David Sillaman 0:00
We offer a turnkey fund development platform where our team sets up the Opportunity Zone Fund which includes you know everything from your entity formation, your financial forecasts on the fund, your your you know our legal team takes cares of take care of the private placement documentations are raised the money term sheet, sub agreements ,are graphics video, video, web marketing team takes care of developing the website getting it distributed out you know doing the pitch decks, pitch videos, basically it is a full turnkey when you’re taking saying ,Hey, I got this project help me get this in front of investors the right way as an opportunity fund. Bring it to us day one, day 30 you’re able to connect with investors.
Welcome to CREPN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from Experts.
J Darrin Gross 1:01
Welcome to Commercial Real Estate Pro Networks CREPN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
Today, my guest is David Silliman David is the CEO of Eazy Do It and he’s here to speak with us about Opportunity Zones, and Opportunity Zone Funds. And in just a minute, we’re going to speak with David about creating and utilizing an Opportunity Zone Fund. But first a quick reminder, if you like our show, CREPN Radio, there are a couple of things you can do to help us out. You can like, share, and subscribe. And as always, we would love to hear from you. Please leave a comment. Also, if you want to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And I also want to remind you there if you would, please consider subscribing. I always love to see more. And it always helps attract more people as well. With that, I want to welcome my guest, David, welcome to CREPN Radio.
David Sillaman 2:32
Thank you for having me.
J Darrin Gross 2:34
I’m looking forward to our conversation today. And before we get into Opportunity Zones, if you could just take a minute and share a little bit about your background.
David Sillaman 2:47
Sure, I got into the commercial real estate market. Basically I came into a hotel deal back in May of 2018. And this was a month prior to the basically our Opportunity Zone legislation coming out and it was a commercial deal. Like so many others looking for money and, you know, got brought in to figure out where, where the holes were at in the ship, so to speak, and to make some corrections. And once I learned that the Opportunity Zone program very quickly saw the opp, you know, looked at the deal, realized that it was in an Opportunity Zone made a pivot, launched it, the the equity raise for it, launched it as the fun and it ended up being the second Opportunity Fund in the country to ever open. And from there, it was kind of off to the races you know, once we started building that up a little bit and getting out there. And then basically it was from there. went on to develop the first business based Opportunity Zone Fund now since developed a little over $21 billion worth of project real estate related and business related Opportunity Zone Funds. Account for approximately one out of every eight one out of every nine in the country. We’ve got our name, you know our fingerprint on it in some way, shape or form and have kind of been elevated up to really, you know, one of the top 10 experts in the country on this subject matter on how to utilize this program the right way. We have a tendency to see things a little differently from a couple different lenses. And just, you know, believe in this program, this is going to either be one of the biggest game changing programs that this country has ever seen across all spectrums of real estate and business, or it’ll be one of the biggest tax giveaways in the history of our country. And I believe that it’s going to be the first of the two. And commercial real estate makes up you know, right now 85% of this market space. So this is a very, very hot topic, something still very, very new, very applicable and you know, really with 2020 being the year of with extensions and everything else like that, you know, this is a major year for capital gain investments because that’s what this program is basically built on is capital gain investors investing into an opportunity fund that is built and developed around You know, some sort of real estate or commercial development project that’s there to support part of the equity stack cap stack of that project. And it’s designed to these cap gain investors get in. And so you’ve got a mass tidal wave, given the amount of capital gains the amount of liquidity that’s in the market right now getting ready to kind of all hit with the proverbial Opportunity Zone shoreline between now and the end of the year. So this is a prime prime subject for the commercial real estate market.
J Darrin Gross 5:28
Yeah, I would say, you know, the stars are aligning, you know for for what I know about Opportunity Zones or what I’ve learned prior to this conversation. You know, it’s clearly looking for a way to stimulate investment in real estate, and places that need investment. I mean, that was kind of the the underlying thing there and assuming you’re able to turn the market with that investment The the value of that investment would be a significant increase there.
David Sillaman 6:05
J Darrin Gross 6:07
Before we we get run along, I didn’t quite hear what was your background before getting into real estate there?
David Sillaman 6:15
I worked in tech consulting, doing capital raises. So I come into a company and you know, they want to raise around a raise. So, you know, I get involved and help them structure, all the documentation and everything else like that, that need to be done to adequately raise that.
J Darrin Gross 6:33
Okay, so capital raising is not something that’s, I mean, you’re very familiar with that. So that’s, that would be I think, a head start for for you versus somebody saying, that’s a great idea. Let’s, let’s, let’s go with that. So let’s back up just one step. And so we can all make certain that we’re on the same page. Can you define what the Opportunity Zone is or what an Opportunity Zone is?
David Sillaman 7:00
Absolutely. So the Opportunity Zones are number one, they’re in all 50 states, Guam, Puerto Rico and US Virgin Islands. So what they are, are they are they’re literally designated census tracts, where they’re, you know, the economic numbers and poverty rates and stuff like that are within certain thresholds. And every, every mayor, every governor, so is across all all 50 states submitted the census tracts saying, Hey, we recognize these areas that are in need of economic stimulus. From there, it was approved by the Department of Treasury. So now collectively, we’ve got 9000 plus Opportunity Zones. So for real estate purposes, it is literally comes down to an address being on one side of the street versus the other, being in a zone or not being in a zone. So you have a lot of these opportunities. I didn’t there’s a misconception that, you know that the Opportunity Zones themselves are so you know, impoverished that, you know, it really is not like an enticing investment for an investor to really want to kind of get into it, it’s high risk is that. You have a lot of Opportunity Zones that are, you know, poised for college growth, poised for, you know, already doing, you know, semi decent are on the upswing, and investments are spurring that economic growth. So, they’re not all, you know, bad but the program is is a very special tax incentive program, if utilize the right way.
For investors, they get a bunch of specialized tax benefits by being willing to take their capital gains and putting it into what’s called an Opportunity Zone Fund. And the fund is then designed by by structure and by terms, guide guidance from the IRS that has to redeploy that investors money into you know some sort of Opportunity Zone project. The tax incentives are what is the major benefit of the program to give you a really simple example, say that I sold some real estate and I’ve got, you know, a $500,000 capital gain. And for one reason or another, I wasn’t able to do a 1031 exchange or I had a failed one or I just wanted to get my principal back out, well, I got a I got a half a million dollar capital gain. So instead of paying taxes on the way that I would normally have to reporting it as taxable income for this tax year. The start of that is I roll my money into an Opportunity Fund. I now defer paying tax the tax year 2026. So I’m pushing that off for six years. The second thing is is in that six year push off, I hit one of the anniversary hold dates in the Opportunity Fund, which is the five year anniversary.
So what happens is as an as a capital gain investor, at the five year anniversary, I get a 10% step up in basis. So what that means is, is that on that half million dollars, I’m paying tax on 90% of it, not the full half million in 2026. But here’s the amazing thing, which is why investors, you know, are really beginning to take a look at this program in multitude of troves and outlets. It’s the 10 year benefit. As an investor, if I keep my money into an Opportunity Zone Fund for 10 years in one day, I get a full step up in basis to fair market value at time of exit. So let’s say my half million grew to 2 million. So I got a million and a half game. I have a half million dollar basis, I paid tax on 90% and a half million dollar basis, the other million and a half. I don’t pay any tax on whatsoever at time of exit.
J Darrin Gross 10:53
So that’s on the subsequent gain that the no tax , right? That the initial one you still have
David Sillaman 11:01
Just a slightly reduce rate.
J Darrin Gross 11:02
Based on your your hold time.
David Sillaman 11:04
J Darrin Gross 11:07
No, I appreciate you you come taking us through that because I’ve, I’ve had conversations with multiple people. And I would dare say that everybody understands what they are or, I mean, what you explain me is the way I understand it, and I get it. The idea is that you you have this gain. If you if you don’t invest in an opportunity zone, you got to pay your tax it’s due. But if you if you choose to invest in this, we’re going to give you first of all the time, you’re going to get, what six years to pay
David Sillaman 11:43
Six years, to pay the tax,
J Darrin Gross 11:45
Right? You’re going to get a reduction in the tax owed. So you’ve got the time value plus the discount. And then like you said, the bonus of this is the hold for 10 years
David Sillaman 11:56
Extended hold, yeah.
J Darrin Gross 11:58
And is that 10 years from when you when you invest into the fund, is that how they is that when the clock starts?
David Sillaman 12:04
Yeah, yeah. Because the fund itself, you know, reports every six months to the IRS. A couple things, you know, number one, what the fund invested into, number two who invested into it? So yeah.
J Darrin Gross 12:18
Well, and I think the other thing that that you’ve touched on here that I, it took me a while to understand this thinking primarily as real estate and looking this as a real estate investment, the capital does not necessarily need to come from real estate. That was the challenge it took a didn’t resonate with me is that not everybody coming into this and Opportunity Fund is necessarily coming from real estate, they could have sold Apple stock or Tesla or whatever it was.
David Sillaman 12:44
You’re right, let’s let’s look at what happened in March, right? We had a mass you know, sell off in the stock market in March because of COVID. That sell off generated almost $700 billion in new capital gain money. And that mindset is not Real Estate based mindset. That mindset is very, very much, you know, I found stocks because I believe in the business, I see the product, I buy the product, you know, good earnings, good boards, all that kind of stuff when you go from that mindset as an investor and now you’ve got capital gains number one, up until now, you know, the stock market investors really didn’t take this program very seriously, because they didn’t have a need for it, very much. I mean, they were just riding through the stock market. Now they do. You’re taking a mindset that is almost primarily business and bringing it into a market space that’s 85% real estate.
And so, you know, in the commercial side, where we see the biggest disconnect is with the the fund managers that are raising the money around the development, being able to adequately connect with the investors in the right mindset and getting both on the same playing field and educating why this is a good investment. And not just because of how your money is going to grow. Not just Because what an IRR is, but most importantly, and almost always overlooked is the exit strategy. You know, with with people that invest in stock markets, they know that the moment there’s anything that begins to blip, man, I can trade, I can sell, I can I can I have an exit. With the Opportunity Zone market space, it’s a very different animal because it’s an extended period of time. And so, you know, these projects are going to be relying on leverage in the future. And you know, but if they can adequately explain to investors today that, hey, this is what we’re going to do this, this is the growth, the equity, this is how we’re going to exit out and we’re going to either pay you back and you can choose to exit or we’re going to reinvest again into whatever the next project is.
Because the 10 year time period is not project sensitive, meaning that the fund has to stay in a project for 10 years. It’s just 10 years sensitive to me as an individual investor. So fun can do, you know, for especially for you know, commercial Real estate developers, this is prime if they’re dealing, you know, multiple deals per year. And they’re juggling, you know, an Opportunity Fund could act as a real estate portfolio fund for them to support investments into all of their projects. But if the investors know the exit strategy and find that out there are a lot more inclined to want to pull the trigger. But yeah, mindset is a big thing. Big Big thing.
J Darrin Gross 15:24
Yeah, cuz I think again, just the, you know, I think real estate people have a certain view and even like with with syndication and stuff, it took me a while to to fully recognize that because of the, the in and out the speed of of getting in and out at 1031 wasn’t necessarily as much of a concern because your, your depreciation is minimal. It’s more of a capital gain, which is this totally plays to so if you if you have been in a syndication and hit home run, and you’ve got a big gain and you’re looking to park it in or defer the tax and you like real estate, this seems to be a natural, something to
David Sillaman 16:06
Well, you, you have a lot going on that when you look real estate at both today, tomorrow and you know, at time of various exit points, you know, you know investors are going to say, Okay, if I put my money in today who pays the tax in 2026? Right? Am I gonna have to just pull the money on my bank account? Which I would normally have to do anyway, but I would normally just pull it out of the capital gain, set it aside, and then use the capital gain differently. Right. So if I don’t have that ability, where does the money come from? And that’s a big, big question when you when you talk real estate and so what you’ve got to be able to look at is it’s not just you know, what the, what the economics are on the deal today, but really what’s going to drive the economics on the on the deal for exit tomorrow?
You know, we look at things like okay, well, you know, right now, most commercial real estate loans, which are really how they’re going to create the exit is going to be leverage. It’s either going to be sold or refinanced out, right. So it’ll be less In some way, shape or form, but what drives those loans? Well, if you’re borrowing against it, you know, most real estate commercial deals driven on the Libor rate today, but that’s phasing out by the next year. You know, it’s a completely different, you know, rating system that, you know, commercial real estate rates are gonna be based on, it’s gonna be based off the sofr and an offering rate. When you look at that, you know, that doesn’t correlate to how the libor moves with Treasury rates relative to how the sofr rate moves to the Fed funds rate, and funds rate is bottomed out right now. So we’ve got to look at say well okay, well, are we going to expect higher rates in the future and just being able to like, you know, really kind of put thought into articulating that today is what really makes these things you know, very viable, very attractive for investors to get into understand because there’s a mass amount of upside potential. You know, especially when you look at like the rioting and all the stuff that’s going on across the country, eventually, when that when it ceases, there’s going to be a mass amount of projects and property. They’re gonna be in these Opportunity Zones, the Opportunity Zones are going to be designated to include some of these areas, they’re gonna pick properties up for pennies on the dollar and walk into a mass amount of equity with a low, you know, flip time on it. And, you know, so there’s going to be huge, huge upsides for this.
J Darrin Gross 18:15
No, and again, the 10 year hold, that was the thing that caught my attention was the, you know, the the gain, and in 10 years time, especially if you’re buying in a, in an area that’s needing investment, you’ve got time to turn that and if you have a concentration of investment in that area, I would think that that’s, I mean, that’s kind of the recipe for a home run. Yeah, if you have enough investment going into an area that it can attract new business, new, you know, just just new activity. That’s that’s kind of I mean, because you in Portland, Oregon, where I live, we I can go to certain neighborhoods and show you What was versus what it is, and the amount of time 10 years is enough to to fully re re transform a neighborhood.
David Sillaman 19:10
And we’re already seeing the seedlings of transformation in neighborhoods all across America in this program, believe it or not. Baltimore, Erie, the list goes on and on and on of different places where money has been invested, you know, projects are going on jobs are being created, both in real estate short term for development purposes, but also for businesses in the area. And in those areas. We’re seeing very, very strong support from both state and localized municipality levels, you know, state taxes where they’re, they’re matching, you know, that the federal tax program at the local level, we’re seeing we’re localized community, you know, municipalities are bringing in additional benefits, sales, tax rebates, extensions on when taxes are due, discounted tax rates, all sorts of stuff to really try to take this and harness it because it has that potential.
J Darrin Gross 20:01
Right. So you’ve made the case for it’s a good idea. How How does a a or I guess, knowing knowing that like a zip code or I mean, I forget if it was a zip codes primarily are were there.
David Sillaman 20:19
They were there literally census tracts addresses, like all of an entire zip code would be in and opportunities and they’re there. They’re kind of Believe it or not, if you familiar with what the CDFI tracks are, that they use the Treasury level there, a lot of them are just those Plus, you know, extension areas from within those already predefined economic tracks.
J Darrin Gross 20:44
Right. Right. No, I guess where I was going with this is that so we’ve identified the area that qualifies. Let’s talk about the specific investment. You mentioned you started off with hotels If, if a if a fund has identified a, an area, a neighborhood track, and what what are the specifics of the property? That that, that make it qualify? Not that it’s just located in can it be new construction?
David Sillaman 21:19
It’s it does start off with the fact that number one, first and foremost is the property in an Opportunity Zone. Right. Okay. As far as the type of development whether it’s hotel, whether it’s apartment complexes, multifamily townhouses, single family resident trailer parks, storage parks you’ve seen I mean, we’ve seen the gamut of a mall, okay? Doesn’t matter starts with isn’t in an opportunity. Number two is is this something that is number one qualifying for a original usage or B, is it substantial improvement? Okay.
The most of these, most of these projects, the idea is the substantial improvement piece. Where the fund is going to come in, pick up, take an equity position, maybe even own it entirely and do the whole project as an opportunity fund, because there’s nothing that prevents a fund from being a 1% equity stake in a project and the cap stack to the full cap stack. Okay, so the fund will come in, and you know, it will have a couple things that it’s got to do. It has to meet its basis plus $1, in substantial improvements. So, you know, you’ve got that to take into consideration but if done, right, you still have huge, huge upsides after improvements are gone. Um, other than that, those are the two main things, you know, it’s not project type specific, it’s applicable to all. You know, there’s, there’s, believe it or not, there’s 22 different federal programs, two executive orders that support this Opportunity Zone initiatives, everything from the USDA to the FHA to HUD to VA, you name it, you know, all of this is a stackable program, where new market tax credits, low income tax credits, historic tax credits, all of that stuff is all applicable within this program. So you really have a robust and it was done and designed to be private by design, you know, to where you and I could get into great deals and invest, you know, I believe that the mindset was, hey, let’s spur investors to invest in their own backyard type thing. But it was it’s designed to support any type of commercial deal.
J Darrin Gross 23:40
You mentioned stackable, can you spend a minute and clarify?
David Sillaman 23:46
Sure, let’s say that you’ve got a project that, you know, let’s, let’s say it’s a housing development, right. You’re coming into a low income housing area and some low income tax credits for building out housing development. Right. Well You can use the Opportunity Zone Fund and the Opportunity Zone Fund can take advantage of when it does its taxes, there’s tax credits, even being a fund. So, you know, when you look at it, then the tax liability that then gets distributed out to either the members of the fund wish or the stockholders of the fund because the funds are going to be designed one of two ways, almost always virtually with real estate will be partnerships. So that’s what most real estate deals are done as So, you know, when the distributions go out on the K1 at the end of every year, you know, the fund can do take advantage of certain aspects and you know, stackable programs that can it can work in conjunction with EB-5 investments into, you know, a lot of EB-5 is centered around real estate deals, stuff like that. So you really can kind of be pretty robust with the usage of how this program is interconnected with other tax programs.
J Darrin Gross 24:47
That’s something that I hadn’t understood. I mean, that’s kind of like turbocharging the you know, the tax viability or just, I mean, because on on The the Opportunity Zone Fund., again, that’s that’s all about attracting investment. But a lot of those other tax programs are about in I don’t want to put a blanket
David Sillaman 25:16
Yeah, it’s a lot of rabbit holes to go down.
J Darrin Gross 25:17
Yeah. But I mean, some of them that I’m familiar with are our additional funding sources available
David Sillaman 25:25
Yeah, like EB-5 is a funding source that can be used in the capital stack on a project along with Opportunity Zone money,
J Darrin Gross 25:32
Right. So you can essentially lower your leverage based on all of these, which makes, which in the end makes the property perform that much better. And that’s that’s the point. I think, if you’re going to take something away that when you add all those additional programs together, it makes that that property perform even at a greater level than if you were just coming in a standard. Investors come in with the downpayment. You borrow the balance kind of thing. So on the properties on the on the substantial improvement, can you define that? Is there a Is there a measure of what substantial improvement means.
David Sillaman 26:13
So you’re going to have a cost basis to improve. So you’ve got to do that basis plus $1 minus the cost of land for substantial improvement.
J Darrin Gross 26:23
So if you if you bought something for a million and just for round numbers that the dirt
David Sillaman 26:28
if you bought it for a million, the dirt was worth 100, 200; 200, you got 800, you got to put 800 and 800,000 in $1. In
J Darrin Gross 26:36
Gotcha, gotcha, gotcha, gotcha. All right. So, all right,
David Sillaman 26:40
With original use, you don’t have to meet that threshold at all.
J Darrin Gross 26:45
Okay, originally, you should because you’re coming in with new new construction essentially, then or, are you not?
David Sillaman 26:50
Okay. Yeah, nine out of 10. eight out of 10 times will be new construction on original use.
J Darrin Gross 26:55
Okay. So we we’ve talked about the benefits of a fund, we’ve talked about essentially what types of properties qualify and what kind of projects. How tell me how easy easy I’m sorry Easy Do It right? Yeah. Easy Do It. Where do you guys fit? Are you guys creating the funds are you are
David Sillaman 27:19
We offer a turnkey fund development platform where our team sets up the opportunity’s own fund which includes you know, everything from your entity formation, your financial forecasts on the fund, your your you know, our legal team takes cares of take care of the private placement documentations are raised the money term sheets sub agreements, our graphics video video web marketing team takes care of developing off the website getting it distributed out you know, doing the pitch decks pitch videos, basically it is a full turnkey when you’re taking saying Hey, I got this project helped me get this in front of investors the right way as an Opportunity Fund. Bring it to us day one, day 30 you’re able to connect with investors. We integrate a third party fund administrator that oversees, you know, investor onboarding, compliance reporting, so that way, you know, none of that stuff is on the project manager of the fund manager, because they’re usually one of the same. You know, so it’s, it’s designed to be very, very turnkey, very easy. Flat rate, we’re not broker dealers, so we’re not getting paid on a raise. We’re not coming in, you know, on a commission or anything else to that nature. It’s just boom, done and built to spec ready to go anywhere. So we do that. And then we also have our own directory listing OZFunds.com. So since we’re talking about Opportunity Zone Funds, OZ Funds, OZFunds.com is our directory listing for Opportunity Zone Funds to be listed there and an education platform as well. We educate people, you know, on the subject of Opportunity Zones, from an advisory standpoint. And then also, you know, that’s what we kind of do. For our clients, it’s a turkey 30 day, in out.,
J Darrin Gross 29:04
Got it. So you’re taking something from an idea to the execution. I mean, you’re you know, I think a lot of times Yeah, the idea is that somebody goes, wow, an opportunity. I mean, Opportunity Zone we need I mean, that’s, that’s about the, you know,
David Sillaman 29:17
You know, the shortest distance between between two points, is a straight line. Right? Right. And when you look at what most people do when they start something new, because the reality is all an Opportunity Zone Fund is, is a shell company, selling equity, whether it’s a partnership, or whether it’s a stock doesn’t matter, because it’s selling equity to you and me, the investor for our capital gain money. When we invest we’re getting at a partnership or stock. It’s then funneling that money into an investment. So you got to look at the mechanical basis of what an Opportunity Zone Fund is, is a business, raising capital, selling equity. And so when you think through that then from an execution standpoint, most people zigzag their way. And all we’re saying is, guys, listen, we’ve done enough of these, we’ve been responsible from day one all the way up to today, you know, huge market share we’ve built, we’ve just have figured out how to build an assembly line process, to where instead of, you know, you’re you thinking one thing, and then, you know, you’re already trying to put the cart 5000 steps in front of the horse, we just keep everything in an assembly line. Order your Corvette, you come out, drive it off the lot. That’s our concept. And it’s easy, Easy Do It.
J Darrin Gross 30:36
Yeah, I think that’s the, the underlying, you know, takeaway from this is that it’s that it’s, it is Easy,Do It. I mean, it’s a great, great name for your, your, your company, because, like I said, I’ve, I’ve talked with numerous people, but they’ve been more of the sponsor, type and not that they’ve you know, dweld on the the back office or the all the, the bits and pieces but what I’m hearing you say and I guess, me confirm with you is that if somebody has an idea, they’ve got a property in mind and they’ve got access to capital and they’re looking to do a property in an Opportunity Zone. Okay, and but now they need all the the functionality, the the support, so they stay compliant. Because Yeah, if you don’t, if you don’t do all the compliance, you’ve basically your bust or, you know, jeopardize everybody in their in their potential gains. So, somebody that that define a perfect prospect for you, typical somebody that’s coming to you with, with a need for your product.
David Sillaman 31:51
Alright, so usually it’s, it’s number one, we work with the developers, you know, are they a first time developer or are they somebody who’s a seasoned You know, commercial develop developer, they they’ve got a great project. The Opportunity Zones are not designed Opportunity Zone Funds and zones are not designed to polish a turd. So if it’s a bad deal at the get go, this is not going to make it any better. Okay, but if this is a good deal, this will make this phenomenal when you look at the tax benefits to the investor. So you know, somebody who has a good deal, something where they’ve already got some stuff already figured out on the project, you know, maybe feasibility studies have been done, they’ve got a good business plan for what they want to achieve or good development plan for they’ve got a good project, highlight somebody who’s coming to the table with at least something that we can kind of take and run with. And we know that there’s a lot out there because we get solicited by so many projects looking for money. So we see these things all day long. And that’s I think that’s the the more bigger thing, I think is not what the ideal client is. I think it really is understanding if we could economics at the market space for a second. Because when you really kind of think about it when you’re when you’re in commercial development, you’re looking For money to get any type of project on, you’re trying to find either investors or, you know, traditional outlets or whatnot. With Opportunity Zones, there are only about 600 Opportunity Zone Funds out there. That’s it, about 600 of them that are real, actually taking money in doing it. But what’s really important that nobody talks about and this is why the economics of it, I scratch my head sometimes and this is perfect for your audience, okay? When you look at those 600, first of all 15% of them are business, meaning that they’re focused on making investments as either like a venture capital fund or just into supporting a startup or the growth of a business. So let’s exclude 15%. For the real estate purposes, we’re now working with 85% of the shared space. In that 85% by design, these are offerings to invest investors, which means there’s a private placement that goes along with it. It that private placement is following some sort of reg offering, whether it’s ABC or D offering. All right, most of these are C D offering some more Reg A, but that’s rabbit holes. When you look at that 60% of the 85% market space in real estate, 60% of them are single asset focused funds, meaning that they can’t take or invest into any other deal other than the one they showed you and me as an investor legally.
So now we have 40% that are multi asset, out of that 40% that are multi asset. All of them are highlighting anywhere between one to already three deals that they’ve got on their plate as an opportunity fund. So even them having excess capital to invest into an opportunities on project they don’t have right now. The problem is we have an inverted supply demand yield curve, but the market space doesn’t fully recognize it, because they’re missing the forest from the trees. What we have is we have a exponentially huge amount of capital gain investors. And we have a very small pool of Opportunity Zone Funds, the real estate market, commercial real estate developers, the worst thing they could be doing right now is trying to solicit an Opportunity Zone Fund, which we see all the time. I can direct any real estate guy to an Opportunity Zone directory that’s at 25,000 projects in these Opportunity Zones. Looking for funding right now. You have economic development agencies within municipalities, that other than tax benefits are themselves struggling on how do we implement working this program with funds, fund managers and projects getting developed?
If you look at what they’re doing that they’re mainly doing project solicitation as well. They’re saying these are the projects that we as a city have to be able to offer within an Opportunity Zone for Opportunity Zone Fund. The reality is the Opportunity Zone Funds far and few between are looking for extra projects right now. But you’ve got all this capital that’s looking for a spot to go into and there’s not enough. So the best thing that any developer could do right now is if you’ve got a great project in an Opportunity Zone, don’t go fishing in a small pond that doesn’t have any money in it, meaning the OZ Fund market go fishing in the capital gain market. As an OZ Fund, come out and be that 601. So that way, you can hit a much, much larger market share. Because if we look at the tidal wave of capital gain investors right now, because of all the different COVID extensions related to this program, we have investors that go all the way back to October of last year, that are still eligible for participation in this program. every investor has till the end of the year, stock in real estate. So we have this huge tidal wave, we have more liquid money sitting aside in people’s bank accounts than ever in the history of our country right now. We’ve got changes that have been made the Volcker rule from an SEC standpoint, for banks, and also from a CRA guidelines standpoint, for banks to now get involved with investing in Opportunity Zone Funds as an investor. You know, being able to you know, we’re there we’re at that spot where developer could set up an opportunity zone fun walk into the bank that they usually would get a loan from, and say, hey, let’s talk about the bank investing in this As a fund and the bank get benefits of it. We’re at that point now, but but the market, when you look at the economics of the market, we’re so inverted that we don’t have enough supply. The demand is there. We don’t have the supply chain to handle it. I mean, it’s like, you know, scratching the tip of an article with a toothpick.
J Darrin Gross 37:20
Yeah. No, that’s a good problem to have. If you’re in a, you’re selling the product everybody needs that’s, that’s where you want to be. So that’s good. That’s good. David, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And one of the things we do is we try and manage risk. And there’s a couple of different strategies we typically consider. The first is can we avoid the risk? If we can’t avoid it, we look to see if there’s a way we can minimize the risk and then If we’re not able to avoid or minimize we like to transfer the risk and that’s what an insurance policy is. And I like to ask my guests if they can identify what they consider to be the BIGGEST RISK. If you can take a look at your your customers and your business and identify what it is that you think would be the BIGGEST RISK, and then explain that. For clarity, I’m not looking for an insurance related answer. But if you’re willing, I’d like to ask you, David Sillamon, what is the BIGGEST RISK?
David Sillaman 38:47
I see. Okay, the absolute BIGGEST RISK to the whole program is going to be fraud. Alright? Fraud because these are private by design to be between you and me as individual investors into development, Alright? They’re long term in nature, which means that we’re not thinking about it every single solitary day. As an investor, we already know going into whatever we’re putting our money into long term, years, six years, 10 years because of how every last one of these and it’s such a brand new market that, you know, there’s no not not a single Opportunity Fund has a major prior performance track record. So taking money in from an investor promising them that we’re going to do this, we’re going to do that, and then closing up or never even filing the right way to begin with causing, you know, detriment to the investor from a tax standpoint, thinking that here they’re deferring and now they’ve been collecting interest on taxes that are due because the fund never did the right thing. And the people behind the fund made it look so great. That, you know, they took the people’s money and ran. And when we look at look back at the history of track record of government programs, I speak truth on this because I built and operated one of the most successful loan modification companies on the East Coast was called Cornerstone group 175 employees, two call centers. I built a multimillion dollar business on the back of a government program once before. Fraught the proverbial saying of a few bad apples will ruin the entire basket was absolutely true in that program. We heard horror stories that people that you know gave money to companies out in California told don’t make your mortgage payments and then ended up losing their houses and the company’s closed up shop. That program was very dramatically changed through legislation and strokes of Penn from executives at the White House. This program has an immense amount of propensity for overwhelming overwhelming Change in an amazing way opportunistic way, in America, an amazing way to make a lot of great money. What it lacks because of how it’s written, there is no set platform yet. There is no set directory yet. There is no set, hey, this is the proper process and what you need to be able to do when you build one of these things and so that way, all the way down the supply chain, it’s transparent and everybody can get into it and know that okay, no matter what, that doesn’t exist yet, because this market is a brand new financial market that is penetrating both real estate and business. And within that it has to grow. And it’s like a baby right now that’s teething. It has the ability to do amazing, and the legislative support behind it is bipartisan. But at the same time, biggest concern would be fraud. The second biggest concern I think that would be to go along with fraud and I briefly touched on it, I think it probably plays into that fraud. The biggest way is right now, as an opportunity fund being private, you’ve got SEC compliance, you’ve got, you know, state compliance, blue sky laws plus whatever your corporate entity, you know, is both, you know, registered in and foreign because most of the time, you’re gonna have two entities at a corporate level with these, just a lot of this is still the compliance side. And that would be the the second biggest risk, none of them are performing. Proven. And I can’t tell you as an investor, hey, listen, you know, this fun is performed at a 10% interest rate of return for the last 10 years. Not a one, I can tell you that, hey, my company has done you know, $50 million in development projects and so you can trust us. But at the end of the day, as an investor, you know, and that’s that’s the risk is at the moment because there is no centralization on really, you know, what it looks like? You know, from that mass propensity of fraud, and then you couple that with no performance, they’re ultra ultra ultra high risk investment vehicles with huge upside potential, but also really high risk up front.
J Darrin Gross 43:16
Yeah, know thy operator or no thy sponsor. That’s a well said. I think that you know, like you said, even the the lack of a track record and then just the time that the investment has to go is there’ll be a tale to be told. So
David Sillaman 43:34
it’s good there will be there will be there definitely will be and you know, what we build funds ar Easy Do It in our turnkey model, we do coordinate with a lot of broker dealers, RIA’s, family offices. A lot of accredited investors that, you know, we have gleaned a lot of experience from trying to build an Opportunity Zone Fund when you don’t have prior performance. Your next best thing is full transparency. So when we build, we really took the FINRA 1022 checklist that a lot of brokers use when they do underwriting and due diligence and vetting these things. And so from a documentation preparation standpoint, from a third party integration standpoint, we go above and beyond to set up measures to always protect the investor. So that way the underlying sponsor the fund, when it’s all said and done, you know, they set up a fund, let’s say raises, you know, $20 million. Now, they get access to that by submitting a release request to themselves, and it gets documented. And then that way, there’s third party transparency for investors to always know where the money went, what went into and, you know, knowing the value, and I think, you know, we don’t have a defined system yet. I’m hoping that you know, enough of us doing this the right way will help kind of create a proper guide path. And if we can, as professionals in the industry, that are know both business and real estate Within the Opportunity Zone we talk about, if we understand that, hey, the biggest risk is fraud. And like we briefly just said a minute ago, then if we can stay collected when we talk to our clients, when we, when we know that, hey, this is how things need to be done, we can have a better path to follow and hopefully, avoid, you know, drastic changes. Because if the change if the administration is smart, the changes that are are to come, are only going to incentivize investment into this program even more over the next six months. And you know, the fraud aspect of it, we still won’t know for another two, three years. And that’s a little scary. But I think, you know, if you’re cognisantly aware of it, and that’s the biggest risk going into it, always thinking that hey, just transparency. Be honest right , and you’ll have no problems.
J Darrin Gross 45:51
No, it makes good sense. David, Where can the listeners go if they would like to learn more or connect with you?
David Sillaman 45:57
Sure. You can visit us right online. At Eazydoit.com, eazydoit.com, Eazy Do It. Also, if you’re learning to look into get more educated, they can connect with us on OZfunds.com. If you’re an investor looking for an opportunity fund, we probably have the most robust fund directory available right now ozfunds.com along with an education platform.
J Darrin Gross 46:24
Great. David. Can’t say thanks enough for taking the time to talk. I’ve enjoyed, enjoyed our talk, learned a lot. And I hope we can do it again soon.
David Sillaman 46:34
I look forward to it. Thank you.
J Darrin Gross 46:36
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