had this very long conversation about things and I was like, you know, I’m already doing this on a small scale because I see the complete opportunity. So, if you know anything about me and if you like watch our past podcast or anything else that I’ve been on, I’m the last person to say let’s invest in real estate. I think that real estate is like super boring. When you can have like VC and private equity returns, like a 2X return is like, nah. But if you invest in not only the physical real estate, but also the passion and people behind what’s going to exist in that property, then that’s where you get your exponential return. And so, actually, almost exactly a year ago I bought a property out in Greenville, Texas. It’s in East Dallas. It was a salon suite building. With like a little bit of elbow grease and some money, we painted it up and we changed the concept to include things like this. The entire building is kind of like this all in different types. We took the concept of like a selfie museum and applied it into the salon suite, because what do you wanna do after you get your hair done or your eyebrows done, your makeup done, or get a massage, whatever? You feel good, you look good and you wanna take a picture of yourself. So, why not have really creative backgrounds all around the space…

Rachel: Which is built-in marketing.

Kelly: And one, it makes people want to come in here. There’s a bright pink, hot pink Cadillac out front, like parked on a cement block. You cannot drive past. This is a highway.

Rachel: Everything is dirt and gray, but this beautiful, clean, pristine building.

Kelly: Yes. And so people come in here just to see what’s in here and then they realize, oh, there’s like a hair salon and like there’s people that do massage, there’s people that do eyelashes and eyebrows and all sorts of stuff. And then they’re like, “Oh, I’m gonna come back here for this service.” And so we were able to owner-finance this building at 4.5% with 10% down. We pay the mortgage to the lady that owned the property before. We turned it from doing about $5,500 a month to almost $10,000 a month in rent like in a matter of three months. So, we’ve almost had 100% return of capital that we’ve had invested in the first year. And it’s only going up from here as we finish out the inside fixtures and stuff and continue to lease out the space.

Rachel: And that has everything to do, by the way, to credit Kelly on this with the experience that was built, not the fact that she built a building, which is where I think most real estate developers get let astray. You know, if a city asks you and puts out an RFP and says, “Build an economy,” most people show up with a picture of a building. But the reality is that’s like saying, “Make me a human,” and someone’s saying, “Here’s a skeleton.” Like there’s no blood, there’s no soul, there’s no heartbeat. And I think that’s what this has that other buildings don’t, and I think that’s sort of the missing factor or the missing piece for most people is they build a building and then decide who should be inside it. Whereas Kelly and I are approaching this more from a business forward approach where we’re like, what businesses need to exist in this area and what structure can we create and infrastructure can we create to enable that economy and benefit from it?

Kelly: And we incubate inside of here. So, there’s individual salon suites. Like we’re inside of one of the independent rooms. But one of the things that we did when we renovated the space was actually knock down three of the suite walls, combine them and put in booth rent for people to come out of the cosmetology school here, learn how to create a book of business for themselves, teach them the skills they need and then so that they can move into one of the independent suites in their own business and be able to afford the rent that we’ve increased 150%. So, it’s just creating the pipeline while also incubating and supporting the community. Because out here there’s a lot of development going in. This is an Opportunity Zone. There soon is going to be a $2 billion mix-use development going in right around the building. And so, if we can create this space for them, we’re just gonna be able to keep increasing rent, and the people inside of it will be able to support that moving forward.

Jimmy: They’ll be able to pay that increasing rent because their business will keep growing as you continue to offer them mentorship and coaching and…

Rachel: And investment.

Jimmy: …how to build a book of business. And they’ll be more community around them to support it, right?

Kelly: They won’t be priced out and moved out.

Rachel: Yeah. That’s the idea of the incubation goes… I sometimes will invest in the companies as well because they’ll get the capital to grow with the building’s growth. So, this “It was all a dream” sign is actually, it was making me think in a way, we’re real estate developers of people’s fields of dreams.

Jimmy: I love it. If you build it, they will come, but then you have to offer some mentorship and coaching as well, right?

Rachel: And money, but yes.

Kelly: And that’s that’s the private equity arm.

Rachel: Yeah.

Jimmy: I love it. And yeah, by the way, it happens to be in an Opportunity Zone where you’re sitting right now, although this isn’t part of the OZ fund or is it?

Rachel: It will be.

Kelly: It will be.

Jimmy: It will be. Okay, good. And then…

Kelly: Because I own it now outside of an Opportunity Zone fund, and there needs to be some additional work and it would absolutely crush it in an Opportunity Zone. I just can’t hold it for that long to take advantage of the upside.

Jimmy: Got it. And then the individual businesses within the building that you’re incubating and that you sometimes will make investments in, are you going to plan to set those up as qualified Opportunity Zone businesses that the fund can invest directly in?

Kelly: Yep.

Jimmy: And I love it. That’s brilliant.

Rachel: Most Opportunity Zone funds perform at an average of 7% and that’s really a function of the fact that they build a hotel in a neighborhood that’s not ready for that hotel and it just sits empty and unoccupied for years. Whereas I think for us, this real estate venture component, everyone’s already tapping the markets of San Francisco. Like that market is tapped, but, you know, “Necessity is the mother of invention,” right? Benjamin Franklin said that I believe, and I think that, you know, when you have a lot of issues in a community, there’s a lot of necessity and there’s ton of ingenuity that comes with that. So, those are really the untapped markets and the potential for multiples because there’s a lot of unsolved problems in areas like these that if somebody is able to solve, it’s worthy, in some ways more worthy of an investment.

And in that vein, we are sort of taking the component, the asset-backed sort of safer component of real estate and combining it with the high multiple potential of venture in these completely untapped markets. And the idea is that, you know, most Opportunity Zone funds don’t even realize or acknowledge that that capital gains offset that you get… So, with Opportunity Zones, if you take your, let’s say you made $10 million off of a $1 million investment, that $10 million, 4 million of that is going to the tax man. So, instead of giving that $4 million to the tax man, you can invest the full 10 million in an Opportunity Zone fund without having to pay the capital gains tax. You can defer those initial capital gain taxes for the next four years, and Kelly’s got a myriad of opportunities for you to write them down completely through gas and oil.

But, you know, after that, that 10 million that was supposed to be 6 million is now making 22-plus percent, and you don’t get taxed on that at all. And so the idea of sort of doing that with real estate has been something that people are intrigued in. But what most people don’t realize is that you can also invest in the businesses that are operating out of an Opportunity Zone, and if 50% or more of their revenue is coming from an Opportunity Zone address, they are also capital gains tax-free, which is an unbelievable thing for venture.

Jimmy: Yeah. No, I absolutely love it. By the way, I love the pink Cadillac too. I think we should do the next episode with the two of you sitting in the pink Cadillac. That wouldn’t really stand out in a place like San Francisco or New York City, but in East Dallas where you’re located, I think it probably sticks out like a sore thumb.

Kelly: But it doesn’t rule… Yeah.

Jimmy: That’s awesome. Well, hey, we’re starting to talk about Opportunity Zones…

Kelly: The build…

Jimmy: Go ahead.

Kelly: The building was originally a restaurant called Caddyshack and it had the pink Cadillac out front originally, and it was…

Jimmy: Oh, okay.

Kelly: …kind of a famous, not a famous, it was just a very popular restaurant in Greenville many, many years ago. And so we’ve been able to find a lot of these old, like the old doors are up front. We found a lot of these old things from the restaurant, like in the back of the storage when we took over the building. And so we’ve just like implemented it back in the redesign. And so people in the community are like connecting like, “Oh, the pink Cadillac’s back.” And it’s cool, and it’s literally on a highway. There’s probably, I don’t know.

Rachel: That takes adaptive reuse to a whole new level.

Kelly: There’s a two-lane highway like outside the door, and I mean, it’s just constant flow of cars back and forth, back and forth. You cannot miss this building.

Jimmy: I love it. I’ll have to check it out sometimes. And not too far from where I am, probably about 60 or 90 minutes or so. Well, let’s talk more about Opportunity Zones. We’re starting to talk Opportunity Zones. Kelly, a few months back, I got an awesome, awesome email from you. I love email marketing, it’s in my blood. We have large email lists here at my business that we send to all the time. And emails with great subject lines always stick out to me. And your email, Kelly, just blew me away with the simplicity and the intrigue of its subject line. Do you remember what the subject line was? You might not remember.

Kelly: I think it was something about like, I gave in or like…

Jimmy: That was it. Yeah, it was just simply…

Kelly: I gave up.

Jimmy: “I gave in…” And I’m like, this sounds interesting, this sounds super interesting. So I opened it and the opening line of the email simply read, we are doing an Opportunity Zone. And I remember pumping my fist because I was rooting for you to get into the Opportunity Zone space. Because we love what you were doing with AWP and your oil and gas funds and everything else you were doing for the high net worth retail investor with regards to getting them into Opportunity Zones. And I was trying to encourage you, and I think Andy was also trying to encourage you, “Hey, you should do an OZ fund,” and I love that you were finally doing it now. That was a great way to get my attention, by the way, with that email that’s…

Rachel: I’d like that email so I can frame it. The day I wore Kelly down.

Kelly: Yeah.

Jimmy: You should, yeah. You should definitely print it out and frame it. It could be one of the backdrops on the building there. Maybe people can get their picture taken in front of it. But anyways, let’s discuss more now your new OZ fund. As I mentioned in the intro to the episode, it’s the EPIC OZ Fund I. Tell us a little bit more about it. What is it and what makes it different?

Kelly: Sure. So, one thing about me is like I loved everything tax advantage. And I know that there’s a bunch of tax advantages in real estate as an individual investor in real estate. However, there is a lot of that recapture. I mean, it’s really about kicking the can down the road. And as somebody who’s been doing my own taxes since I was 16, the name of the game is not deferral but elimination. And so any type of investment strategy you can implement that helps get rid of that tax is a way better investment than deferral. Because yes, while we might all die at the end of the day, like wouldn’t it be nice to have that 20% to 30% back in your pocket to reinvest? So, that’s why I’ve always like kind of kept my eye on Opportunity Zones. I just like really was biting my tongue over investing in real estate.

But when I met Rachel and the stuff that she’s been working on for the last four or five years, I was like, okay, if we can implement capital now, we just removed five years of work which then can accelerate our potential of return. And so, we’ll be able to front-load our fund with these projects that are ready to go and start the work on these infrastructure deals where we both have pipeline of deals that can fill out the rest of the fund. So we’re raising $150 million. We can start taking capital now. We are going to probably try to break ground on some of those projects before the end of the year and that’s somewhere between $20 million and $30 million.

Rachel: Chicago winter permitting.

Kelly: Yeah. If not, we’ll start in Texas. Because we only have two weeks of frozen weather. But we have a pipeline of projects, and the first ones are really, really cool. They are up in Chicago. Just so you know, we’re not doing anything in New York at the moment. It is definitely gonna be, you know, middle America here.

Jimmy: Good. Yeah, and New York seems a little bit hostile to the Opportunity Zone incentive, the state of New York anyway. You know, they’re trying to unwind it a little bit there, at least at the state tax liability level. But that’s a separate issue for a separate conversation some other time. Tell me more about your portfolio allocation. What does it look like within the EPIC OZ Fund? You’ve got a pipeline built out already. Middle America it sounds like is your geographic focus coming down from Chicago through into Texas, I guess, and maybe some adjacent areas. Tell us a little bit more about that, and also, what does the asset breakdown look like? Asset class breakdown look like?

Kelly: It’s gonna be mixed-use and commercial and infrastructure, energy deals.

Jimmy: Okay.

Rachel: So, housing is not gonna be as big of a component just because, you know, go where everybody isn’t. I’m a big contrarian investor. Residential is overly saturated right now. The reason I actually got into the, you know, commercial mixed-use game in the southern portion of Chicago is because there’s about 3000 housing units going up in an area that there’s no commercial or retail, and there’s 220 million in retail leakage as it stands today. With 3000 new households, that number’s gonna jump significantly. That means that the people who live there are currently spending $220 million outside of their local economy because that infrastructure doesn’t exist. So, I’m gonna build it for them so that they pay, you know, into their own community’s dollar circulation. And similarly, I think that there is a sort of component of housing being sort of something people are more comfortable with.

So, one of the things Kelly and I are really interested in doing in this portfolio is not just investing in specific, you know, businesses to incubate, but also helping incubate emerging developers, specifically women and minority developers who are already sort of in the residential game. So the idea is we’ll partner with them if they have residential but no commercial strategy, and we’ll handle the commercialization aspect. So we have a whole group of women in Detroit we’re currently talking to and working with about their shovel-ready projects and getting them capital and helping sort of incubate their developments in a way that has that commercial component and mixed-use and infrastructure component attached.

Kelly: And we have projects, right? Let’s talk about the projects that are already in.

Rachel: Yeah. So, there are projects in Chicago. Right now we are working on two projects in South Chicago. One is going to be a really cool mixed-use facility in a community called Bronzeville. It’s one of the most amazing historic black neighborhoods that very few people know about. The history I would say rivals and even maybe beats the Harlem Renaissance. There’s Muddy Waters, Otis Redding, Ida B. Wells, some amazing names came from here. They invented the Powerball in this neighborhood, and the game is called Policy. And it’s actually a sort of history from the 1920s where the Black mafia would go from door to door collecting 5 cents from each community member, and for the chance to win $200 if they picked the winning numbers. But if that number wasn’t picked and they lose the money, actually instead of lining the pockets of the mafia, it was used to build the first African-American owned real estate investment bank and tax accounting firm in Chicago, which is why there’s one of the highest incidences of home ownership in this community, this historic black community in the country.

And so that community has these, you know, million dollar homes now, but no sort of entertainment and food. So we used marketing data. We cast a geofence around the area to see what is it that these folks wanna spend money on. And it turns out they indexed 50% higher than the rest of the nation in wanting theater and restaurant life, and they had none of it. And they had a rich history in theater. So that investment bank that I mentioned built the Regal Theater, which was actually, if you wanted to get elected mayor of Chicago in the 1930s, you had to show your face in this theater. That’s where Muddy Waters and Otis Redding and all those folks became famous. And so there was a rich history in theater here.

So, we ended up deciding to build two entertainment centers. One is a virtual film production studio and theater, and that is one of the buildings. And then three blocks away, we’re building a mixed-use retail building where the first floor is a BIPOC female-owned food hall where there’s lots of, you know, up-and-coming restaurants and food entrepreneurs and a grocery store and a coffee shop. And then on the second floor, there’s gonna be a 15,000 square foot metaverse restaurant and exhibit space. So there’s actually a company, House of Attention that is going to fully projection map this digitally, you know, encapsulated room where you could put any backdrop or immersive 3D experience in. So, imagine you’re one of those restaurants on the first floor, and you’re a sushi restaurant, you can bring your sushi, you know, stand upstairs for a week, rent out that bigger commercial kitchen virtual space, and host these fine dining experiences for potential investors and potential customers where they’re literally sitting under the ocean and looking at the fish they’re eating, understanding all of the sort of environmental effects and where those fish live and what their, you know, ecosystem looks like.

And then next to that, we have a G{Code} House, which is a coding academy for young women and particularly some BIPOC women where they essentially learn Web2 and Web3 development. And we have a deal with the House of Attention where they’ll hire these coders and designers into their ecosystem. And then lastly, we have an Afrobeats restaurant and a soul food vegan restaurant on the top floor, and then little shops like candle shops, bridal suites, and a Five Iron Golf, and maybe a bowling alley. So it’s gonna be really heavy on entertainment and food to serve the 3000 new homes going up in the area, and honor the history of that community and what they’ve supported in the past.

Jimmy: Yeah, that’s great. And I love that you’re not just putting in empty buildings, you actually know what’s going inside. You’re not just building the skeleton.

Rachel: Fully leased. That’s why we know our returns. I already know what I’m gonna earn for the next 10 years. They’ve all signed pre-leases.

Jimmy: Yeah, that’s amazing. That’s incredible. So you’re getting cash flow pretty quickly then after they’re able to occupy the buildings. What’s the status of the development right now at this moment in, we’re sitting here in early June of 2023.

Rachel: Yeah. So, I mean, we’re pushing to get it started pretty immediately. I mean, hopefully, by the middle or end of the summer we’ll have a groundbreaking, because we’ve designed the building, we’ve gotten the tenants, we’ve been working with the city. We’ve gotten sort of letters of intent from the city of 11 million in grants. We are currently and out shopping for the right lenders to the you lenders out there, and raising equity. And so I would say as soon as the money is raised, we’re ready to break ground. We’ve got the building plans and designs and the tenants ready to go, hopefully, this fall. And the city has already given us the letter of intent saying as soon as you’ve got your term sheets, we’ll give you the land.

Jimmy: One of the biggest criticisms of the Opportunity Zones tax incentive from its detractors, from its critics is that it’s subsidizing gentrification in these areas all over the country, where you’re coming into this relatively poor or downtrodden economically community, and you’re building new buildings and you’re pushing out the existing residents. What is your take on that, and how are you trying to combat that exactly?

Rachel: So, it’s my favorite question. So, we have a word we use called intrification, and it’s what we feel we’re doing instead of gentrification. Now, it sounds really nice and woo-woo, but, of course, you know, people who like making money immediately take a step back and they’re like, “Whoa, is this a nonprofit?” Because I promise you, because I also like making money. But what I’ve learned in the same way that, you know, let’s say you invest in a blue chip stock, like, you’re gonna make a little bit of money and your money’s gonna be safe. But the real opportunity lay in the things that people don’t see a lot of value in today that have the highest growth potential. And I view these communities very similarly, they’re opportunities like the title of it suggests. And so intrification, there’s actually… So this is part of the research that my firm has been working on for the past five years that came from experiential marketing.

So I mentioned that guy that in the room, the big tech company and the $300 million event that changes an economy. Now, let me take you to today where his sort of more high-level words have taken on actual true numerical meaning to me. So we started studying these markets. We studied Austin and the impacts of South by Southwest. We studied Palm Spring and the impacts of Coachella. We studied Sundance and the… I’m sorry, Park City and the impacts of Sundance. And they all have relatively similar numbers. So then the actual translation is if you get about 120,000 extra feet to the street in a year or more, that is the tipping point that will add about 300 million plus to the local economy each year, and about 30 million to 60 million to the local tax base payer. Now, the reason that’s important, and it’s consistent across the board is, number one, for cities who are needing to improve their tax base, this makes the sell really easy because you’re basically saying, I have an experiential methodology or a commercial methodology that’s going to bring 120,000 plus feet to the street.

So, the House of Attention, there are 10,000 people a month in foot traffic is the estimate. So, it’s about that tipping point. And here’s the trick. They’re not coming in, you know, traditionally you think, build a tech campus, create 30,000 jobs. Well, those 30,000 jobs, the people who are in that community weren’t prepared to take those jobs. So they go to someone else and that’s someone else’s incentivized by a big paycheck to come move to this new area. And now they can spend $4,000 a month on rent where the other person was spending $2,000, and suddenly, you have gentrification, and that’s really what happened in San Francisco, and that’s why that real estate market is very volatile and it actually didn’t grow as steadily or as properly as investors would’ve liked. But Austin, Park City and Palm Springs had a very steady 200% growth rate in under 10 years.

So, because of the numbers I just explained to you prior, and that sort of economic catalyst, so the idea is if people come, spend money and leave, it actually allows the local businesses a chance to grow with the growth of the community in a way where they now get capitalized and they have the rest of the year to sort of expand their operations and grow, and grow with the sort of economy locally, but as an investor, gentrification is maybe 7% over 15 years, maybe 10% over 15 years. Intrification is, you’re talking about 200% growth rate in under 10 years. So it’s faster, more profitable, and better for everybody, and the government is willing to pay for it. So you get a lot of free capital because you’re not pushing the problem out, you’re actually resolving the systemic issue.

Jimmy: Yeah, let’s talk more about that. That kinda leads me to my next question. The government paying for you to do that. I was gonna ask you, why is now a great time to invest in public-private partnerships, and what kind of subsidies and grants are you able to go after in addition to Opportunity Zone equity incentives within the deals that you’re putting together within your broader EPIC OZ Fund?

Kelly: I think that there’s definitely been a shift in like the last like three years of, you know, the dirty word of ESG and DEI and everything, but there’s all of this sitting money that’s been mandated to be spent with women and minority emerging…

Rachel: A trillion dollars. Over a trillion dollars.

Kelly: There’s a ton of money sitting. And I think that this is kind of our opportunity, not that we weren’t always around, we were, but this is now our opportunity to capitalize on the incentive programs that are out there while they exist in order to amplify the change and exponentially grow our return. And there was a $1.9 trillion infrastructure bill passed. Where do you think that money’s gonna go, you know, and who’s gonna be responsible for building those projects? Well, we wanna be. And we have the deal flow, and we have the access to the team members that qualify for those incentive programs. And so we’re applying for them, they’re being awarded them, and we’ve created the space in these, what do you call them? Blue dots in red states or something?

Rachel: Yes.

Kelly: Especially in Texas, like it’s a completely different game than Chicago, but there’s opportunities, there’s a ton of Opportunity Zones all over the place. But in Texas specifically, you have a lot less red tape and the same incentive programs, if not more, because there’s masses of amounts of money here. Texas has been in a surplus for years. And so if we can tap into that market and build what’s needed here to support infrastructure of these community revitalization projects, because not only do we wanna bring money into these communities, we also wanna make it less expensive for them to exist there anyways. So, by building green buildings or tapping into different types of renewable energies for those spaces as it expands, it actually keeps those costs down and keep them in our buildings long term.

Rachel: And allows us to raise rent, you know. Like, we are looking at investing in battery companies, which by the way are great businesses to bring to places that don’t have any businesses, or energy from waste, which can bring 500 6-figure paying jobs without needing a college degree. I mean, these communities are asking for high-paying jobs, and that is what we need to bring them. But also, those sort of infrastructure situations allow us to create self-sustaining buildings. It’s not even about being green, it’s about being inexpensive. If you can have solar panels on the roof and capture that energy in a battery pack in the basement and never have to pay another energy bill again, well, then I can then raise rent 30% because that’s 30% of your costs going away. So, it’s ways of being more efficient.

And similarly in the tax credit area, like most people just are lazy and don’t know these things exist. Like in New York, I was laughing at both of you inside when you were talking about the New York market being inhospitable to Opportunity Zones. I’m like, most people don’t know that if you build a certain percentage of affordable housing in any of your housing units, New York will literally give you 20% of your financing and cash upfront in the beginning of the project, just give it to you. And similarly, like if you create 500 new jobs, in Chicago, you get $26,000 per new full part-time employment you created like, per person. And that’s money, just money you get for creating these opportunities.

So, just knowing where to look and how to look and who to talk to, and how to, you know, broker the deals of this ecosystem. So, House of Attention knows that if they hire 86% from this training pool of local community members, you know, they’re not gonna have to pay taxes on most of their income and that’s actually a cost savings for them. So, really about educating and partnering this ecosystem and creating that alignment between all the tenants so they’re not separate tenants, they’re part of a syzygy together. That’s how you maximize the results.

Kelly: Yeah. And if you can be aggressive on the tax side and the incentive side, you’re increasing your return by 50% or more. And I think that that kind of is what sets us apart from the other OZ funds that are available, is because we’ve done the background work and have the capacity to understand, like, the multifaceted nature of combining tax advantage with government incentive, and with risk across a traditional asset class into a more venture asset class, combining them all into one picture because we have the team in place, and we have separately for a very long time, and now together.

Rachel: And we’re researchers by nature, so we’re constantly educating ourselves.

Jimmy: So, if you do that deep dive, or that, I like to use the term scrounge, if you really scrounge and you are able to pair Opportunity Zone equity tax incentives with all of these different types of government grants and subsidies, it sounds like they’re both coming from the federal level and the state and local level as well. How does that impact your capital stack? What percentage of your capital stack is basically just free money at that point?

Kelly: Almost 40%.

Rachel: Almost 40%, in all three of my projects, I didn’t name the third because we were oversubscribed and could not capitalize that one sadly, but it is almost 40% free money.

Jimmy: That’s incredible. That is really incredible. That really will help juice returns quite a bit if you can get 40% of your capital stack just through free money from the government. Well, we’re kind of running a little bit low on time. We’re getting long here with the episode. So I wanted to wrap up in a few minutes here, but I wanted to pose a big, broad question to each one of you individually on kind of your different areas of expertise. Kelly, I’ll start with you. You have a lot of expertise in alternative investments, and in particular, in oil and gas as you mentioned previously. I’m curious, what do you see as being some of the most powerful trends that you see playing out over the next few years across the broader energy industry? Any bold predictions?

Kelly: So, I mean, I’ve kind of always been a fan of natural gas. I think it’s the cheapest, most efficient way to transition from, you know, fossil fuel power source to renewable, because it technically is a renewable, but more efficient energy sources. So, investing in oil and gas, siphoning returns to fund battery and other types of renewable sources, but really, she’s kind of turned me onto the battery space. I kind of always understood it was like kind of the end-all-be-all, because even in oil and gas, we call our storage tanks batteries, and it is where you store the oil and gas that you pull outta the ground. And the reality is that the cheapest place to store your oil and gas is in the rock in the ground. Like, it’s just never taking it out and just knowing that it’s there.

And so if we can create an infrastructure where we’re taking cheap energy, which comes from natural gas. I mean, it’s like $2 or something today. If you can store that electricity in batteries long term without it ruining or heating up a space, or, you know, making it a toxic environment in general, then you can power entire economies for decades for relatively nothing. And I think that’s the direction we’re going to.

Jimmy: Yeah, just throw it into Rachel’s car battery, right?

Rachel: I didn’t say Tesla had it figured out. I just sold half my Tesla stock.

Jimmy: All right, good to know. Well, Rachel, let me pose you a similar big, broad question. Based on your expertise, what do you feel is the future of community development in this country?

Rachel: Yeah. Awesome question. So, I think that one of the things that I’ve noticed, especially in green energy, but other industries as well, is that the problem with the market’s growth is not the amount of investment dollars that are going in, and it’s not the technology that’s being developed, it’s actually the workforce that we need to implement it, like whether it’s solar battery or whatever. The reason I love batteries is I like necessity-based investments, and, you know, what does every form of energy need? I don’t know if it’s gonna be solar or wind or nuclear that wins out, but I do know all of them require batteries for storage. So, it is the lowest common denominator sort of at the fulcrum of all of these investments balancing them. And I think being able to create a workforce ready and prepared to implement that and sort of be the ones to take that 3X growth and knead it with the 3X growth in workforce, that’s the future of community development.

We need jobs that people can do, and there are a lot of them. The equation hasn’t been balanced between jobs we need filled and people we have prepared to fill them, and that’s really, I think the beautiful sort of aspect of development is while, yes, we’re building a building, I think what sets Kelly and I apart from other people is we’re actually just building an economy and happen to have to house it in a building. And that’s what I think is sort of different here. So this entire new age economy, we get to come to communities, create high-paying jobs and new skill sets that will help the sort of world and community grow that we also happen to have a market need around, and that’s where I’m most excited.

Jimmy: I love it. I love the vision. It was great talking with both of you today. Thanks so much for sharing your insights, both of you. We have run outta time, but before we go, where can our audience of high net worth investors and advisors, if they’re interested in learning more about you and the EPIC OZ Fund, where can they go to learn more about that?

Kelly: Well, they can reach out to us either directly through each of our firms, and then I think we’ll have probably the epicdevfund.com up and running in the next probably 72 hours where they…

Jimmy: So by the time this episode airs, it’ll be ready then, it sounds like. So what’s that URL again?

Kelly: It’s epicdevfund.com.

Jimmy: Epicdevfund.com. We’ll be sure to link to that in our show notes for today’s episode. And, of course, our listeners and viewers as always can access those show notes at our website. Just head to opportunitydb.com/podcast and then we’ll have links to all of the resources that Kelly, Rachel, and I discussed on today’s episode. And please be sure to subscribe to us on YouTube or your favorite podcast listening platform to always get the latest episodes. Kelly and Rachel, I think we did it. I think this was a syzygy. Thanks for participating today. It was great getting you to spend some time with me and my audience today. Thank you so much.

Kelly: Thanks, Jimmy.

Rachel: Thank you. Love a good syzygy, Jimmy