Pickleball & Other Middle Market OZ Deals, With Caliber

In this webinar, Chris Loeffler share updates on Caliber projects in Arizona and beyond.

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Webinar Highlights

  • Various impacts of rising interest rates on different asset classes.
  • Discussion of opportunities that exist in the “middle market” at present.
  • Preview of a pickleball facility coming to an OZ in Scottsdale.
  • Updates on existing Caliber OZ projects.
  • Live Q&A with OZ Pitch Day attendees.

Featured On This Webinar

Industry Spotlight: Caliber

Caliber Funds is the private equity arm of Caliber The Wealth Development Company, an Arizona-based corporation that services the capital of individual investors and disburses them into private real estate assets across the Southwest. Caliber offers a diversified portfolio of commercial real estate properties, real estate-related equity investments and other real estate-related assets, each of which Caliber Funds believes are compelling from a risk-return perspective.

Learn More About Caliber

Webinar Transcript

Jimmy: Chris is gonna be talking to us about Caliber, and, man, I don’t know if anybody saw, but Chris Loeffler dropped a pretty good bomb on my LinkedIn post the other day. Something about pickleball. Or pickleball courts. So I’m really excited to hear a little bit more about that. He is bringing the fire, as he says. Chris, there you are. How you doing this morning?

Chris: Hey, Jimmy. How are you?

Jimmy: Fantastic. It’s another Pitch Day. It’s our tenth one, and we’re pleased to have Caliber join us once again. You guys have been a great longtime partner of OpportunityDb and OZ Pitch Day. I feel like we’ve known each other for quite a while now, Chris. We go way back to the beginning of Opportunity Zone investing, and it’s great to have you join, as always.


Chris: The audience will have a chance to hear my voice in a whole nother level, because I got one of those cold-flu things yesterday, so I will do my best to stay on track and not lose my thought along the way. But yeah, we wanted to bring something interesting and different to this Pitch Day, so we’re gonna go a little deeper into a new project we just announced a couple days ago.

Jimmy: Perfect. Well, this is new to me as well, so I’m keen to hear more. Please dive in when you’re ready. The floor is yours for the next 20 minutes, Chris. And if…in case you’re just joining us, by the way, we have people coming and going throughout the course of the day, we are gonna try to save time for some live interactive Q&A during each session. So if you have any questions for Chris or myself or any of the other presenters, please use the Q&A tool in your Zoom toolbar. Chris, without further ado, please, dive in.

Chris: Sounds good. And I’ll take us through the presentation relatively quickly here, to try to get to that Q&A, but I’ve got a lot to talk about, so we’ll see how it goes. All right. So, starting with the format of the presentation I have for you today, I’ve got really three things to share. The first is, who’s Caliber, as a sponsor? What do we do? In that, I’m going to take the energy in the room down a little bit, because I wanna give you, I think, a realistic look of what’s going on in real estate investment in the market right now, at least our view. And hopefully, that will help you understand our strategy and why you would wanna pick us as an investment partner, regardless of whether you’re in our Opportunity Zone Fund or some other thing that we do. The second thing is, I just thought it’d be fun to take you through a specific deal, where we announced Pure Pickleball a couple days ago. So, for those of you who are pickleball fans, I think this will be fun. If you don’t like pickleball, you can probably pause during that period of time.

And then, the third piece is I’ll take you through our actual Opportunity Zone Fund relatively quickly, and try to jump into the questions. If you’ve seen us present before, I’ve presented on Fund number II several times, so there’s more of a deeper dive on Fund 2 in the prior OZ Pitch Days, but this will be a nice, high-level overview, so hopefully it’ll be helpful.

Starting with Caliber, we are a publicly-listed real estate fund sponsor. So, what that means is the partner that creates the fund, manages the fund, and is responsible for taking care of the underlying assets in the fund is actually a NASDAQ-listed company. Kind of differentiated from a lot of the private fund sponsors you’ll find. There’s a lot of great people out there that do what we do in the real estate space, but, being a public company, we obviously have to work towards a high standard, and we also have some infrastructure in place at the public level that gives us, I think, better flexibility, and better capability to take advantage of the market that we have in front of us today.

What do we do? We basically invest in and manage and develop real estate. We’re in the western U.S., primarily Arizona, Colorado, and Texas. And the company, right now, is highly focused on stressed and distressed assets. So if you’re interested in distressed properties, that was the start of our business, first five years of our company, was very focused on that. Our second Opportunity Zone Fund, along with the other funds that Caliber has on the platform, was all recently launched after interest rates started to go up. So, we’ve been paying deep attention to the market. We’ve avoided investing for the last year or so, to start getting involved in deals that we think are really attractive at a new purchase price.

Caliber is pretty much asset class-agnostic, which basically means we invest in lots of different asset classes. We have a lot of in-house knowledge on how to invest in those asset classes. Like, we’ve got a great in-house hospitality team, really good at multifamily. We’ve got a… And then we’ve got third-party partnerships with experts in different spaces. So, as an example, we’ve got a partnership in behavioral health, with an expert at specialty medical development.

We’re a big believer that middle-market assets and middle-market geographies present the best opportunity in real estate investing. We define that as $5 million to $50 million projects. There’s a large amount of these types of projects. They happen to overlay really well in the Opportunity Zones, in terms of project size. It’s a really fragmented market, and there’s not a lot of competition from well-structured companies that have scale to buy these types of assets and execute on them. Caliber has our competitive advantage in the fact that we have an in-house services group. So, not only do we raise and manage the funds, but we also execute on the development, the construction management, and a lot of the different components of the projects.


As far as the products go, Caliber has products for, you know, to try to help you generate income growth, or, essentially tax reduction. We’re talking about Opportunity Zone Funds on this. But we also have products for distressed real estate investing, ground-up development, lending, etc. So, whether you have capital in your 401(k) or IRA, or you have capital in your non-qualified funds that you just want to invest somewhere, or you have capital gains that you wanna shelter from tax, Caliber is a great partner for you.

So, just talking about where we’re at today in the market, I think everyone knows that the interest rates are up, but I thought this chart was really helpful. It’s the largest increase in interest rates, and the fastest increase in interest rates, in modern history. And what does that do? That reduces spending. It lowers the profits of corporations, it lowers the profits of real estate investment. It causes a decline in real estate values. Obviously, we saw a massive decline in the bond market values as well. It creates disruption, and in most cases, nearly all cases, it causes a recession.

So, what does that mean in reality? I think this is a good example. For a single-family home, in 2019, the average home price was around $260,000. It’s up 68% in 2023. That’s the effect of inflation, right? The second piece of it is that interest rates are up. Well, now the mortgage that was 4% is now 7.5%, so that’s up about 88%. And that takes your monthly payment up around 120%. So, for an average home, in the course of four years, your payment has increased 120%, and it’s a combination of inflation and the rise in interest rates.

That’s also driving foreclosures across the country. As you can see, office is the big winner these days, but apartment is not far behind. And, I think a lot of folks think that multifamily investing is sort of, like, ironclad, and it will never lose money. I think that’s a fallacy, especially if you invested in multifamily in the last couple years. And so, the multifamily sector, as shown here, is now the second only to struggling offices as a threat to the stability of regional banks.

So, what does that mean? That means distressed real estate is coming. I figured I’d give you an example of a distressed real estate investment we’re actually working on. I can’t tell you where it is or what it is, because at the end of the day, this is a deal that we’re actively pursuing, and we don’t need the competition in the market right now. But this is a project that includes a couple office towers, and a six-and-a-half-acre piece that we think we can build single-family for rent on. Total size is about 400,000 square feet between the office towers, and then the six-and-a-half-acre piece is in addition to that. We think we’re buying it, based on the purchase price we hope to buy it at, for about 20% of its replacement cost. And we think we’d be all into it for about a $65 million total. Converting the first office building to apartments, keeping the second office building as essentially call center, and then building single-family for rent on the six-and-a-half-acre piece.

So, when can you buy stuff at a deep discount to its replacement value? When the market looks like it does right now. So, just leading, kind of ending with the Caliber piece, I think that if you wanna pick investing with us as a sponsor, regardless of what you invest with us in, I think we offer some of the best opportunities in our region, which is primarily Arizona and Colorado and Texas. We’ve been doing this for 15 years. We’ve got a good track record, which I included in the deck. We’ve invested over $200 million in OZ capital, and continue to grow that side of our business. The company has our in-house group, which I think gives us a lot of control, and it also reduces the risk of a project. When something fails, we could take charge. And we’ve got a long history of investing in distressed assets, so I think that’s, now’s the right time to do that.

So, shifting gears from, kind of, the sad state of the current economy to something that I think is really fun, Pure Pickleball. So, Caliber is investing in and helping to create the largest pickleball facility in the United States, called Pure Pickleball. PURE was brought to us by some great entrepreneurs who have spent years and years developing this concept, and we had the opportunity to bring them on to a piece of land we already owned, invest in the project, and invest in the business. Of course, this is located in a Qualified Opportunity Zone, otherwise I wouldn’t be showing it to you. But one of the things that we’ve announced in the last couple days is that USA Pickleball’s headquarters is expected to move to the Pure Pickleball site. So, we would not only be hosting players, and members as well, but we’d also be hopefully hosting USA Pickleball, and building a pro component to the project. I think, if you haven’t heard about the growth of pickleball in the last couple years, then you’ve been hiding under a rock. But if you haven’t, you can see on the screen, the statistics are pretty incredible, in terms of the growth and the popularity of the sport.

In addition, we think that Pure Pickleball will be the home of AZ Drive, which is the official, or the professional team in Arizona. Phenomenal ownership group in AZ Drive, and we’re excited to get this facility open, and host them as well. The project is essentially a world-class facility, on a 11-acre site, on our Riverwalk development, for those of you who have followed us for a while. This will be situated inside of an Opportunity Zone, on the Salt River Pima-Maricopa Indian Community, which is basically in the heart of Scottsdale, Arizona. It’s in the center of the city. The founders of Pure Pickleball, Kevin and Brett, are excellent entrepreneurs. Kevin built AZ on the Rocks, which is an indoor climbing gym, and a membership group, that he started in 2004, and sold in 2022. This is kind of his next iteration, where he wants to go with his life. And then, Brett is a pickleball pro, an expert in the space, a coach, and has been helping along the way to make sure that we develop the best possible structure.

The site, like I said, is at Riverwalk. This is in the center of the city of Scottsdale, located on Maricopa Indian Community land. To the right, as you can see from our site, is the freeway here. There’s about a mile of frontage of the freeway along the 101 in Scottsdale, so you’ve got really good visibility to the Pure Pickleball site. Across the freeway, you’ve got Arizona Diamondbacks and the Colorado Rockies, their spring training facilities. You’ve got Top Golf in the project. And then, Caliber is developing the remainder of the project, which is both in our first Opportunity Zone Fund and our second Opportunity Zone Fund, into a variety of entertainment and sports uses throughout the next couple years.

So, what does this mean for our investors? If you already are an investor, or if you’re interested in investing with us, our first fund and our second fund are actually contributing the land to this project at about two times the cost that we’ve invested. So that generates an implied 100% return on our equity going in, which is exciting. From there, we underwrite a 19.5% percent IRR, net of fees, for new investors going forward. So, we get a double going in, and then we get an even, I think, a significant return on our equity going forward. We intend to make Scottsdale, with Pure Pickleball, the first prototype, and then we expect to expand to additional sites in major markets, kind of tracking along with other professional teams in different states and different cities across the country. And this is a combined OZ investment, as well as an operating business investment. So, investors in our funds, as well as investors in Pure Pickleball, get access to both the income from the real estate as well as the income from the business.

You can invest two different ways. The first is to be diversified, and that just means invest in our second Opportunity Zone Fund. You’re gonna have good exposure both to the land and to the business in that fund. Fund 2 has already got a small investment in the land, and we’re gonna be, that’ll be the funding source for our expected equity going into the construction of this project. It’s also expected to be a lead investor in the future Pure Pickleball locations, presuming that future locations are built. And additionally, we like this project so much that we’re probably going to invest into it from our opportunistic growth fund, which is our non-Opportunity Zone development fund. So, if you have non-Opportunity Zone cash, and you wanna be exposed to this project, you can invest vis-a-vis that fund. The second option is gonna be a direct investment. We intend to create a new Opportunity Zone Fund specifically for this project, for investors who wanna be project-specific. The fund hasn’t been formed yet, so just follow along with us at [email protected], and we’ll let you know when we start the fund. And in that case, you can, again, either invest with capital gains for the OZ benefit, or you can invest direct, without capital gains.

So, moving into our fund. Our first fund, this is Fund 1, raised about $185 million. Opened to investments in late October of 2018, making us one of the first Opportunity Zone Funds in the country. We invested in 16 properties and 1 business. That fund is on track to deliver great returns for investors, and is nearly fully-deployed at this point in time. The target markets for Fund 2 is essentially the same as they were for Fund 1, Arizona, Colorado, Texas being the main focus right now. And Fund 1 did a lot of work for Fund 2 to bring in deal flow. So, Fund 2 gets to invest in Fund 1’s deal flow, now that Fund 1 is fully deployed.

The terms of the second fund, we are offering an 80/20 split over a 6% pref, for a $1 million minimum investment, 75/25 split over 6% pref for a $100,000 minimum investment, and we’re looking to raise a maximum of $250 million. Ultimately, where we’re trying to go here is a little bit different structure than our first fund. Our first fund was very focused on development, because we were in a good development cycle. We think that the cycle that we’re in now is entirely different. We think that we’re in a distressed, in kind of an adaptive reuse cycle. So, we’re gonna do some select development on really exciting projects. But other than that, most of the assets we’ll invest in will be distressed. And that means that we’re buying them at what we think is a deep discount to their construction costs and their, kind of, inherent value. And then we’re going to be turning those assets around. That could be in the form of buying a partially-built project, that we’re coming in at a at-cost-or-below cost number. That could mean that we’re coming in on, and buying, like I showed you, an office building to turn into multifamily. That could mean that we’re sort of completing a gut renovation on a project that is sold out of a foreclosure auction. There’s a lot of really interesting opportunities in the market today that didn’t exist in the last cycle, and we’re very excited about that.

Caliber’s fund is, additionally, is a little different than many others. This is a multi-asset fund, and within the projects, we’re typically looking for a five-year hold. So, we’re gonna buy something, renovate it, build it, sell it, capture, hopefully, a minimum of a 2X multiple on the equity, and then reinvest again. So, that’s how we compound your return on investment, and hopefully generate a much better return, using relatively low debt. I’ll flip through a couple of the assets in Fund 2, and then we’ll go to questions. So, Riverwalk development, you guys already got a chance to get a little preview to that, but this is what it looks like on paper. It’s about 80 acres of development property in, all located in an Opportunity Zone in Scottsdale. The second investment we made out of Fund 2 is a small investment into DT Mesa. This is a transformation of the third-largest city’s in Arizona’s downtown. This is downtown Mesa. And everything in gold is projects we’ve invested in through the fund. So, as we continue to transform the downtown, alongside the creation of ASU Mesa, which is a new university in Downtown Mesa, we are driving more value to the existing investments, and creating new opportunities for Fund 2.

Gives you an idea of the types of deals we’ve done. These are all projects that we bought, and are now transforming. Level 1 Arcade Bar, we just opened. Newberry Station’s a co-working space we just opened. The Tortoise and the Hare is a restaurant that will be opening soon. Copper City Spirits, I think, is the next one to open. So, you can see we’ve got a whole variety of different types of uses and projects coming in.

We also invested in workforce housing in Fund #2. This project, phase one, is now fully built, and is now leasing, and phase two and three are going to start leasing in the near future. And then, last but not least, we’ve invested, through DT Mesa, into what we call affordable housing modernized. This is ZenniHomes. This is actually stackable housing, built in a factory, being built over a podium. So, within a half-acre parcel, we’re putting 90 units of apartments over and above a roughly 10,000-square-foot downtown grocer. So, just gives you an idea and a flavor for what we’re doing. I’ll kick it over to Q&A, kind of spin through some track record while we’re talking about questions.

Jimmy: Awesome. Well, thanks, Chris. That’s really cool. I love the pickleballing. I’ve played pickleball a couple times. I like it. It’s pretty fun. It’s no ice hockey. I’m more of an ice hockey player, but it’s fun to do.

Chris: You know, all my hockey guys say the same thing. They’re like, “What am I gonna do? Dink this thing?” And, you know, is what it is.

Jimmy: No, really. Hey, I really liked that point you made about how quickly interest rates have been climbing. Just unprecedented. That one struck me as well. We do have a few questions here, and as a reminder, if you’re just joining, or maybe you just need a reminder, if you have any questions for Chris, for myself, any of our panelists today, please use the Q&A tool in your Zoom toolbar. Let’s see. First question comes from Remy. A different Remy, not the one we just had on our panel. Remy asks, “If I live in California, then I don’t pay taxes in…” Tax? I’m not quite sure what he’s saying there, but what’s… How do the different state taxes work, I guess, Chris? Maybe you can comment on that.

Chris: Sure, yeah. So, every state has various laws, called…whether they conform to the tax code of the federal government, and most states across the country conform to the federal OZ tax. Best thing to do is actually just talk to your advisors, your CPA, etc., on whether or not your state conforms or not. I believe California has some version of conforming, where you can invest in an Opportunity Zone Fund and get some benefits, but you may be exposed to some state income tax, so I’m not an expert in that, but I’d highly recommend you talk to one.

Jimmy: Good. Matt asks, “Can you provide an update on the QOZ 2 Fund projects?” I think that’s kind of what you just did a little bit there, but don’t know if you had any other, anything else to add.

Chris: Yeah, you know, our track record… Or, right, I’m sorry, our strategy around QOZ Fund 2, we launched it, officially, in late 2022, and we’ve marketed it relatively lightly through the first couple quarters of 2023, because it wasn’t until about May of 2023 that the effects of interest rates rising as fast as they did really started to take hold. And so, when you’re in a moment in time when the market is turning over, what you wanna do is really be, you know, kind of, preparing and raising some capital, but preparing for what’s next. We started to see the what’s next in June and July of this year. We started to see real deals that we can acquire, similar to the one that I put on the screen with this office conversion, real distress, buying at a discount, starting to look at bankruptcies and other things like that. And so, we really haven’t been that aggressive at growing Fund 2. We are now aggressively growing Fund 2, because we are starting to see a track record beyond, you know, beyond…or, I’m sorry, a pipeline of deal flow beyond what we have seen in years. Probably haven’t seen this type of deal flow since 2011 or 2012. So, having said all that, the Fund 2 has raised around $30 million or $40 million, invested in Riverwalk, invested in DT Mesa, invested in Mesa Commons, and basically finished out some of those projects we had, which gives it an asset base, but it’s really focused on investing in this next round of distressed properties.

Jimmy: Perfect. I did just wanna follow up on that previous question we had on tax conformity. Clint just chimed in with a link to the Novogradac Opportunity Zone Resource Center. They have an article about state tax conformity. I would highly recommend reading through that Novogradac piece right there if you had any additional questions about that. I think we got time for one more question here. This one’s come from an anonymous attendee, asks, “Say, just curious, are there any specific ways that Caliber is planning to access debt or equity financing that are only possibly by being a publicly-traded company?”

Chris: Yeah. So, I think that the way I think about having a public sponsor is the stronger your sponsor is at the fund level, and at the asset level, the higher likelihood that you’ll get access to debt or favorable debt. Prior to 2022, debt was a commodity. Pretty much anyone could get it, and as long as the project was decent, they would sign off on just about any sponsor. Since the SVB crisis, and since the debt crisis that’s occurred, and I think will continue to occur, getting debt alone is difficult. And so, one thing that being listed helps us do, we believe, is to help us get debt in the first place, and outcompete our competitors who can’t.

The second piece of that is, in the public markets, you have the ability to, maybe have a stronger ability to float certain types of debt, or certain types of preferred equity, that will be cheaper than what you can get in the private markets. We have not announced anything like that, or put anything out there that says that, but it is certainly a possibility for a public company to do that, which is, you know, just not a possibility for a private company. But I think the most important component that we’ve seen currently, that’s been benefiting us, is getting debt in the first place, and potentially getting it at a cheaper price than we would if we were a private company.

Jimmy: Good. I love this question from Bill. So, I know we’re a minute or two over, but I did wanna ask this question from Bill here. He asks, “For simplification purposes, Chris, if an investor invests $100,000 into your fund, in 10 years, what total amount should that investor expect to receive over that 10-year period?”

Chris: Sure. So, if you run it out at a 15% IRR, if they invest $100,000 in 10 years, I think it’s around a $250,000 return, in total. I think that’s about right. If you look at our target underwriting, we feel that that is a very reasonable estimate of what you could get, based on a normal market of real estate development for this type of strategy. Having said that, in a distressed market, the equity multiples typically go up. So, it’s kind of counterintuitive. You’re seeing real estate values drop, and you’re seeing, you’re gonna see bankruptcies. You’re gonna see all kinds of negative headlines, but the return profile actually goes up. So, when we wrote our underwriting targets into this fund, and we put that into our PPM, that was based on a different market. In our experience in the past, as you can see kind of from some of these track record deals, like the South Mountain Squares deal, you know, we tripled the money over six years, and generated a 210% ROI, you know. Those types of deals, that was bought as a second mortgage, that was in foreclosure. We bought the second, foreclosed on the second, took control of the property, subject to the first mortgage, so that we became the borrower on the first, transformed the property, and sold it. So, those strategies, that are more complex to execute on, are the types of strategies that generate the best return in this market.

Jimmy: Very good. That was a great question. Thanks, Bill, for that question. Chris, we’re out of time. We’re a little bit over time, actually. Thank you to you personally, and to Caliber, for being so supportive of OpportunityDb and OZ Pitch Day. Great to see you here again. I hope to see you on more OZ Pitch Days in 2024. Good luck with the pickleball.

Chris: Thank you.

Jimmy: It sounds awesome. All right.

Chris: Good seeing you.

Jimmy: Thanks, Chris.

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