Build-To-Rent Strategies In Opportunity Zones, With Leo Backer & Jason Joseph

Given the existing macroeconomic landscape, the build-to-rent residential asset class is poised for growth.

Leo Backer of Pinnacle Partners and Jason Joseph of Trilogy Investment Company join the show to discuss positive trends in BTR, and why it fits so well within an Opportunity Zone dynamic.

Episode Highlights

  • An update on Pinnacle Partners OZ Fund VIII, and the reason for the shift into build-to-rent strategy.
  • How build-to-rent (BTR) is defined, and how it differs from multifamily and single-family rental (SFR).
  • Who the typical residents of a BTR community are.
  • Markets that Leo and Jason are bullish on for BTR communities.
  • Structural and cyclical trends that may help bolster the BTR asset class.

Guests: Leo Backer & Jason Joseph

About The Opportunity Zones Podcast

Hosted by OpportunityDb and WealthChannel founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in Opportunity Zones industry.

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Show Transcript

Jimmy: Welcome to the show. I’m Jimmy Atkinson. On today’s episode, we’re discussing build-to-rent strategies in Opportunity Zones, and joining me on the show today to discuss this strategy are Leo Backer, of Pinnacle Partners, and Jason Joseph, of Trilogy Investment Company. Gentlemen, thanks for joining the show. Welcome.

Leo: Thanks, Jimmy. Great to be here.

Jason: Thanks for having us, Jimmy.


Jimmy: Yeah, great to have both of you on the show today. We’re gonna dive into this build-to-rent strategy in a moment, but first I wanted to take a minute or two to introduce each of you to the audience. Leo, I’m gonna turn to you first. Pretty likely my audience of high-net-worth investors, advisors, and other Opportunity Zone stakeholders are probably already familiar with Pinnacle Partners, as you and your partner, Jeff Feinstein, have been featured on this show in the past, and also our OZ Pitch Day events, but for those who may not be familiar with Pinnacle Partners, can you introduce us to who you are and what your role in the OZ industry is?

Leo: Happy to, and thanks again for having us, Jimmy. And good to see everybody today. Yeah, great to be back. Pinnacle Partners was formed about five years ago, as a real estate investment company focused on investing in Opportunity Zone projects specifically. And since our inception, we’ve funded 14 single-asset OZ projects on the West Coast, and now throughout the mountain states and Sun Belt states, primarily multi-family. We’re extremely, continue to be bullish on the Opportunity Zone, you know, regulations that are out there now, and really bullish on new development, even in these struggling markets, which we’ll talk a little bit about today. But again, great to be here, and glad to talk more about our build-to-rent strategy with Jason.

Jimmy: Good. Yeah, we’ll dive into that in a minute. Jason, let’s turn to you now. Same question for you. What can you tell us about Trilogy Investment Company? This is your first time on my show, so I don’t know how familiar my audience may be with you and your firm.

Jason: Absolutely. Thank you so much. And Leo, thanks for, also, for having us on. Thanks, Jimmy. I’m Jason Joseph, CEO and managing partner for Trilogy Investment Company. We are a fully-integrated, vertically-integrated build-to-rent operator, and what is critical to know is it is specifically to purpose-build BTR communities. So, founded just shy of three years ago. Hyperbolic growth, given that it’s a new asset class, and we see this as sort of out one of inning one in a very long, couple-decade process that build-to-rent has started in its infancy now, and now, in hyperbolic growth, as a derivative product of traditional multifamily. So, we have just shy of 3000 lots, with about 700 homes and lots under construction right now. We are in seven states, and we are headquartered in Hotlanta, Georgia, just north, in a suburb called Alpharetta. Pleasure to be here. Thank you.

Jimmy: Awesome. Great intro, there, Jason. I love the baseball reference. It kind of reminded me, took me back to the early days of the Opportunity Zone industry, when everybody was saying, “Hey, it’s still the top of the first inning here for Opportunity Zones.”

Jason: That’s right.

Jimmy: Like, I don’t know where we are with Opportunity Zones right now. I feel like maybe we’re in the bottom of the fifth, and the starting pitchers are about to get yanked, but we still got some room to grow, still…

Jason: That’s right.


Jimmy: …and I don’t know. If Congress extends Opportunity Zones legislation, maybe we’ll go to extra innings. We’ll see what happens, though. But let’s talk more about BTR in a moment. Leo, turning back to you, you touched briefly on Pinnacle Partners, your past projects. You’re currently raising capital, I believe, and deploying capital through your OZ Fund VIII, if I’m not mistaken. That’s a $100 million fund, with curated multifamily projects in Opportunity Zones in select markets. What’s the update there? And did I miss any details there? Did I get anything wrong?

Leo: No, you’re spot-on. You are spot-on. Yeah. So, maybe, to roll back quickly, so, you know, from our inception, we funded 10 single-asset Opportunity Zone projects, primarily multifamily. Podium build construction, two adaptive reuse buildings. And workforce-affordable housing, market-rate housing, and student housing, really, is the product type where our single-asset projects are invested in. And when we launched our multi-asset Fund VII, we, and those projects are all on the West Coast, by the way, in Washington State, and Northern and Southern California, several of our investors asked us if we would consider doing a multi-asset fund outside of those locales, because they’re heavily invested in those markets. So, we purposely curated Opportunity Zone Fund VIII for Pinnacle, which was primarily focused in the Mountain States, throughout the Sun Belt markets. And our thesis was to continue with multifamily only for that fund, and we quickly locked in a project in Denver, Colorado, which we’re happy to say is now under construction, and we also are in Avondale, Arizona, with Jason, which will soon be under construction. We’ll talk about that in a minute. In Charlotte, North Carolina, also with Jason in build-to-rent, which we are under construction. And then in Nashville. So, that fund is, we’re still raising capital for that fund. We’ve raised approximately $65 million of our $100 million target to raise, and that fund will be open through the middle of next year.

Jimmy: And your fund, and your entire fund platform, throughout the course of Pinnacle Partners’ history in doing Opportunity Zone developments, has largely been multifamily, as you mentioned a few minutes ago, but now you’re shifting into a different sub-class of multifamily, build-to-rent specifically. Why the strategy shift?

Leo: Yeah, good question. So, I would say, maybe six months ago, nine months ago, we were really having a hard time underwriting multifamily podium build projects. You know, the cost of construction, interest rates, you know, even with rent growth continuing the way it was going in the markets we were focused in, it was becoming more and more of a challenge. And I think we were very fortunate to already lock in our projects that are under construction today, but new projects that we’re looking to add to our fund, we were struggling with. So we made a conscious decision to focus solely on garden-style apartments, which are more predictable, because your surface-parked, you know, lower-rise type buildings. And we looked at student housing as well, as a sub-market that we felt was pretty hot, and still is. We’re very interested in student housing.

But honestly, we didn’t know much about build-to-rent. And when we met Jason and his team, Jason’s brother-in-law is actually in Seattle, and a friend of ours, is how we actually met. And we learned more about the product type that he was building with build-to-rent, because it’s a newer product type. You know, Jason’ll talk a lot more about it. And we really looked at it as an adjunct to garden-style. You know, garden-style is your, you know, horizontal multifamily, and what build-to-rent is, really, just is an adjunct to that. It just happens to be townhomes and single-family build-to-rent communities. So, we just think it’s a more predictable cost, delivery, and, for us, long-term growth strategy, that fits well in our fund, and then you’re gonna hear in a minute about a new fund that we’re launching with Jason, purely for build-to-rent.

Jimmy: Good. Well, we’ll get to that in a minute, but I do wanna hear more about what build-to-rent is. So, Jason, turning back to you now, really simple question. What is build-to-rent exactly? How does it differ from other residential development strategies, and why is now the time to focus on build-to-rent? Why is it the top of the first inning?

Jason: It’s a great question. And I think Leo did a really, really, really good job sort of introducing the concept of build-to-rent, really. And we like to call it in our office as a derivative, or sub-asset class within the residential-for-rent asset base, we’ll call it. So, multifamily, garden-style, whether it’s high-rise, mid-rise, or garden itself, when you actually look at the construction cost methodology tied to everything Leo has historically invested in on the multi side, versus residential, that one differential of building a home, versus building a commercial building, ends up lowering your cost per square foot. So, to Leo’s point, the initial reason why we got into it was one, residential housing isn’t going anywhere. Everyone knows that we’re in, and depending on the news channel, or the data that you look at, somewhere between 3.8 million to 6.5 million house houses, there’s a shortage of in the U.S. So, if you just look at its basis, we are never going to have an issue of continuing to build and then all of a sudden, you have an oversupply.

Now, there are challenges of getting these deals done, and we can talk about that in a second. But when you look at it at its core, there are five critical components. One is construction cost. And in some instances, you’re talking 30% to 40% of hard cost reduction going to a home. Two, we found that the renter profile of a build-to-rent community was a step up, meaning household income and household formation was much, much higher. When you look at the data, you’re talking household incomes of $65,000 to $120,000, relative to something that’s much less on a traditional garden-style apartment. And, what we also liked is is the stickiness of the lease. So, when you look at purpose-built communities, the average apartment lease, once again, depending on the data that you read, is hovering somewhere around a year to 1.2 years on an apartment, and with a BTR-dedicated community, you’re looking at somewhere close to two years, 2.6 to 3.2, depending on the region of the U.S. So, all of a sudden, you’re looking at turnover cost, you’re looking at the creation of the social aspects of building community, investing in the community, and lo and behold, sort of fourth and fifth, which are financially-driven, you’re looking at a premium rent, relative to the same square footage of an apartment, comparing a 1250-square-foot, three-bed apartment, or a 1250-square-foot townhome, now you’re looking at a premium rental product.

So now, if your chunk rent is higher, your renter base, from a demographic, household income is higher, the length of the lease term is higher, your construction cost is lower, and the exit cap rate that you’re looking at is equivalent to multifamily, well then, all of a sudden, you’re looking at it going, “The thesis makes a ton of sense, and gives us an opportunity of addressing a real need,” where you have millennial, you have retirees, you have young professionals, that are looking for the benefits, we’ll call it, of apartment living, the maintenance-free lifestyle of apartment living, with a back yard, with a garage, and with a community that’s associated with what would look like a for-sale neighborhood, gives us an opportunity of delivering now a neighborhood of like-minded renters by choice, that are now in there.

I’ll end with this topic, is that what we didn’t anticipate happening when we got into the business, and a lot, and there is a misconception of this, that build-to-rent is thriving because of the interest rate environment, the interest rate environment for purchasing homes has actually created a third bucket of new renters. Imagine over a 90 to 120-day period, and the data shows, 26 to 29 million people, overnight, could no longer afford that $400,000 to $450,000 home that they’re attempting to buy. So, we were in the business beforehand. The markets accepted build-to-rent beforehand, and now all of a sudden you have this swath of people actually that are qualified homebuyers, that want the exact home that we’re building, and that we’re giving them an opportunity to rent at a significantly reduced cost relative to a mortgage. So that’s actually added to the benefits of build-to-rent.

Jimmy: Yeah, how does this differ from SFR, or single-family rentals. Are these…

Jason: Great question. Great question.

Jimmy: These are a little bit different because they’re not standalone houses. They’re townhomes, or walk-up apartment buildings?

Jason: And there’s a misconception, and I’m so glad… And this is where I get to out one of inning one.

Jimmy: Okay.

Jason: And we’re still defining nomenclature. I mean, think about what you just said. And what’s now happening, the capital markets are now looking, and saying, “Okay. We have multifamily. We have SFR…” And SFR are single-family rentals, and it’s called scattered, to where, in 2007, 2008, 2009, when there were lots of for-sale neighborhoods, PVC farms you heard about, and all the inventory of homes when we had a oversupply. That was when that asset class was introduced, and imagine, one or two homes in a neighborhood, eight to nine homes scattered on a block. These are truly individual, call it MLS-listed, homes, that are purchased and then put in place for rent. And normally, they’re contained inside of a neighborhood, to where you have for-sale homeowners, that own their own homes, with individual homes scattered throughout. And a BTR is literally a purpose-built, build-to-rent neighborhood, the entire neighborhood, there’s 120 homes, and it’s agnostic to whether it’s a townhome or a single-family detached home. It’s a purpose-built neighborhood, that is, to the naked eye, driving in, driving around, looks and feels just like a for-sale neighborhood, however 100% of the homes are for rent.

Jimmy: Got it. Okay. So, it’s more the community, the neighborhood itself…

Jason: That’s right.

Jimmy: …as opposed to, you know, a house here a house there. That makes sense.

Jason: That’s exactly right. That’s exactly right.

Jimmy: Who are the residents, typically? You mentioned that they’re a typically higher-income. Are they workforce, or do they have families? Are they a little bit older?

Jason: A great question. Great question. We take this approach slightly different, in that we believe that the market determines the renter profile, and the renter profile determines the type of home that we’re gonna build. So, if you’re in Augusta, Georgia, the demographic is gonna look different, where you may have more of a workforce housing, where you’ve got teachers, police officers, etc., where you’re addressing a real need with that particular household formation and household income. Versus the city of Avondale in Arizona, like a project we’re doing with Pinnacle, where you’ve got 107 detached homes where the demographic is kinda sitting around $80,000 to $120,000, based upon what’s there. And so, to your point, the big chunk buckets are millennials, single, young, young family household formation, where you’re looking at typically dual-income, with one-plus children. And then you’re looking at 55-plus, early retirees to retirees, depending on… And that generally is in more of a coastal or Sun Belt, like Arizona.

Jimmy: Got it. Well, let’s talk more about the markets. I’m curious which markets you’re in. And Leo, I wanna turn back to you first. Are the markets that you’re in for this new BTR strategy OZ fund, are they different than the markets than you preferred for your previous funds? Are they the same? I wanna hear more about where you like to invest your OZ capital in this new BTR strategy, Leo.

Leo: Yeah. Great question. So, in our Fund VIII, we’re in the exact same markets that we were targeting for multifamily. So, no different. And when we met Jason, which was ironic, and we love telling this story around Opportunity Zones, and we told him what we were doing… We said we’re investing in Opportunity Zones in these key markets, which he happened to be in, right. He had sites already tied up or owned in the Sun Belt and Mountain States that we were looking at, such as Colorado, Denver area, Arizona, you know, other markets that we already were in. So, he looked at his portfolio and said, “Wow. I didn’t know Avondale, Arizona was an Opportunity Zone.” So, he kind of looked at his map, and he said, “Here’s three or four that happen to be in Opportunity Zones,” and then we picked the one that was in the sub-market that we knew we were looking at for our fund. So, Phoenix, for instance, we’ve probably looked at more multifamily buildings that we tried to underwrite in the greater Phoenix area than just about any market in the country, and we just couldn’t get to the returns we were looking for. You know, we were always looking for market rate, not premium rate, and/or workforce housing. When we saw Jason, and he showed us this site in Avondale, Arizona, it met exactly what we were looking for, right down the fairway for… And then we learned more about the product type, and we got even more interested. So, for Fund VIII, you know, we are in Charlotte, which we’ll talk about in a minute, which also is a target market for the fund, and in Avondale, Arizona.

Jimmy: And Jason, same question for you, because you do some stuff outside of where Pinnacle Partners is developing their OZ deals. Which markets do you like for build-to-rent communities?

Jason: Sure. Three years ago, when, sort of, the germination of Trilogy, we had put together an algorithm that basically took migration trends of U.S. population into certain states, and also layered in 38 critical variables related to job growth, related to employment, related to household formation, demographic data, etc. And what’s interesting now, fast-forward three years, if you pinpoint the top 25 markets for build-to-rent, it sits within the Southeast, across into the Southwest, which they call “the Sun Belt region,” “the Smile States,” whatever it may be. So, we currently sit in the Carolinas, Georgia, Florida, into Alabama, and then hopscotch over into the great state of Texas, Arizona, and soon to be Colorado, to Leo’s point. And when you see what’s going on, predominantly in job growth, great weather, typically four seasons, and/or two, or one, if you’re in Arizona… But, if you look at what’s happening with, whether it’s the current political climate being pro-business, whether it’s what type of investment is both the municipal, meaning the local municipality and the U.S. federal government investing into, like, Arizona, as an example, with Phoenix and the CHIPS Act, and what’s going on with the manufacturing, and what’s happening there. And then likewise, as you spin that into Texas, same things are happening there, as you spin it in.

So, you had this massive migration over the last number of years into these particular states. And what it means is, they’re seeking home ownership, and they’re seeking the ability, in lieu of home ownership, could be transition, could be they’ve been priced out of the market, could be the interest rate environment, could be, and this is thematic to Trilogy… Jimmy, this is important. To the millennial group, their equity is actually the flexibility of moving. They’re not interested in necessarily… And I’m generalizing some. Some are, but if you generalize, and just see the data, the flexibility, we always say, “your equity is your flexibility,” to where it’s not about wanting to be in a community for three to five years, and investing. It’s, “Oh, wow. There’s a new opportunity. There’s a work-from-home opportunity, where I can go to Korea, and still work, you know, out of California.” You know, there’s ways for them, and they want the flexibility, and not being tied down to a home mortgage. So, it’s really created an interesting opportunity there as well.

Jimmy: That’s really interesting, that last point, that, just that demographic shift, or that mindset shift of generations, how millennials think about home ownership, and how it does kind of tie you down to a location…

Jason: That’s right.

Jimmy: …which you needed 20 years ago, 50 years ago. You know, you’re going to work at the same company every day for most of your career, or, you know, you’d relocate within the same city, but now you can work from anywhere, for anyone, it seems like.

Jason: That’s right.

Jimmy: So, yeah, that flexibility does come in quite handy, I’m sure. Leo, I wanna turn back to you and talk about how this strategy fits within the Opportunity Zone dynamic. Why do you like BTR? Well, I think we know why you like BTR. We’ve talked about a lot of the trends behind it. But why specifically within an Opportunity Zone strategy?

Leo: Absolutely. You know, again, all of our underwriting, like a lot of firms like us do, you know, we are investing in Opportunity Zones, and we’re raising, you know, investors with capital gains to capitalize these projects, but all of our underwriting has nothing to do with the Opportunity Zone benefits. That’s all the gravy on top of the investment. So, it really has to meet our location thesis. Obviously, a sponsor that’s best-in-class for the product type they’re building. And it’s gotta meet the timelines that are very important to us to have these projects up and operational before 2026. That’s the program, right? That’s what everybody’s racing towards. And we were having a hard time, as I mentioned, not only underwriting multifamily projects based on the returns, you know, the untrended return on cost today in today’s environment is a struggle, but also the timing to get a building built, stabilized, refinanced by 2026, is getting very difficult.

So, that’s why I think this product type makes a lot of sense. You know, the project in Charlotte that we are invested in with Jason happens to be a forward purchase opportunity. So, think of it as a pre-TCO, like that people have done in multifamily buildings. You can buy a multifamily building prior to it being put in service, and still qualify for Opportunity Zone benefits. We’ve created the same thing for, in the Charlotte development, which is a pre-TCO purchase of these townhomes. So, we are actually buying units right before they’re finished. We’re finishing them alongside the developer, you know, to make sure we’re qualifying for OZ benefits. And then we’re putting those in service, and leasing them along the way. So, to us, it’s, you know, it’s less risk, they’re into the market sooner, and they’re throwing off returns quicker. So, to us, that’s just a perfect model for this Opportunity Zone, you know, investment today. And these projects, they aren’t all out in the hinterlands. You know, when I originally thought of build-to-rent, I’m thinking people are buying hundreds of acres in, you know, Timbuktu in Arizona, because that’s where everybody keeps building and building and building. These projects are both very urban, they’re in mixed-use developments, with multifamily close to us, and schools, retail, business services, stadiums. I mean they’re in urban areas, that are neighborhoods, some walkable, close to light rail, which also meets kind of our Opportunity Zone investment thesis.

Jason: And I don’t wanna make, like, Jimmy, I’m just gonna interject something for Leo’s benefit, making light of the IP that went into the build-to-rent forward, that Leo’s referenced in Charlotte, where, when you have organizations like Greenberg Traurig, who’s a national law firm that leads in the expertise and compliance of Opportunity Zones, and then you dovetail that into Novogradac, that also leads in that area, from the compliance aspects of it, to say that for those firms, this is, you know, the first delivered single-family home project into an Opportunity Zone, not multifamily, not some of the others that Leo’s referencing, TCO, pre-TCO, excuse me. So, the ingenuity, in, you know, 10 months that it took to design the structure to be compliant, and all the effort that went into it, is actually one of the reasons why we like Pinnacle, because we fancy ourselves as being structure gurus, so to speak, and, you know, there’s never a deal that’s hard. It’s, are you a problem-solver? And Pinnacle is a group of problem-solvers.

And so, they saw the opportunity of being able to, to it, think about it. The issue that they have is, when will the fund begin CO’ing and begin turning cash flow? And so, when you looked at the opportunity, later on in the game, of inserting this Charlotte project, put the fundamentals aside. This was a tough deal. And this deal took time, took extra funds, extra capital, extra everything to get it over the line, so it’s now set the opportunity, sorry for the pun, it’s given us the opportunity now to do it again and again and again. So, we are forward thinkers in the space of BTR, in order to do this Opportunity Zone investment. So, it’s been really, really fascinating, and neat to watch the Pinnacle team and the Trilogy team come together to do the deal.

Jimmy: Oh, that’s great. I love to hear that. Couple questions for each of you. We’re starting to run out of time. We’ll wrap up here in a few minutes. But Jason, let me ask you this. What, and we’ve already talked about, I think, the answer to this question a little bit, but I’m gonna ask you about the biggest trends that are providing a tailwind to BTR investors. We talked about some cyclical trends, with interest rates having risen as much and as quickly as they have over the last year or so, making homeownership unaffordable for a lot of new homeowners or potential new homeowners. I think that’s been a cyclical tailwind for BTR. Maybe a structural tailwind is that housing shortage you mentioned, the however many million it is.

Jason: Both of those …

Jimmy: I usually like to just round it out to about 5 million short. Are there any other trends that are providing a tailwind for this …

Jason: … I would say, though, you’ve actually nailed it. I mean, those are two of the largest tailwinds that are heading in, to where some of the ultimate, sure, you’ve got your flexibility, you’ve got the need and desire. And I would say that, and I don’t wanna make light of it, but having your own backyard, having your own garage, dedicated parking, and having the pieces of what… I mean, imagine being in a home, having no responsibility for maintenance, having no responsibility for lawn, having no responsibility for any of it, but you’re showing up, so we call it and liken it to apartment-style living, in a home. And so, the tailwind that comes with that is, is that, because of home ownership issues that are just prevalent… And by the way, we think interest rates are gonna trend higher for longer, to where this going to be a tailwind that lasts not into the end of the year, not into the end of first quarter. We see this as a second, third, maybe even as long as fourth-quarter item, which means the more homes that we can deliver during this time will reap the benefit for the residences themselves.

Jimmy: And then …

Leo: … Yeah, maybe I could add, just, to my opinion on another tailwind, is, we already were seeing somewhat of a movement from urban living to suburbia, with COVID. People wanting, you know, everybody was building, including us, smaller, efficient units, close to light rail. No parking. And I still think that’s a needed product type for people, especially that can’t get to work, you know, and wanna live close to work, can’t afford it. So having smaller units, that are more affordable, we like that workforce housing model a lot. But the reason we like garden-style apartments is because a lot of people are moving. They want an office at home. They want a little more space. So they’re willing to move outside of downtown, to be a little further away, and we think this just another adjunct to that. So, people looking for more space, and quality of life, a little bit more space than being on a fifth floor, versus a single-family home or townhome. To us, we already were seeing that happening, and now it’s happening even more.

Jason: Great point.

Jimmy: And what’s your exit strategy here, Leo, at the end of the 10-plus years? How do you get your investors their money back, and make sure they take advantage of the capital gains exclusion on the back end?

Leo: Yeah. Really no different than our multifamily strategy. You know, we build, we lease, we stabilize, and then put permanent financing in place. So, we’ll return on, you know, significant amount of their investment at that time, in hoping to pay the tax, right, is everybody’s goal, and these projects will be done sooner, you know. So, we’re feeling good about that. And then, at after 10 years, an exit will be a sale. We’ll roll up as a, you know, a completed project, and there’s groups out there today that are looking at these assets, no different than multifamily. And we think this asset class is gonna continue to grow. So, that is the strategy. Jason, you see it any different? But we don’t see it any different than multifamily …

Jason: Not at all. And these are institutional-quality assets, Jimmy. So, what is important is, is that you’ll have a wide, wide bench of potential buyers, from, whether or not they’re going into a 1031, or whether it’s an institutional investor that, you know, has a series of core funds, life insurance companies, etc. So, it’s gonna be a wide, wide range of potential buyers, you know, 10 years from now. Can we predict where we’re gonna be? No. But we feel very, very strongly about, during that period, stabilizing, good cash flow, and then outside of that, on the reversion, you know, Leo and his team giving the investors the benefit, you know, that they originally invested in for.

Jimmy: Very good. Well, great insights today, gentlemen. Just to zoom out a bit before we conclude today’s episode of, the final question. I’m curious, given your expertise, and this question is mainly for Leo, I think. He’s my real OZ expert at Pinnacle Partners.

Jason: That’s right. I’m not. I’m not.

Jimmy: But Jason, feel free to step in as well. What do you feel are some of the more important trends, more broadly in Opportunity Zones in general, that investors should keep their eye on for the rest of the year, and going into 2024 now, too?

Leo: You know, what I tell people is really no different than how we’re looking at the world today. Less risk is better, you know? So, all of our investments today, you know, if you’re not earning, you know, significantly more than you can put into a money market or a CD, then why you doing it, right? So, all of our underwriting has changed. So, our return…

Jimmy: Yeah. The 10-year risk-free rate is now 4.5%, so that’s a much higher hurdle to clear than it was a year ago, right?

Leo: Exactly. So, I would just strongly encourage to push your groups like Pinnacle on their underwriting. You know, how are they seeing the world, as Jason’s point. If they’re showing you that interest rates are coming down early next year, you might wanna question that. So, make sure you’re looking at a conservative underwriting. And I think, de-risk any investment today, meaning, it needs to be shovel-ready, with a construction loan in place, or term sheets at least, GMP from a GC. You know, going into projects like we have historically, where you’re, you know, the interest rate environment was pretty steady, you know, construction costs were holding firm, and even if they were going up, rents were kind of going up to make you look okay. I think we gotta be very careful on how we’re underwriting today, because the good news for groups like Pinnacle is equity is really king today, and if you’ve got the equity to invest, you’ve got a lot of choices, with good sponsors like Jason, and just gotta make sure that we’re de-risking them as much as we can, meaning we’re not gonna put more leverage than over 50%, 55% loan-to-cost, where, a year ago, we’d probably be 60%, 65%, right, Jason? So, it’s just a different day, and I think, to us, at Pinnacle at least, we’re trying to, less risk, you know, fewer projects, with good sponsors like Jason, that we can go long with because we believe in the model.

Jimmy: You’re good. And Jason, I don’t know if you had any thoughts on important trends, you’re keeping an eye on, that we haven’t already covered.

Jason: Sure. Well, it’s funny. I would say that in the last year, there are more investors that are giving Opportunity Zone Funds, like Pinnacle Partners and their series of funds, as well as direct Opportunity Zone investments, they’re giving them a stronger look, Jimmy, because, because the next year, two years, three years, where a traditional merchant build, you know, buy the dirt, build it, stabilize it, sell it, that three to five-year merchant build strategy, that normally, non-OZ investors typically are going into, they’re now seeing that it’s not as “easy” to underwrite a three to five-year exit. So, because of that, and knowing that you might have a seven-year exit, or you might have to plan for something longer, because you don’t know what’s coming, what’s happening is, is now everyone’s saying, “Well, wait. If I’m gonna wait to seven years, what’s another three?” and then getting the benefits of the OZ. And then likewise, having that opportunity. So, it’s interesting. For us, it’s amazing how even our site selection team, of 30 deals that I’ll look at over the course of the next week, one-third of those will be Opportunity Zone. Where if you looked at us a year ago, none of them. We never looked for it. So, we’re looking, long, into these investments now, which gives, I think, altogether more opportunity for what’s going on at Pinnacle, not just for me as a sponsor, but for what Leo and Jeff and his team are doing there as well.

Jimmy: Well said, Jason. Well, gentlemen, we’ve run out of time. Thanks so much for sharing your insights today. Before we go, Leo, where can we learn more about Pinnacle Partners? And Jason, where can our audience go to learn more about Trilogy?

Jason: Sure. Go ahead, Leo.

Leo: Yeah, Pinnacle is at And my email is [email protected].

Jason: Great. Mine is, and my email address is [email protected].

Jimmy: Fantastic. And for our listeners and viewers out there today, we will, as always, have show notes available for today’s episode. You can find those show notes at, and there we’ll have links to all of the resources that Leo, Jason, and I discussed on today’s show. We’ll make sure to link to those websites that they just gave, as well. And please be sure to subscribe to us on YouTube or your favorite podcast listening platform, to always get the latest episodes. Leo and Jason, thanks again for joining me today. Really appreciate your time.

Jason: Thanks, Jimmy.

Leo: Appreciate it.

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