Reintegrating Offenders Into Society, With Phoenix OZ Fund

In this webinar, Graham Allison presents a project in Columbus, Ohio that is designed to help offenders reintegrate into society.

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You can visit the Official OpportunityDb Partner Page for the Phoenix OZ fund to:

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  • Learn key details about the fund and related projects.
  • Request more information from the fund sponsor.

Webinar Highlights

  • Overview of the Phoenix, designed to help offenders restart their lives and reintegrate into society.
  • Summary of the unique tax incentives that Ohio offers for OZ projects.
  • Timeline, budget and target IRR for the Phoenix project.
  • Discussion of the partners involved in this project.
  • Impact on recidivism of available housing.
  • Overview of construction specs for the building.
  • Live Q&A with OZ Pitch Day attendees.

Industry Spotlight: Opportunity Zone Development Group

Opportunity Zone Development Group was formed to take full advantage of the capital incentives and community improvement mission of a new federal reinvestment program. Besides expertise in the still-evolving application of Opportunity Zone incentives, they bring investors and property owners an added advantage: decades of experience in financing, design, PR and government relations, construction, administration, and property management, all under a single accountability.

Learn More About Opportunity Zone Development Group

Webinar Transcript

Jimmy: And we are officially now beginning our showcase of Opportunity Zone investments. Our first presenter that we’re gonna have is Graham Allison, with Opportunity Zone Development Group. He’s gonna be presenting the Phoenix OZ Fund, which is located not in Phoenix, but in Columbus, Ohio, and he’ll explain why in a moment here. So, Graham, I’m bringing you up on stage right now.

Graham: Thank you so much, Jimmy. Appreciate everyone being here. So happy to present Phoenix Community. This is by Phoenix OZ Partners, what we found. So, my name is Graham Allison. I’m with Opportunity Zone Development Group. I’m also CEO of the Phoenix OZ Partners, and we are an impact investment fund in Columbus, Ohio. I should probably start by saying…if I can move this here. All Right. This is what we’re presenting. This is The Phoenix. This is designed to assist ex-offenders to reintegrate into society. So, we’re a bit different from some of the projects you may have seen, from a multifamily project type of… This is focused more on those that are homeless, rather than those that are looking to enter the workforce. These are folks coming out of the penal system, and we have established this project, I should talk about. You know, we are raising capital through a 506(c) Reg D, and, you know, through an Opportunity Fund, and through our Qualified Opportunity Zone Business. Please check with your professional before making any sort of informed decision to invest.

Tell you more about this project. So, this is really designed to assist those that are homeless, coming out of incarceration, hence the name Phoenix. It’s really about rising from the ashes, and enabling people to really restart their lives, and become more responsible and contributing citizens. So, to do so, we established a fund, Phoenix OZ Fund, as well as Phoenix OZ Partners, to be a Qualified Opportunity Zone Business. We’ve raised $3.59 million to date, and we’re raising $1 million additional dollars through the QOZB, to complete a $10.6 million project. This is open to accredited investors. We talked about some of the highlights, from the deferral, if you get into the tax incentives, the deferral. What’s interesting about this project, and maybe for others, is that Ohio is unique in the country, in that we have a 10% state tax credit. And so, for investments made this year, up to June 30, we will sell that credit when it is received in October, and provide returns for a project that is under construction, and planned to be completed in Q1, December of this year, if things go very well. This whole project is based on partnership that we’ve created with Nothing into Something Real Estate. This is a nonprofit called NISRE.

And so, we are building a 50-bedroom multifamily, 10-unit…it’s more like a dorm-style community, residential center. And this is based on a 15-year $1 million lease with this nonprofit. They’ve been in the business of rehabilitating those that are coming out of the system for 15 years. They’ve helped more than 1000 people to reintegrate, and we expect this facility to have the chance to do that again. And so, we really think that this could be a model to tackle homelessness for a number of hard-to-home folks, whether that’s folks that are struggling with addiction, coming out of the penal system, veterans housing, and others. But this is based on really gaining some front-end benefits with the deferral, getting the cash from the investment in the fund and in the business in October, and then having a 10-year tax free exit. We have a buyout option with NISRE, our partner, at the end of a 10-year hold, and the sale price is $10 million. So, we’ll have $4.6 million on the front end, and a $10 million price after that 10-year hold. All in, we’ve got about a 13% target IRR with OZ benefits. And what’s interesting about this, Jimmy, you mentioned the depreciation recapture. We will be performing a cost segregation study on this $10 million project, and we’ll be able to put up a significant amount of bonus and accelerated depreciation into the project to send up to investors.

So Phoenix OZ Partners is the project vehicle. We do have Phoenix OZ Fund. What we’ve found is that the majority of our investors have their own Qualified Opportunity Funds, so we have enabled Phoenix OZ Partners to be the investment vehicle. And if investors do have their own…or that do not have their own fund, they can invest directly into the QOZB. If they have their own fund now, then in order to achieve the 10%, you have to have 100% ownership of Ohio property. So, it may be prudent to set up another fund that would enable you to get that tax credit in the fall.

As you can see, 92% of the ownership goes directly to the investors. This is really, between the nonprofit and my firm, we are looking to really encourage this impact investment, knowing this is a hard-to-house population. In the last couple of years, we have had to work with some NIMBY. As you can imagine, housing 50 ex-offenders at a time can be a challenge, and it has to be located in the right place. What we do find in working with NISRE is that when people are housed when they come out of the system, that recidivism drops dramatically. And so, it is our goal to raise OZ capital, deploy it into this project, and enable perhaps up to 1000 people over the next decade to restart their lives.

Here’s a map of how we’ve set this up. So, we have NISRE here. This is my JV partner, the nonprofit. This is our fund, general partnership, and then we have raised multiple funds, as well as Phoenix OZ Fund, that owns 90% of this project, and we have some lenders, some community development entity lenders, that have come along with us, as well as a property-assessed clean energy loan, as this project is established with insulated concrete form, which I’ll get into here in a moment. So, it is a new building method, that provides very high energy efficiency. Based on that efficiency, we’re able to have very low cost from operations, and so we, on that $1 million lease, if you look at this pro forma, we’re able to really have about $800,000 per year in NOI, net operating income. So, it’s a very efficient project, and it enables us to send capital up almost immediately.

As I indicated, we will have that $1 million lease that will start in 2025, when NISRE occupies the building 100%, immediately. We will, in addition, have the 10% tax credit and cash flow this October. As I said, Ohio is unique. It also accepts not only capital gains, but post-tax cash as well. And so, we will be applying for the 10% tax credit for some of the loans that we have on the project as well, that will, we will sell those credits, utilize that as revenue in the business, to then provide returns. And then again, after a 10-year hold, we plan to sell for $10 million to NISRE. Again, getting back to the pro forma, you’ll see that, you know, we have some returns from the tax credits here, and then, down at the bottom, we have had an appraisal at the end of our construction period of $8.8 million, and based on a cap rate, we expect the property to be worth $10.6 million at the time we sell it.

Here’s a bit more about the capital stack for this project. We have about $5.5 million in debt, and we’ve raised $3.5 million to date. We’ll be raising $1 million in new equity, through Phoenix OZ Partners. We have had a commitment of $200,000 of that this week, so we have $800,000 available. And you can see that we have a total budget of $10 million, to create a $1 million per year revenue business. Again, we talked a bit more about the construction. It’s made with insulated concrete form. We’re effectively creating a bunker. It’s gonna be a very…while it’s dormitory-style, it’s made with PVC and concrete, it’s going to last for many years, and may be one of the last buildings standing in our community. And it definitely has some benefits there from a operating standpoint.

So, there is, again, the project, of what it looks like here. And we’d be happy to take civic-minded investors. What’s interesting is the wrap-around services, with NISRE, are right across the street from the site. An incubator for businesses that ex-offenders want to start is right next door. So, this is the project timeline, Jimmy. I’ll keep it quick. We’re raising the capital now. We’ll start construction as soon as late July. We have a 24-week to 28-week construction cycle, because we’re about 51% done, and this last $800,000 gets us to completion. Occupancy begins 100%, because we have a full lease immediately. and we will exit tax-free after a 10-year hold. Showing you my partner here. This is doctor Michele Reynolds. She is a state senator, and she runs the Affordable Housing Commission with the state. So, we’re about 51% complete, and we’ll fill this thing with concrete, put a roof on it, and house about 1000 people over the next decade. Here’s my contact information if you’d like to reach out. Be happy to talk about this impact investment.

Jimmy: Graham, you nailed it. Right on time. I love it. We’ve got time for a couple of questions, and we did get some questions. By the way, I had a ton of questions during my keynote presentation. I think I just answered the vast majority of them in the Q&A tool. So, if you had a question and you used the Q&A tool, check back there. The answer is probably in there. I’m gonna hold a couple of the questions for our “Ask the OZ Experts” session later today, because I didn’t know the answer to them. So, but we’ll get to them shortly. Graham, turning back to you. Questions regarding the Phoenix community.

Graham: Yes.

Jimmy: John asks, “Will the current tax year 2024 be the year 1 bonus depreciation year?”

Graham: We are pushing hard. So, I’m working with our GC to perhaps encourage them to go faster. Twenty-four weeks is our low end. Twenty-eight weeks is our top. So, it’s very close. So, whether that bonus is in ’24 or ’25, I can’t say for certain, but we’ll certainly push hard to make that happen.

Jimmy: Excellent. And then, Patrick asks, “Hey, Graham, do you have to be an Ohio resident to claim the 10% Ohio tax credit?”

Graham: That’s a very good point. No, you don’t. So, our first investor was a Florida resident. They had their own QOF. They invested into the company. We’ll have you transfer the tax credit certificate to the business. We’ll sell that, and then send that up as depreciable returns. So, you don’t have to be in state. You do have to have a tax liability, which is why we have that transferred to the company, so that we can sell that on the OZ tax credit exchange, which is an operation we run here in Columbus.

Jimmy: Perfect. Well, Graham, we’ve run out of time, but thank you for your support of OZ Pitch Day. Great presentation.

Graham: My pleasure.

Jimmy: Thanks so much. And we’ll see you next time.

Graham: Thank you, everyone. Appreciate it. Thank you. Goodbye.

Jimmy: Thanks, Graham.