Free Event - Alts Expo on Dec 13th
With year-end approaching and new legislation introduced last month, there’s a lot of momentum in the Opportunity Zones industry.
Ashley Tison at OZPros joins the first ever LIVE edition of The Opportunity Zones Podcast with Jimmy Atkinson to discuss the latest industry trends, plus answer technical questions from the live audience.
- Ruminations about the recently introduced legislation that would improve and extend Opportunity Zones, and the likelihood of its passage before year-end.
- Clarification on timing rules for when a gain from a failed 1031 exchange can be reinvested into a Qualified Opportunity Fund.
- How higher interest rates and heightened debt service coverage ratio requirements are impacting capital stacks and refinance distributions of Opportunity Zone funds.
- Why only capital gains are eligible for the full tax benefit of Opportunity Zone investing, and whether that may change at some point in the future.
- A preview of two big upcoming OZ investor events — the Novogradac Fall 2023 Opportunity Zone Summit in Washington DC on November 1st; and OpportunityDb’s OZ Pitch Day Fall 2023 on November 9th.
Guest: Ashley Tison, OZPros
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.
Jimmy: You are looking live. Welcome to the “Opportunity Zones Podcast.” I’m Jimmy Atkinson, here with our first ever live episode of the show. And joining me to discuss Opportunity Zones, and to take your questions live on air, is the OZ Sherpa himself, founder of OZPros, Mr. Ashley Tison. Ashley, thanks so much for joining me today. How are you?
Ashley: I am fantastic, Jimmy. You know, so, it’s always fun to be with you, whether we’re doing a podcast, or whether we’re doing OZ Pitch Day, it is always fun to be with you, but it’s extra fun to be with you live.
Jimmy: Absolutely, extra fun to be with you live, and we’ll talk more about OZ Pitch Day a little bit later in the episode. We have our next event coming up in just three weeks, on November 9th. Ashley, also we’ve got another event coming up even sooner than that, and before we dive in, I did wanna read a quick word from Novogradac. OpportunityDb is partnering with Novogradac on their upcoming Opportunity Zones event in Washington, D.C., and I know OZPros has also partnered with Novogradac…
Ashley: I was just gonna say, we’re gonna have dueling, we could have dueling codes, right?
Jimmy: Exactly. So, let me read this quick announcement from Novogradac, so they’re happy with us. Are you ready to create a network of professional contacts within the Opportunity Zone space, while gaining a more in-depth understanding of the Opportunity Zones incentive? Attend the Novogradac 2023 Fall Opportunity Zones Summit on November 1. You can find out more at novoco.com. That’s N-O-V-O-C-O.com. Ashley and I are gonna be there. It’s gonna be a lot of fun. Novogradac, as you may know, is a trusted resource for information about the Opportunity Zones incentive, and its community impact, and the Novogradac 2023 Fall Opportunity Zones Summit is your chance to hear from those with first-hand experience overcoming structuring and sourcing challenges. You can attend sessions to learn about the legislation that would extend the OZ incentive in this session of Congress, as well as the outlook for reporting legislation, get updated on the latest in the community development arena, including how OZ developments are using the clean energy tax incentive provisions from the Inflation Reduction Act of 2022, learn the types of investments that are most appealing to investors, and the strategy to support development in Opportunity Zones, and listen to a detailed overview from qualified Opportunity Fund managers, including information about their experiences working with QOFs, including past fund strategies and structures, track records, and OZ investment opportunities that they see on the horizon.
It’s a full-day summit. It’s gonna be in Washington, D.C., on November 1st. I’m gonna be there. Ashley’s gonna be there. It’s gonna be a lot of fun, and I hope you’ll join us. You can register today at novoco.com. That’s N-O-V-O-C-O.com. Best part, OpportunityDb followers and Opportunity Zone subscribers listeners can save 10% at checkout by using promo code OPPORTUNITYDB10. That’s OPPORTUNITY-D-B-1-0. We’re gonna chat more about that Novogradac conference, and also my upcoming OZ Pitch Day event later on in today’s episode, but now, on with the show, and by the way, we want today’s live episode to be interactive, so if you have any questions for Ashley or for me, you could submit them in the comments or the live chat section. We’re going to devote a lot of today’s episode to answering your questions live on air, so whether you’re watching on x.com, formerly Twitter, or LinkedIn, or YouTube, we’re monitoring all those channels, so submit your questions and comments live. We’ll get to them as they come in.
Ashley, now, I’m sure a lot of my audience of high-net-worth investors and other Opportunity Zone stakeholders are likely already familiar with you if they’ve been following me or you for any length of time, but for anyone watching or listening who may be new to the OZ industry, maybe this is their first time watching my podcast, can you tell us a little bit more about yourself? Who is Ashley Tison, and the services that you offer to the Opportunity Zones industry through OZPros?
Ashley: Awesome. Well, thanks, Jimmy. And, you know, I like to kid around and say that I am an attorney, but I’m a reformed attorney, because I got sick of practicing because I want to be in the game. I wanna get in the game of deals. I wanna get in the game of helping folks save money on taxes. So, I was with a big firm, and I did the big firm thing, went in-house, with a tenant-in-common syndicator, and, you know, so learned all of the business of doing kind of commercial development, and how to do complex, syndicated commercial transactions within the tax code. And then I left there, and when the commercial real estate crisis happened, went back to practicing law, and did M&A transactions for 10 years, where we bought and sold companies. We helped Main Street-level businesses figure out how to do sophisticated mergers and acquisition transactions. Effectively, we brought Wall Street-level docs to Main Street, via this document generation software that I created.
And then, I sold that business because I saw how many people were, you know, leaving money on the table. And Jimmy, it’s not about how much money you make. It’s about how much money you keep. And a tax-mitigated, you know, really aggressive and proactive approach can make a significant difference on what your take-home amount is, particularly when you’re exiting a transaction. And so, I sold that company to help people, you know, to plan their businesses, and to plan their exit more intentionally, and along the way, I heard about this thing called Opportunity Zones and I was like, “Holy cow. That’s like 1031 and private equity got married, and it had this beautiful baby called Opportunity Zones.” I was like, “Man, that literally marries up perfectly with my background.”
And so, I came out to Vegas, you and I met, I bought you drinks at the bar. I used my favorite joke, “Hey, let me buy you a drink,” at the free cash bar, right. And then we talked about it, were like, “Hey, what are you doing inside Opportunity Zones?” I was like, “You wanna set up the LegalZoom for Opportunity Zones?” and we said “Yeah, let’s give it a run.” So, we set up OZPros in order to take that software system that we created for doing M&A transactions, where we had brought Wall Street-level sophistication to Main Street, and I said, “Let’s put this into the hands of the backbone of the American economy.” Let’s take this tax incentive, which I think is the greatest tax incentive, place-based economic tax incentive, ever created by Congress, and let’s put it in the hands of the backbone of the American economy. Let’s make it reachable, let’s make it accessible, and let’s show them how to do it.
And OZPros was born, and we’ve been on a five-year run since. We’ve had almost 3000 strategy calls with people. We’ve set up over 900 Opportunity Zone entities, most of those funds. And then, we’ve, you know, we’ve had conversations with over a billion dollars worth of capital gains. And so, it’s really cool to see that, you know, and I don’t know that all of that has gone into Opportunity Zones, and certainly I’m not sure how much has gone into impact stuff, but it’s always been a goal of mine to put a billion, or to help facilitate putting a billion dollars of investment into impact-driven investments, where that’s where Opportunity Zones shine, because you can tax-defer, and then you can put it into stuff that’s actually having an impact upon the community. So, super stoked about that, and about what OZs have become, and what they’re going to become in the future, which I’m sure is one of the things we’re gonna talk about at Novogradac.
Jimmy: Absolutely. And it’ll be what we talk about at OZ Pitch Day, a week and half or so after the Novogradac conference as well. I love that goal, of putting $1 billion into impact investments. By the way, I just got off a podcast interview about eight minutes ago, right before I hopped on this one.
Ashley: So, what? You’re back-to-back like me. It’s great.
Jimmy: Yeah, with your old pals at Monte Dei Globe, Brian England and Tess Young. They have an incredible impact project. That’s gonna be our episode that’s gonna release next week. What’s the date of that? October 25th, it looks like, according to my calendar. Gotta squint to see it there. That’s…
Ashley: So, can you give us a sneak peek? Tell everybody what they’re doing, so that way…
Jimmy: Well, first of all, Tess said, she chimed in with the first comment. Actually, she gave it to me in person here, about 20 minutes ago. She wants me to let you know that it is elk hunting season in Globe, so you should get out there.
Ashley: I know it is. So, dude, I’m like, I’m, you know, I need to call them, and I need to get out there, because I would love to… Elk’s definitely one of the things that’s a bucket list item for me, so I definitely need to get out there to see you, Tess. You’re exactly right.
Jimmy: Globe is a, without this being a pitch session for Globe, I’ll just tell you briefly what they are, because I really, it was my second time hearing about the project, but my first time in a while hearing about the project, and it’s a three-phase development. They’re building some housing out in Globe, Arizona, about an hour east of Phoenix. Beautiful small, rural community, and but the part that struck me as really cool and unique is they’re putting aside part of the development to provide free housing for retired religious clergy. So, an incredibly impactful project, because those religious clergy, they take vows of poverty, and then oftentimes, they retire and they age, and there’s nowhere for them to go. So, they’re providing some much-needed housing there. We’ll be sure to speak to them on next week’s episode. Go ahead, Ashley.
Ashley: So, it’s actually interesting, because, you know, I might qualify for that. I guess I have to retire, but I am actually an ordained minister. And…
Jimmy: Yeah, I don’t know. I don’t know. You have to really squint to get you eligibility there. I don’t think so.
Ashley: … call her up. I’d be like, “Hey, I’m in.”
Jimmy: Ashley, we do have a bunch of questions that have already rolled in. If you’re just joining us, whether you’re on LinkedIn or YouTube, please use the comments section to submit your questions. We’re gonna get to those in a minute, but first I did want to, and I jumped the gun here a minute ago… I did want to just share, on my screen, about a couple weeks ago now, new legislation was introduced in Congress that would reform and extend the Opportunity Zones program. You may or may not be familiar. It’s currently set to sunset at the end of 2026. This new legislation, the Opportunity Zones Transparency, Extension, and Improvement Act, would extend Opportunity Zones through 2028, and a lot of people think, a lot of industry insiders think, that this might be the first step to getting Opportunity Zones made permanent at some point in the future, and/or possibly introduce an Opportunity Zones 2.0, with even more improvements to the provision, at some point during the next session of Congress, after the presidential election. It’s the industry’s hope that this new legislation gets packaged into a broader tax bill toward the end of this year.
Ashley, I covered this new legislation with the boys at Novogradac a couple weeks ago on this show, but, so, I don’t know that we need to go over all of the details of what’s included here. I don’t wanna belabor those points. I wanna make sure we have time to get to questions, but can you tell us…I’d like to know, what are your thoughts about this reform legislation? It’s almost identical to the legislation that was introduced in the last session of Congress, that failed to progress because, well, because Congress was kind of broken the last session. Might still be broken, some might say. They didn’t get to any tax legislation last session. It’s hoped that they will this session, but Ashley, with that as the context for all this, what are your thoughts on this new legislation that has been introduced?
Ashley: Well, I think that, you know, so, I think that it’s great, because it indicates that it’s still forefront in our legislators’ minds. And any time it gets back into the limelight, it also kind of spikes in the traffic, right, around folks, you know, just being aware of it. And certainly, Tim Scott talking about it, as he’s, you know, gone through his presidential run, has been awesome as well. And so, I love it for that part, because it, you know, it brings attention back to the program. The, kind of, concerns that I have about this legislation is that, because it’s similar to the stuff in the past, I think that one of the things they need to do to fix is to, within the expansion, or within the extension of time, is that they need to look at, okay, I think, as written, that if they get it passed, or if they were to get it passed by the end of this year, that we would pick back up the 10%, but I don’t know that the 15% gets picked back up. And so, I’d love to see some, you know, some slight modifications and tweaks to that, to be where, if, whenever it goes through, because, you know, it’d be awesome if it goes through and it gets passed this year. But if for whatever reason, it stalls, and it goes through next year, I’d love to see it to where that picks back up that 15%, if they’re in by the end of that calendar year in which it gets passed. And then, there’s an extra two years for folks to get the 10%. And notwithstanding the fact that it’s not seven years or five years, like, if only extends it out to 2028, you know, we’re not gonna be able to pick that up.
And so, I’d love to see them fix that piece. Because, you know, in 2019 and then 2021, particularly in 2021, we saw a massive increase of capital flowing into OZ funds and we were as busy as we’ve ever been because of that, of setting up, you know, captive funds for folks. And so, I’d love to see that happen again, because I think that that could really make a difference in folks that are raising money for OZs.
Jimmy: Absolutely, Ashley. Let’s start getting to some questions, by the way. And first, I did just wanna point out, hey, Jeff McGinnis, our old friend Jeff McGinnis is here. He says, “Go Jimmy, go Ashley.” Brad Molotsky, also in the house, says, “Thanks for providing the learning and discussion, guys.” Thanks Brad, thanks Jeff for joining. Brad had a question about the legislation. Let’s see. Here, I’ll put his on the screen. Brad asks, “Guys, what’s your view of the likelihood of passage of the Extension Act, and if so, when? ’24 or ’25 passage?” So, I think he’s then asking, hey, when for the next one?
Ashley: Sure. I think that it’s probably… I mean, I think the likelihood that it gets through this year is slim to none. And so, I think that it probably is more of a ’24, you know, a ’24 situation. And there’s a lot that can happen between now and the end of 2024. So, it’ll be interesting to see what shakes out.
Jimmy: Okay. Well, so, I disagree with you, by the way. I think, if it doesn’t happen this year, I think the likelihood of it, of anything happening in ’24 is gonna be really hard, because this is gonna need to have…there’s gonna need to be some sort of bipartisan tax legislation, where both sides of the aisle can agree to do something. There are some Democrat priorities, and there are some Republican priorities. I don’t think you’re gonna…
Ashley: Any of those. Yeah, it’s a good point about the presidential election.
Jimmy: I don’t think…. Yeah, that’s what I was gonna say. I don’t think you’re gonna get those two sides to agree on much of anything. The closer we get to November of 2024, the less likely it is. I do know that both sides have legislative priorities when it comes to extending some tax provisions and reforming some tax provisions. Non OZ stuff, by the way. OZ’s a very small part. I won’t go into extensive detail on what all those finer points are, because frankly, I can’t remember them, and I also don’t think…it kind of lies outside the scope of today’s discussion. I think there’s a very good chance, I would say a 55% chance, Brad, is how I’m handicapping it that we’re gonna get some tax legislation before the end of this year, and OZs will be a part of it. So give me…
Ashley: I’m going 60. Because I’m the eternal optimist. I’m the eternal optimist.
Jimmy: You’re changing your tune. All right. Let’s move on here, and talk about some of these other questions here. I’m just kind of reading them now. Let’s bring in a new one here. This one’s from. Jessica. Jessica asks, we’re gonna start with the rapid fire, and then we’ll kind of get back on topic here. Well, we’ve got a few more discussion points we wanna get to, but Jessica asks, “Can I exchange funds from the same initial capital gain event within different QOFs during the 10-year hold period?” Ashley, what do you say?
Ashley: No. Well, so, you technically can. So, but the way you have to do that is you have to actually distribute it out of the QOF and then, and reinvest it into the different QOF. So, technically, you can, but when you do that, it triggers an inclusion event, so technically, it would not be from the same capital gain. And so, what you can’t do is you can’t, like, so, you couldn’t put that money into one, you know, Qualified Opportunity Fund A, and then, you know, down the road, say, “Oh, well, I really like what Qualified Opportunity Fund B is doing.” So, I’m pretty sure that Kirk’s on here. So, you get excited about what they’re doing out at Griffin, and you’re like, “Oh, man, I wanna make an investment into Griffin.” And so, you say, “Hey, I put a million dollars into my own captive fund. I wanna put $900,000 of that with his,” and you send him a wire straight from your fund into his fund. Well, first of all, he’s gonna say, “Don’t. No, don’t do that.” Secondly, it would make it, and the reason why I’d say that is because that would be a fund-of-funds investment, and you can’t do that. And so, you would have to distribute it out to yourself, and then make a reinvestment into his fund, you know, so that that way, you’re investing a capital gain, directly from you having the capital gain, into their fund.
Jimmy: Good. We did get a question here. Well, let’s see here. First of all, this one came in from an anonymous LinkedIn user. Just wants to say, “Hey, I agree with what Ashley is saying. I’d love to see it extended to 2030, to give time for all of what we just discussed.” And I think… Here’s the thing with Opportunity Zones, by the way, and I wanna actually bring up Barbara’s comment, because Barbara had a comment, which she asks, “Isn’t the point of an OZ to ultimately get rid of it?” And I think, actually, yes, it is, right? Like, eventually, we want all of these areas uplifted economically. It’d be great if at some point in the future we looked around, and we said, “Well, there are no more economically distressed areas in this country. There is no more poverty in this country.” So, Barbara, yes. I think that is the point of Opportunity Zones. We want to ultimately make all 8764 of these Opportunity Zone census tracts not be eligible to be an Opportunity Zone for much longer. In an ideal world, you’re absolutely right.
Now, I do wanna talk about the timing, why it’s set to expire in 2026. Part of that has to do with… Well, first of all, it does create urgency, right? And I think that’s why Congress initially set out that 10-year basis, I’m sorry, that 10% basis step-up benchmark, which expired after 2019, and then that 15%… Sorry, there was the 15% in 2019 and the 10% in 2021.
Jimmy: The purpose of that was to incentivize early capital. Early adoption. Right? And it sunsets in 2026 for a couple of reasons. One, it incentivizes people to get off the fence and either do it or not do it, right? Like, if you know, if 2026 is coming down toward its end, and you know, “Hey, this is my last chance to do any Opportunity Zone stuff. I better generate a capital gain and get in,” I think there’s gonna be a huge rush of capital into Opportunity Zones at the very end, whenever it does eventually expire. That said, I think the longer you extend it out, if you can extend it out to ’28, if you can extend it out to 2030, if you eventually make it permanent, it’s gonna…the program will just derive that much more capital over its lifetime. Ashley, what are your thoughts on this, though?
Ashley: So, I, you know, I would love to see some variation of it become permanent. And then, I think that you gotta get into, you’ve gotta create those kind of capricious deadlines that are extra incentive, in order to get people off the sidelines. Because if it’s a permanent thing, they’re gonna be like, “Ah, okay. Well, maybe I might go into there, maybe not.” And so, if you’ve got some kind of rolling deadline in there, that happens, then I think that in, you know, I don’t know, I haven’t really given it a whole lot of thought about what you could do with that. But I love to create ideas, so I’m gonna put my thinking cap on that one, and come up with some additional tax incentives that you could have for getting folks off the sidelines. But I agree with you that those arbitrary deadlines that they put in there were very significant. And I also think that they had to have a cut-off on it so that that way, they could quantify exactly how much it was gonna cost the American public as a tax incentive, so that that way, they could go and they could quantify that. And so, having it be an open-ended, you know, program could be a potential challenge as it relates to that.
So, what wouldn’t be a bad thing, is if they had kind of this rolling delineation, where you had so much time to create or to get into the zones that were designated, or figuring out some kind of way that where they got delisted if they, you know, as they kind of crossed. And I think that that might be a solution to that. And that would, you know, incentivize people to get into the places that are experiencing that growth. And then, like, I love the rural OZ program that the House Ways and Means Committee chair put out, where you create extra incentive for going into rural OZs. Or, you know, you could also add in some other, like, specifically-targeted, like historic poverty OZs, which I think is what he was doing, that those get special treatment inside of the program. And I think that you could do that for encouraging investment into things that aren’t maybe necessarily getting the lion’s share of the investment right now.
Jimmy: Very good. Wanted to move on to some more questions here. Yeah, I don’t know if you said this or not, but yeah, one of the reason why the 20… The 2026 thing actually wasn’t all that arbitrary. It does have to do with the Congressional Budget Office window, I think, or something like that.
Jimmy: There’s these 10-year rolling windows, where, you know, legislation is less likely or more likely to get approved, depending on the impact that any sort of tax provision has on the overall budget of the country, and by ending it in ’26, it was able to kind of get into that window in time. So…
Ashley: It’s like how they freeze out the…
Jimmy: …2030 might have some challenges. What’s that?
Ashley: It’s like how they phase out the, you know, the increases to the lifetime exemption amount. Like, those go away in 2025. They drop back down. And the reason they do that is so that it doesn’t, like, so they can calculate what the impact is gonna be relative to the budgetary process.
Jimmy: All right. Well, let’s move on to some more questions here. We got this one in from Britt. And Britt asks, “Ashley, what’s the penalty if you put money in the OZ fund that I created and then don’t use all of it? I created my own fund, and only for me. Thanks.”
Ashley: Well, I hope that you created it as a partnership, because that’s a key piece. Because a fund has to be a partnership. And then…
Jimmy: It can’t be a disregarded entity. It can’t be a single-member LLC. Is that right?
Ashley: Correct. That’s right. And so, assuming that you did that and you dropped it in, you need to deploy 90% of it into qualified Opportunity Zone property. And qualified Opportunity Zone property can also be a Qualified Opportunity Zone business interest. So, you could invest into other people’s deals. So, if you have used all your money up on the deal that you had, or the deals that you had, and you have some left over, you could always make an investment into other QOZBs that are needing money. So, we actually just closed a transaction where we had a boat and RV storage facility, where we had our fund, that funded in 25% of the capital. And they were raising the balance of the 75% from other funds that are out there. And so, you could have been one of those other funds that could have come into our individual deal, and you could have made, you know, 7% on your money in a current cash coupon. So, that’s an idea of how you could potentially invest into somebody else’s deal. Sorry that you can’t come into ours and make 7% on it, because we already closed it all out, but maybe on the next one.
Jimmy: Britt has a follow-up question for you, Ashley. So, by the way, I do not give tax advice for an hourly fee, but Ashley does have some sort of hourly fee type of program. Can you explain a little bit? Do you give tax advice for an hourly fee, or what kind of advice do you give?
Ashley: Absolutely. So, I am an attorney. I typically do all of my Opportunity Zone stuff as a consultant. And so, I can certainly give tax advice within that consulting. And if you go to ozpros.com, you can specifically book a strategy call with myself or with somebody on my team. And then we also have a weekly call, that’s called the OZ Ascent. And it is a mastermind. We’ve got 78 people inside of Ascent right now. And it’s a weekly call with me, from 10:00 to 11:30 Eastern Time. And inside of that… And Jimmy, I think that we’ve got a special landing page. I don’t know if Jake’s on here, you know, live, but we will absolutely get the link to our landing page for the folks that are participating today, and…
Jimmy: Do you wanna use the slash Pitch Day one, or do you wanna use a different one?
Ashely: Let’s do that one. Let’s use that one.
Jimmy: Sure. So, I’m showing on the screen right now, too.
Jimmy: So, as an OZ Pitch Day participant, or a follower of this particular episode, Ashley has some discounted strategy calls here. You can head to ozpros.com/pitchday, and he offers OZPros strategy call, or, with him specifically, this strategy call here, and then there’s more information about his Weekly Ascent, which he’s talking about now as well. Look at these guys. You got Chris Cooley and John Vachon with you. You’re in good hands with Chris and John, tell you what.
Ashley: Tell you what, you know. There’s some good-looking dudes on there, man.
Jimmy: Well, once you got rid of my face on there. Yeah, exactly.
Ashley: That’s funny.
Jimmy: Let’s move on to the next few questions here. We got a lot of them coming in. If you’re just joining us, whether you’re on LinkedIn, X, YouTube, submit questions in the comment field. We’ll try to get to as many as we can. Let me see here. What do we got? Let’s go to Dane. Dane’s got a big one here. I haven’t had a chance to read this one, but I like Dane, so, he asks, “What are your thoughts on the current state of the capital stack being applied to OZ investments, given the debt service coverage ratios being pressured as cost of borrowing has doubled over the past 18 months?” So, anecdotally, from me, I’ve talked to different fund managers, different development deal sponsors, who have told me that, yeah, they’re not able to borrow quite as much, so, you know, they’ve had to decrease their debt-to-equity ratio on some of these deals by, you know, maybe if they were doing 60% debt, maybe now it’s more like 55% or 50%. I’ve talked to other sponsors where they say it really hasn’t impacted them that much yet. So, but Ashley, what are you hearing?
Ashley: So, what’s really interesting is that it’s actually created a really significant opportunity for folks with capital gains, that are potentially interested in investing into, you know, private, you know, real estate, private equity. And if you’ve got capital gains and you’re not looking at an OZ deal, you’re crazy. Because it’s, you know, because of the tax benefits on the back end, but also because it uniquely positions now, right, that you can take capital gains and allow them to come in tax-deferred, and so, you know, maybe inside of your capital stack, you now are raising more equity, which typically, equity is more expensive, but if the debt is, you know, at the cost that it is, and it’s having, you know, it’s gonna potentially risk you blowing a covenant, then it’s like, okay, well, maybe that equity is actually a lot cheaper than we thought.
And so, I’ve actually got a fair number of clients who are doing exactly that. They’re just going and saying, “You know what? I’m sick of this stuff, and I’m just gonna go ahead and raise it all in equity. And I’m gonna put that equity to work, and then I’m gonna refinance them out in, you know, when the capital markets come back into something that’s reasonable.” Particularly for multifamily assets, and particularly for deals like that, where it could be really tough to get debt right now. And so, Dane, it’s a great question and a great point, and, you know, I think that it requires a certain amount of creativity, and kind of thinking outside of the box. And that’s one of the ways that you can harness the OZ legislation, you know, in your favor.
Jimmy: All right. Awesome. Let’s get to my next question here. This one actually came in via email, I think earlier this morning, so I don’t wanna forget it. This one comes from Mike. Mike asks, “If I buy vacant land with the intent to build on it within 30 months, how do I treat the cash that is sitting around waiting to be spent for the purposes of the 90% asset test?”
Ashley Well, Mike, that’s exactly where you’re gonna want to bring a QOZB into effect. So, you’ve got your Qualified Opportunity Fund is where you put your capital gains in order to defer those capital gains. And then, directly underneath that, you know, so, you have to put 90% of the cash into Qualified Opportunity Zone property, and it can include Qualified Opportunity Zone business property, which is stock or membership interest in an entity that’s specifically set up for investing into Opportunity Zones. And as long as you acquire that interest for cash, at original issue, now, all of a sudden, that satisfies your 90% requirement at your fund level, and then that entity becomes your Qualified Opportunity Zone business, and it can avail itself of the 31-month working capital safe harbor, via a written working capital safe harbor plan. And so, you show how you’re gonna spend the money by building on that lot, and now you’re protected for that cash during the duration of that 31-month working capital safe harbor plan.
Now, if you ultimately decide, hey, listen, or you’re, inside of your plan, you know that you’re gonna need to bring more money in, each tranche of capital gets its own 31-month working capital safe harbor, all the way up to 62 months. And so, you could bring in a substantial amount of money in month 31, and now have 62 months. And while you’re in that working capital safe harbor period, your 70% asset test is turned off, and the cash is protected. And so, this is significant for a couple of reasons. Number one, to protect the cash, but then number two, to turn that 70% test off. And so, a lot of folks that, you know, I would say the lion’s share of folks that we have set up have had that two-tiered structure, where they’re actually doing the development from their QOZB. And so, and, you know, there was another question that I had, and this kind of continues to go up. In order to get an extension on that 31 months, so that you could get up to 62, you need to bring a substantial amount of cash into the QOZB at month 31, and that can be in the form of equity, additional capital gains that came in, or in the form of debt. And so, as long as it’s cash coming into the QOZB, that’s what extends it out.
Jimmy: Awesome. All right. Let’s turn back to OZ 2.0, stuff like that. We had a interesting question here from Barrett. This is a long one, but he’s essentially says, “Hey, why the heck is it necessary to have a capital gain to invest in the Opportunity Zone tax structure if the goal of the program is to incentivize long-term patient investment in low-income census tracts? If someone’s willing to invest and forego a tax deferral, then why would the government be unwilling to give the 10-year step-up?” So, if you don’t have…and I get this question all the time, Ashley. “Hey, you know, I’d like to invest in Opportunity Zones. I don’t have a capital gain. I don’t have a plan to generate a capital gain. Can I just put in $100,000, $250,000, $1 million of just regular money into whatever type of OZ fund?” Now, by the way, as a follow-up to this question, Brad Molotsky chimed in, and he said, “Well, look, the reason why Congress did it this way is because it’s costing them money.” They’re deferring revenue, and they’re decreasing the amount of tax revenue that they’re bringing in, so they didn’t really want to open it up to everybody. So, they’re kind of threading the needle here, which I thought that was an interesting counterpoint from Brad as to why they decided to go about it the way they did. Ashley, curious to hear your thoughts.
Ashley: So, amen to that question, right? Because I have asked the same thing, and I’m like, “Listen, this is crazy. Why don’t we, inside of redoing this, allow people to come in with…” this is one of those ideas, right? So, one of the ideas for 2.0. Let’s allow people to bring in non-capital gains for things that we wanna see happen. So, if they’re going into a rural Opportunity Zone, or if they’re going into the, you know, the perpetual poverty. Or, they’re going into, like, things that we really need right now, like workforce housing. You know, or farm activities. You know, the possibilities are endless there, where you could utilize that as a way to make it so that you’ve got that additional incentive. The other thing that I’d love to see them do is to make it so that it locks in the tax rate at the then-current rate of when you put the money in, as opposed to what it could be in 2026. Now, I know that that’s a little bit, involves a little bit of complexity, but that could be another potential way that you get more money coming into the zones. And, you know, it’s funny because we have seen an enormous amount of money go into the Opportunity Zone program, and it’d be interesting to see if Brad is actually correct, right, that it… Yeah, I mean, it absolutely limited it, because we’re having this conversation right here, right now. But it would be interesting to see how much it actually limited it, if, you know, if they open the doors for some of those projects that are desired effects, and to see, like, what effect that has on how much money actually comes in. But I would love to see that open up.
Jimmy: Yeah. I would too. I kind of get it. I can kind of see both sides, but mostly, I’m kind of with the people. Which is, hey, let me put my money in. Let’s not worry about it being a capital gain or not. I think the other part of the story was the narrative that they crafted around Opportunity Zones, which was, at the time, when the Tax Cuts and Jobs Act was first passed, and Opportunity Zones was a small part of it, there was, it was calculated that there were $6.1 trillion of unrealized capital gains parked on the sidelines, and Opportunity Zones were meant to be that tool that would kind of unlock that amount of money. Like, whoa, there’s this pool of $6.1 trillion sitting over here. I mean, that should be enough to… Right?
Ashley: You think?
Jimmy: If we could extract all of it, or even a portion of it. And so far, to date, you know I’ve estimated that over $100 billion of equity has flowed into Opportunity Zone funds. I extrapolated from the Novogradac survey, and also from a couple of other resources, but I’ve been saying for over a year now that we’re over $100 billion. So, actually, well above your $1 billion mark that you wanted to have an impact.
Ashley: Exactly, right? One of the things that… So, going back to that question, one of the things that you can do, and we’ve gotten really creative in creating capital gains for folks… So, if you’ve got any kind of appreciated asset, but you’re like, “Hey, listen, I don’t wanna sell that, because, you know, I wanna keep it, like a stock portfolio,” we sell the stock portfolio, buy it back at 9:01, and we generate a paper capital gain that people can then invest. We’ve done some other kind of similar tricks like that, in order to create capital gains that folks can then put into Qualified Opportunity Funds. And it’s great because you don’t have to… You’re, all of your money inside of a deal doesn’t have to be capital gains. So, if you’ve got enough to be, like, that roughly 10% of the deal, then you can always borrow money or loan money that’s non-capital gains into the deal, and that’s not gonna affect the tax consequences.
Jimmy: Fantastic. Let’s hear from our friend at Crawford 1031 Advisors, Amanda Steele. Amanda has a couple of questions. I don’t know the answer to this one, but she asks, “Should the legislation not pass, what do you see as pipeline going forward?” I don’t know. I, like, I’m gonna reiterate what I said before. I’m worried that if tax legislation doesn’t get passed this year, it just seems unlikely that it’s going to happen in 2024, given the challenges of having bipartisan cooperation during a presidential election year, and then we’re pushing it out to ’25, and then that would really be, like, a last-minute, “Hey, we better get this thing extended, because this thing’s expiring at the end of ’26.” Maybe they just go back to the well one more time, and try again in ’25. That’s kind of how I feel. I don’t know, Ashley, if you have any other thoughts?
Ashley: I think that, you know, I think that the power of this legislation, because it’s gotten so much attention, I think that we’re going to see some variation of it get extended, regardless of whether it happens as an extension to it, or as a re-do of the program, just because… I mean, and I don’t care who you are or how, you know, diametrically opposed you are to the other side, this is a good program. This makes sense. This is Republican, Democrat, rich, poor, everybody. It’s like, hey, if we could get private capital to actually go into areas that need investment, that’s the ideal result. And so, we’ve seen this program have that desired effect like no other program before it. And so, they’re crazy if they don’t do some kind of extension on that. And imagine that, that our legislator would do something that’s not logical, but…
Jimmy: I think they’re crazy either way, Ashley, but yeah, that’s beside the point. So, you voted for them, though, so…
Ashley: That’s exactly right. But, you know, it’s funny is that I don’t necessarily know that… Well, obviously, if it doesn’t get extended, the ability to put gains in stops as of December 31st, 2026, and you’ve got till September the 10th of 2027 to get that in if it came through a partnership or an S Corp. But, so, the party stops if it doesn’t get extended in some way. But, I don’t think… I mean, it’s funny because anytime there’s a deadline, so, if that were to happen, I think that we would see an enormous amount of influx in 2026. I think that 2025 might be a little bit light, but 2026, we’re gonna see an enormous amount of stuff come in, because people are like, “Oh, well, this is the last time that I have the ability to get equity into something that has the ability to generate a step-up in basis in 10 years.” Which is the most powerful part of the program.
Jimmy: Yep. That’s, I mean, when the urgency hits like that, if this is the last chance, then… Anyways, hopefully it doesn’t happen. Hopefully, it gets extended and we don’t have that sense of urgency at the end of ’26 and the beginning of ’27.
Ashley: I’m glad that you brought Amanda up, and I’m glad that you brought 1031 up, because one of the things that is not really being talked about, but is a unbelievable opportunity of how Opportunity Zones, you know, are very effective tools, is if somebody’s got a 1031, that for whatever reason, they can’t get done, and so it fails, and they’ve got cash that’s coming out of that, that date that the cash comes out of the Qualified Intermediary now becomes the date when the gain starts. And so, we have used Opportunity Zones to cure failed 1031s a lot. And so, Amanda, if you’ve got any clients that go in that direction, we’d love to help them out. We can set up a fund to catch their cash, or plug them in with some of the great funds that are out there. Just kind of depends on what their risk profile looks like, and be happy to service anybody that’s got that issue.
Jimmy: Okay. One more question from Amanda here. “A big part of our OZ story involved a refi for our investors, but with rates how they are, what do you think sponsors will do?” So, I think she’s referring to the fact that, hey, a lot of these sponsors, when they were raising equity, promised to do some sort of refinance cash distribution, you know, two, three, four years down the road. Well, they were looking and maybe projecting rates not in the sevens and eights and nines for those refis. Ashley, what have you seen, and what are investors gonna do about that going forward, to kind of square up with their initial pro formas? Or can they? Can they do anything?
Ashley: Yeah, exactly. So, everybody that I know is just waiting, right? So, if they’re at the point where they can refinance, they’re just holding up, and they’re counting on the fact that, ideally, rates will be back down before that December 31st, 2026 deadline. Because I know that a lot of the deals, we’re modeling that refinance out in order to get people the money to be able to pay the capital gains. And there’s gonna be a lot of sponsors that are gonna be in a pickle if that, you know, if we come in to December 31st, 2026 and rates are still 7%, 8%, 9%. And the reason is this, is that, you know, you refinance it out at that rate, and now, it really has a, you know, it’s a sea anchor on the returns that you’re gonna be able to throw out to your investors along the away. And so, quite frankly, I mean, I think that a lot of them would probably prefer to just go ahead and get that money themselves, right? It’s like, hey, leave the debt in place, and throw me the extra cash. Don’t pay a bank that extra interest rate. Give it out to me in the form of a distribution. Now, the big problem is, is whether or not they can. Whether they have the option to be able to do that or not. Because some of them may be forced to refinance because they’re in a construction loan or whatever. So, fascinating question and great questions. Man, these are awesome.
Jimmy: That was a great question. We got one here from Red 1 Realty. You touched on this briefly a few minutes ago, when you were talking about failed 1031s, but I did wanna just reiterate this point. Red 1 asks, “Hey, on a different live chat,” and he’s referring to OZ Pitch Day summer, “you were in Italy, if I recall correctly, Ashley, when this question came up, and Gerry Reihsen and joined the call and chimed in. So, we talked about the clock starting for a failed 1031 when the money was sent to the Qualified Intermediary, the QI. But then someone mentioned,” it was Gerry, “mentioned that the clock actually starts when the QI sends the money back. Which is it? Can you confirm? Have you researched that? What is the actual answer?”
Ashley: So, we did. So, I confirmed that Gerry is correct, that the gain is received when the QI that… So, for all intents and purposes, when you deposit the money with the Qualified Intermediary, you’re not triggering a gain at that point. The gain occurs when you actually get the money back from the QI. And so, I think your 180 days starts when you get the money back from the QI. So, I was wrong on, you know, and I will fully… I should have gotten dunked on that one.
Jimmy: You should gotten dunked.
Ashley: I would have gone, I would have gotten wet with my hat on, man. I would have been in trouble.
Jimmy: So, for those who are unaware, Ashley and I have this segment on OZ Pitch Day, called… What is it called? “Ask the OZ Expert,” but I like to refer to it as “Stump the OZ Expert,” and I have threatened to send to Ashley a dunk tank that he would have to sit in, and if he gets anything wrong, or doesn’t know the answer to the question, I don’t know, I press some sort of button, and remotely, it drops the trap door, and he gets wet. We gotta sort that out.
Ashley: We gotta figure that out. We gotta figure that one out.
Jimmy: Our next… By the way, if you guys are enjoying this conversation, we’re doing this again during OZ Pitch Day on November 9th. Thursday, November 9, 2023. It’s a free, live, online Opportunity Zone event. We’re gonna have panel discussions. We’re gonna have a keynote presentation by yours truly, going into just the very basics of Opportunity Zones. We’re gonna have a showcase of Opportunity Zone investment funds that are raising equity from accredited investors. But then also, Ashley Tison himself will be joining us for another segment of “Ask the OZ Expert.” We’re gonna be doing this again. We’re taking live questions. You can learn more about OZ Pitch Day, and you can register for the event. It’s free. You can visit ozpitchday.com to learn more, and to register for that event. That’s ozpitchday.com. Let’s keep moving on with the questions here. We had a good one I just had queued up and I lost it. Hang on. Where’d it go? Here we go. This one’s from Jessica. She asked a question earlier, and she got another question here. She asks, “If the gain is recognized in a partnership, can each partner invest in the QOF independently of the partnership?”
Ashley: You know, so, Jimmy, you know, if we’re not doing it already, we ought to be gathering these questions, because these are, like, the “Highlights of OZs, and why they’re awesome” questions.
Jimmy: Yeah. These are the cream of the crop.
Ashley: And so, Jessica, well done on that question, because the answer is, absolutely. And that’s what distinguishes it from a 1031 exchange. Because in a 1031, all of the partners have to go into, because the partnerships actually gotta make the deferral. In this case, you can distribute out the cash to all of the partners, and then the partners can elect whether they want to defer or not. And, also, if it’s coming from a partnership, you actually get a choice about when you want your 180-day period to start. On the day of sale, at the end of the partnership’s fiscal tax year, which would be December 31st, or on the partnership tax filing deadline, which would be March 15th. So, effectively, you’re able to push your deadline for getting your money into a Qualified Opportunity Fund to either, you know, June 30th, or September 10th of the following year, which allows us to literally reach back, all the way back to January 1st of the prior year, in which some cases, is a full, you know, like, 19 months. And so, it’s a really powerful tool inside of the OZ legislation.
Jimmy: Okay. Let’s get back to some more comments here, some more questions. Kind of just scrolling through here, finding a good one here. Here we go. Here’s another one from… Well, let’s put up this comment from Andy. Andy Hagans, our friend, says, “Loving this discussion. By the way, great Shaggy Dog sweater, Jim.” Thanks, Andy.
Ashley: That is, yeah, you know, that is a great Shaggy Dog sweater man.
Jimmy: Thanks. Thanks for watching. Just had to put that one up. Thanks, Andy, for the comment. Really appreciate that. Here’s a question now, from Barbara. Barbara wants to know, “Can Opportunity Zone investors invest in leased property?” talking about a 99-year lease from the government on land intended for development.
Ashley: Absolutely, Barbara. So, they’ve got a special, I mean, and the regs even envision this, relative to leasing stuff from the government, that’s absolutely okay. And as a matter of fact, we use, often use ground leases as a way to cure related-party transactions. So, just kind of in general, to kind of give everybody an overview. So, OZ 101, you gotta start with a capital gain. It’s gotta go into a Qualified Opportunity Fund, and that capital gain’s gotta be from a sale to an unrelated party. So, there’s two places where there’s related party issues. Once you have your money down inside of the Qualified Opportunity Fund, you have to invest 90% in Qualified Opportunity Zone property. That can either be through a QOZB, or it could be directly. But ultimately, that property has gotta be purchased after December 31st, 2017, from an unrelated party, and you have to substantially improve it, or it has to be original use.
So, if you own property already, or if somebody owns it that you wanna do business with, the way to deal with that, you know, related-party issue associated with acquiring that land, is, one of the ways, is to enter into a ground lease. And it’s interesting, because the IRS typically treats a 99-year ground lease as a lease, or as a sale, but in this case, I think you get special dispensation, then it’s not treated as a sale, and that it works for purposes of the Opportunity Zone play. It’s also fascinating, because, at the QOZB level, you have to hold at least 70% of your tangible property, owned or leased, has to be Opportunity Zone property. And so, that ground lease, and the net present value of all of those future ground lease payments, goes into your 70% good asset store. And so, that’s one of the ways that we kind of can solve a lot of problems inside of that 70/30 test, is to have a lease, that we have lots of monetary extensions on it. And then we get to count each one of those in our net present value calculation, and get that number in the good asset store up.
Jimmy: Tremendous, Ashley. Shout out here from Emily, at OZworks Group. “Just here to say I think you guys are the best.” Emily, thanks for watching.
Ashley: That picture is the best. We actually talked about that picture on…
Jimmy: That is a good-looking picture of her, isn’t it?
Ashley: And so, I gotta tell a story on her. She was not stoked about telling this story, but I was like, “All right, you gotta tell us. Like, was that, like, a glamour shot or whatever?” And she’s like, “No.” She’s like, “I came up the non-traditional way.” She’s like, “I went to the school of hard knocks, and I’m all about doing things non-traditionally. So, that’s my picture about, you know, just kind of taking life as a punk rocker.” And I was like, “Dude, I love that.” Because I think that all of us need to have a little bit of that every now and again, and be like, “You know what? I’m gonna treat life like it’s a punk rocker.”
Jimmy: Comment here from Al. Al says, “OZ only available to accredited investors.” And by the way, an accredited investor is essentially, we kind of liken it to anyone who’s a high-net-worth investor. They’re very similar terms. Accredited investor’s a technical definition from the SEC, which is as follows. A person with an annual income of at least $200,000, or $300,000 if combined with a spouse’s income if you file jointly, or who has net worth in excess of $1 million when you exclude your primary residence. There’s a few other ways to qualify as an accredited investor. You can have your Series 65, or… I don’t know.
Ashley: … be knowledgeable.
Jimmy: There’s a few other ways that we don’t need to get into, but Al points this out. I would say this is practically correct, although technically not correct.
Ashley: It’s not.
Jimmy: Now, so, there’s two… I’m gonna let you talk in a second, Ashley. I would say there’s two classes of Opportunity Zone investments. There’s these large, third-party, I’d say, Qualified Opportunity Funds, that are raising capital from outside investors. They’re technically considered securities, even though they’re exempt from the SEC, under Regulation D, typically. You pretty much have to be an accredited investor to invest in those. There are some exceptions, depending on how they’re exempted under Regulation D, but there are also ways that you can start your own Qualified Opportunity Fund without being an accredited investor. Ashley, what thoughts do you have on that?
Ashley: So, that’s what we do at OZPros. We help people, right? Like I talked about before, we help the backbone of Main Street, the backbone of the American economy, which is Main Street America, which may or may not be an accredited investor, be able to avail themselves of the Opportunity Zone program. And so, you know, you may not be able to go into kind of a syndicated, you know, private equity investment, but you could certainly do your own, because we create them all the time for folks that are not accredited investors. And to that end, it’s not about how much capital gain you have now. It’s about how much capital gain you’re gonna have in the future. And so, we’ve got folks that are starting businesses up in Opportunity Zones, that they may be very, you know, that they may not have a whole lot of cash, but we figure out a way to generate a capital gain for them, we set them up their fund, and then they go and they do their thing, and then they set themselves up that 10 years down the road, they’re going to be able to exit completely tax-free. And so, that’s the magic of the program.
Jimmy: And Brad confirms what you just said, basically, there, Ashley. Thanks, Brad, for chiming in. We did get a comment from the aforementioned Gerry Reihsen. He does want us to point out, Ashley, that the clock does…this is back to the failed 1031. The clock does not automatically start upon the return of the 1031 money from the QI. The taxpayer must file an election to choose the later date. That would be on Form 6252. That’s a new one for me.
Ashley: See, Gerry Reihsen, man, I love it. He’s coming in and he’s dropping great knowledge. So, awesome. Thanks for the clarification on that one, Gerry. That’s awesome.
Jimmy: Agreed. Let’s see here. Charlotte… By the way, we’re low on time here, Ashley. I said we’d wanna cap this at an hour. Do we wanna stick to that, or can we go over by a few minutes if we need to? What are you looking like here on your clock?
Ashley: No, I’m good.
Jimmy: Okay. Well, we might go a little over the hour, because we have a whole ton of questions still, and I also need to read a couple more announcements about OZ Pitch Day, and Novogradac, and let everybody else know who may have joined late what’s going on. But let’s get to Charlotte’s question. Charlotte wants to know, “What’s your thoughts on OZ investing in an historic multifamily OZ property? Is this still a great time to set up or look for a fund with OZ tax and historic tax credits?” So, that’s one of the brilliant pieces about Opportunity Zone investing, is you can stack other tax incentives or other tax credit programs into the capital stack, and have OZs just be part of that capital stack. Ashley, what are your thoughts on this?
Ashley: So, I think that it’s always a good time to do OZs. And I think it’s gonna be always a good time to do OZs up until the last minute. And the reason is because it allows you to, and it’s an immediate, at least, extra 23.8%. And that’s gonna be more, based upon how much depreciation recapture you don’t pay, and all of the other things. And the most beautiful part about it is what Jimmy just said, is that you can stack as many credits are out there as available, whether that’s historic tax credits, or rehabilitation tax credits, or energy, you know, clean energy tax credits available under the Inflation Reduction Act. And so, I’m a huge fan of, you know, doing those deals. And I think that it’s an awesome time to do them. I think it’s an awesome time to look at investing in them as well. And so, I saw that you were Charlotte Social 360. I’m in Charlotte. We need to get together for a Social 360.
Jimmy: Wait, was her name Charlotte, or is she located in Charlotte, North Carolina?
Ashley: I think that that was, like, an actual entity, that was, like…
Jimmy: Oh, okay.
Ashley: …Charlotte, like it’s a group for Charlotte Social 360. I don’t know. We’ll see in the, hopefully they’ll write back in the chat.
Jimmy: Charlotte Social 360. Okay, I’m not sure on that one. Maybe he or she could chime in and clarify, but in the meantime, let’s move on to some other comments and questions here. Let’s see. Pierre actually raised an interesting point regarding Amanda’s question about refis, rates going up. Hey, kind of a quandary that some sponsors may be in if they promised refinance distributions in ’26. He just simply points out, “Hey, the QOF managers should have never promised that to begin with,” and Paul, I think that’s a good point you bring up. Paul St. Pierre. He’s been a friend of ours in the OZ industry for five years at least. Ashley, I think we kind of already hammered that point home, but I think he’s absolutely right.
Ashley: I love Paul’s salty savoir faire. Right? He is just, I love it. Because, you know, he always brings that element to the mix. And so, it’s fantastic.
Jimmy: I agree.
Ashley: Keep it salty, Paul. But you’re exactly right. I mean, but, you know, I mean, in defense of that, right, you know, you’ve got a plan, and everybody’s got a plan until they get punched in the mouth. And, you know, so, it’s, you know, not surprising that they were putting this stuff together, where they were anticipating trying to do that. And so, I don’t fault them for it, but I love Paul’s point of view.
Jimmy: I love it as well, Ashley. Let’s get on to our next question here. We’ll try to wrap up in the next 10 minutes or so here. Let’s see. Stuart had a good one. I wanted to get to Stewart’s question. “As some of these deals start blowing up, are there any,” and I think he means “blowing up” in the bad sense, not like, you know, how the kids talk these days, but in the bad sense of the term blowing up, “are there any Op Zone distressed funds” that you’re aware of, Ashley, or what do you think about this idea?
Ashley: So, if Paul’s salty, Stewart is extra salty. So, Stewart and I go way back, you know, and I think that we’re actually kin somehow. I’m not exactly sure how. But anyhow. So, I think that Stewart’s on to something, that there probably should, you know, that that’s something that, you know, that folks need to be looking at, and that there is probably gonna be an opportunity that happens. Because as interest rates, you know, continue, if they continue on their current track, and they continue on the current path, then absolutely. You know, people could potentially get in trouble relative to, if, you know.. So, case in point, if they had a construction loan, and they were relying upon being able to get refinance debt at a certain amount, that had certain, you know, debt service coverage ratios, it may not be able to do that. And so, if that happens, there could absolutely be the ability, and the possibility, of being able to pick that up. Now, it’s kind of like the TIC, you know, the TIC explosion that happened, you know, in 2009 and 2010. One of the trickiest things about that…
Jimmy: Now, wait a second. Is that…you mean that’s a good explosion?
Ashley: … tenants in common.
Jimmy: That’s a good explosion, right?
Jimmy: Bad explosion.
Ashley: So, there was a bad explosion, because…
Jimmy: Okay. … had to clarify.
Ashley: Yeah, these tenant-in-common syndicators had made a bunch of assumptions relative to, like, what shop rents were gonna do, and being able to get refinanced and some other things like that. And/or, they were using 10-year conduit debt, and that 10-year conduit debt came due, and they weren’t able to get refinanced because there just wasn’t money in the marketplace. And so, they had this complex structure of 35 tenant-in-common owners, that were all in one project, and then it was like, okay, what do you do, and how do you, you know, how do you process through that and make sure that the, you know, the, or try to salvage the equity holders as much as possible? And so, that presented a specific problem for them, and I think that it could also present a problem here, is like, what do you do within that, and what’s gonna happen? And so, I think that there could be a play, for a distressed OZ fund, to potentially pick those up. Now, the challenge would be is that if you pick it up, like, at a typical foreclosure sale, now, all of a sudden, you’re looking at having to potentially do, you know, substantial improvement on an asset that’s already had that done. So, I think that there could be, to that end, there could be a play for somebody to come up with a strategy for which, and by which, you know, you could effectively, you know, merge the two, if you will, and be able to allow, you know, and you’d have to have some kind of watering down on that, because you’d be bringing new money into the mix, but I think that there could be something…I think there’s something there. So, start on it, right? That’s a…
Jimmy: QOF merger program. I like that.
Ashley: Yep. Which, by the way, Caliber has one of those, and…
Jimmy: I was gonna point that out. I wasn’t sure how ready they were on that, or if they’ve done it yet or not. I have talked to them about that, though. I know that they are working on it. They’ve been working on it for a little while, and I think they’ve… I don’t know. We’ll have to get to get Chris from Caliber back on the show at some point to talk about…
Ashley: I just talked to him about two weeks ago, and he said that they’re ready to roll. Now, the key is, is that it’s gotta be sitting in cash, right? It can’t be an actual deal, so that makes it a little bit different. But I think that there could be a play, right? And what’s funny is that I think that, you know, the Belpointe guys could be a potential source for being able to salvage this type of stuff, is that the could potentially work a deal where they work some kind of discount out on swapping into their public QOF, as part of a merger transaction.
Jimmy: We did get a… Well, first of all, hang on. I gotta show this. So, “Everyone has a plan until they get punched in the mouth.” Mike Tyson said that, but Ashley Tison said it more recently. Are you related to Mike Tyson? Ashley Tison?
Jimmy: Distant relations.
Ashley: Distant cousin.
Jimmy: Your last name is spelled differently, too.
Ashley: So, my closest connection to Mike Tyson was that when he was on trial, up in Indiana, he was staying in the neighborhood that I lived in. And so, you know, and it was a big neighborhood. So, it was about a mile or so away. But before school, my buddies and I would go, and we would drive, right, and we’d just take that way to school, because he would be out, literally running, every day. And he always had, like, an entourage with him. So, he had a chase car. Like, there was security, with a dude, like, in the back of a pickup truck. And then he had a guy, like, running beside him. I mean, his security detail was legit. It was like the president was out running. And, you know what? We went out to watch, and to kind of, like, go, and we didn’t heckle him or anything like that. We just wanted to see him. So, that’s my closest relationship to Mike Tyson. And this is pre-face tattoo.
Jimmy: That’s pretty cool. That’s pretty cool. WealthChannel, which is my team, just pointed out that, regarding OZ funds focusing on distressed deals, Caliber actually did talk about this a little bit during their OZ Pitch Day presentation, back in July. We have it on our website. By the way, if you’re watching this on YouTube, you should be able to find, on our channel, a playlist with Oz Pitch Day Summer 2023. It’ll be there. Ashley, we got a few more minutes left. Wanted to get to just one more question, that comes in from my team member, Andy. And I thought, hey, it’s actually a good question. “With interest rates being higher, have you seen any more interest in OZ operating business-type investments?” And frankly, I’ve been disappointed by how few are out there, like, actively raising capital. There’s a couple, right? There’s Verte OZ Fund, with Len Mills. The folks at Hall Venture Partners were raising for their Hall Labs OZ deal a couple years ago, but it’s now closed, I believe. But what else are you seeing, Ashley?
Ashley: Pearl. And then there’s Pearl. There’s the Pearl Fund as well.
Jimmy: The Pearl Fund. Yeah. The Pearl Fund? Yep. That’s another good one. And there are some, just to interject. There are some other real estate/operating business hybrid arrangements, where, hey, like the InyoAG mining company, in Inyo County, California. They own some real estate, but it’s also, it’s an operating business. Like, they’re, it’s a mining plant. So, anyways. Go ahead, Ashley.
Ashley: Yeah. So, it’s interesting because my experience has been that you’re either a real estate investor or you’re an operating company investor. And that it’s a rare animal to find somebody that would be driven by interest rates into a different asset class like that. Now, the smart money, and the folks that are, that get it, relative to the potential upside of this thing, they are absolutely looking at operating businesses. But that’s typically folks that are comfortable operating inside of that operating business space, and then, they are really focused on that, and then the real estate’s kind of an extra added bonus for them. And so, I haven’t seen it to where they’re, it’s… I can’t attribute it specifically to rising interest rates, but, I have seen a spike in people getting an understanding of, you know, utilizing the value of this for, you know, operating businesses. And I’m kind of shocked that there’s not more private equity and venture capital funds that are doing this, and I’ve had a spike of calls with folks just like that. One group out of Queens, New York, that’s doing it, and they’re effectively kind of creating an incubator. I was back up in Chapel Hill, taking my son on a tour up there, and Clay Grubb and his group now have the property that’s across the street from Chapel Hill, that got so much ire because everybody’s like, “How is that an Opportunity Zone?”
Well, he’s got his business up and operating, and there’s a woman in there that’s got a medical startup that, you know, she is located there specifically, and she’s getting lots of attention. And then, they’re creating a fund to specifically fund stuff that’s happening there. Paul and I are actually working with a group that’s actually intertwining a nonprofit component for, like, a museum-type asset that’s out West, and I don’t know that I can say, like, what group they are with, but they’re specifically creating a fund in order to create an accelerator/incubator inside of that location, that then, you know, has the effect of being able to get people inside of that Opportunity Zone, going with businesses, teaching them how to do business, and that kind of stuff. And so, I think that that model is really gonna take off, and, you know, a great plug for Chris and for the guys at OZworks Group is that they are putting together an accelerator that provides all of the back-end support and all of the information for running one of those deals.
So, if somebody’s got a building where they could do a co-location facility, or they could have Opportunity Zone businesses, OZworks Group actually has an accelerator program that they could participate in. And they’ve done an excellent job of, you know, tapping cash, and tapping capital, to make that available for folks. And it’s really exciting to see what’s happening inside of that. So, whether it’s at ozpros.com or ozworksgroup.com, check it out, because that accelerator program is awesome. And I think that that’s gonna be the wave of the future of how we really take this program, and we give it its intended effect, which is to really reach down and touch the people inside of the Opportunity Zones, and to increase, you know, their lives, right, and to help them within their lives. And to do so not by coming in and bringing, you know, money, or throwing money at a problem, or from whatever, but by consistently staying the course. And that’s the great thing about the 10 years, is that it sets it up so where there’s an active, ongoing, you know, participation of impact. And that’s what I’m excited about within the Opportunity Zone legislation.
Jimmy: Absolutely, Ashley. So, I did wanna spend just a few minutes talking about the two events that are coming up in short order here. First of all, the Novogradac Opportunity Zone Summit, November 1st, in Washington, D.C. You can learn more at novoco.com. Ashley, you and I are both gonna be there. What are you most excited about, going to the Novogradac OZ Summit?
Ashley: Seeing you in person, Jimmy, and, you know, going out to dinner with the crew. So, it’s actually really awesome, because we get so many folks from Ascent, and from OZworks Group and that kind of thing, that will ultimately go to these, that it’s a unique opportunity to actually get together in person. We do so much virtual these days that I love being able to show up in person and get to talk with people. And…
Jimmy: I agree, Ashley. I mean, this is a lot of phone we did today, by the way, like, and thank you to everybody for, who watched us live on YouTube or X or LinkedIn. We had a ton of interaction, ton of great questions and comments. Way more than we expected, quite frankly. I didn’t think we’d still be going 71 minutes in, and I’m really sorry if we did not get to your questions or comments. But yeah, there is something to be said about bringing the community together in person, being able to see somebody eye-to-eye, shake hands, meet face-to-face, have drinks with, go to dinner with afterwards. So, OpportunityDb is a partner on the event. OZPros is a partner on the event. Quick look at the agenda here. And we really hope that we can see you there. If you are gonna go, you know, send us a note. Let us know you’re gonna be there. We can schedule some time to meet up in person, at the event, in Washington, D.C., on November 1st. I’m most looking forward to the Washington Report. That’s where they cover all of the latest and greatest topics that are happening within Congress. They’re actually gonna have folks from the office of Senator Tim Scott at the event. Shay Hawkins, our old pal, is gonna be there as well, and some folks from the U.S. Senate Committee on Finance, as well as the Economic Innovation Group. There’s a ton of great sessions throughout the course of the day. Oh, Ashley’s on one. Ashley, you’re on the technically speaking one. Okay. We’re gonna look forward to having you there. And then, I’m pulling up the rear here on the hot topics panel, with Greg Genovese. I’m the last thing standing between you and the cocktail hour, so beware of that. That’s the 4:00 p.m., last-of-the-day session.
Ashley: It’s a good thing that Genovese and I are on the same panel, because…
Jimmy: Yeah, I was gonna say. I was…
Ashley: …there might be, like, way too many hand motions there.
Jimmy: I was thinking, and I was thinking about that, actually. That’s probably good. Anyways, that’s the one that’s coming up November 1st. I’m looking forward to getting to see everybody. And then, well, I’ve got my event coming up the following week, OZ Pitch Day Fall 2023. It’s coming up on November 9th. And again, if you enjoyed today’s conversation with Ashley, and how we go through these questions, and we answer as many as we can in the time that we have, this is a free event, all about Opportunity Zones I’m hosting, November 9th. OZ Pitch Day. It’s free to attend. It’s gonna include panel discussions, a showcase of Opportunity Zone funds, and a live Q&A session with none other than Ashley Tison. You can learn more, and register for OZ Pitch Day at our website, which I have displayed on the screen right now. ozpitchday.com, or head over to opportunitydb.com/pitch-day. Actually, I, looking forward to this one, we’ve got a pretty full agenda already for the day. I’ll kind of throw this out there, actually. Kind of a small request. I’m gonna send an email about this. I am looking for three panelists to fill our investor roundtable. I wanna get on this panel three investors in Opportunity Zones. Not necessarily sponsors. They can be GPs or LPs. I’m actually probably looking for LPs. I wanna…
Ashley: I think it’d be great to have some LPs on there.
Jimmy: …just have a conversation about how…what do you think about Opportunity Zones? What role do they play within your investment portfolio? Why were you interested in the incentive in the first place? I’m an LP in a number of different Opportunity Zone funds, so I’m kind of gonna be…I’ll moderate the panel, but I’m also gonna be one of the panelists, quite frankly. So, I’m looking for three more to fill those seats. If you fit the bill, and you’d like to be a panelist at OZ Pitch Day, let me know. Send an email to [email protected], or send a comment here on the video, either on LinkedIn or X or YouTube. Ashley, you might have some people in mind. I’ll have to talk with you about that later on. We’ve got a full agenda. It’s almost full. We got a couple more presentation slots at the end of the day I’m looking to fill. But I’m really looking forward to that one, on November 9th. And again, you can learn more at ozpitchday.com.
Ashley, thank you for joining me today. Before we go, why don’t you tell our listeners and viewers one more time where they can go if they wanna learn more about you and OZPros.
Ashley: Well, so, ozpros.com, and if you wanna get the discounted rate for all OpportunityDb folks, go to ozpros.com/ozpitchday, and we’ve got, you know, some promos inside of that. So, VIP… Oh, it’s actually just “pitchday.” Not “ozpitchday.”
Jimmy: Yeah. ozpros.com/pitchday. That’s right.
Ashley: Perfect. So, super stoked about getting in touch with the folks that were participating today. Thank you, again, Jimmy, for putting this on. Thanks for having me on. As is always, it’s a pleasure, and looking forward to OZ Pitch Day.
Jimmy: Absolutely, Ashley. And for all of our audience out there today, we will have show notes for this episode available at opportunitydb.com/podcast. There, we’re gonna have links to all of the resources that Ashley and I discussed on today’s live show, the very first live episode of “The Opportunity Zones Podcast.” And please be sure to subscribe to us on YouTube, or your favorite podcast listening platform, to always get the latest episode. Ashley, that’s a wrap on our first ever live edition of “The Opportunity Zones Podcast.” Thank you to everybody who participated. Thanks to our listeners and viewers, our live viewers. If you’re watching or listening to the recording, thank you as well. Ashley, thanks again for joining me today. I really appreciate your time.