Join us in our latest Ask the Expert Series with Greg Genovese of USG Realty Capital as we cover all things OZ! From Wall Street to TIC, to DST, to QOZ… it’s been an adventure. Greg’s background takes him from early institutional real estate via Tenancy In Common, the early days of Delaware Statutory Trust’s and today – Qualified Opportunity Zones.
Created as part of the Tax Cuts and Jobs Act of 2017, The Opportunity Zone Program is designed to incentivize investment capital into designated census tracts nationwide and may be eligible for significant preferred tax treatment.
Opportunity Zone Funds (OZ Funds) are investment vehicles where capital gains from prior investments can be invested into designated state opportunity zones. These funds may provide significant tax benefits to investors and stimulate economic development and job creation.
What You Will Learn:
By rolling over gains into an Opportunity Zone Fund you can:
- DEFER the payment of your capital gains tax.
- REDUCE the tax you owe by up to 15% after 7 years.
- ELIMINATE tax on gains earned from the Opportunity Zone Fund after 10 years
David Moore: Hi, David Moore, Equity Advantage, and I am blessed to have Greg Genovese of USG Realty Advisors. And about a month ago, I got to spend a couple of days with you up in Tacoma talking about a project you’ve got going, and we’re gonna talk about that in-depth in a little while. But Greg, why don’t you tell us a little bit about your background in investment real estate, how you sort of got to where you are and some of your experiences in institutional investment through the years.
Greg Genovese: Wonderful, and thanks for having me. That’s very kind of you. So I’m 34 years now in the industry, I’m not afraid to say I’m 58 years old, from the San Francisco Bay Area and got started in the real estate securities industry in 1989, trading REIT stocks, Real Estate Investment Trust stocks.
David Moore: You’re barely old enough to say that, by the way.
Greg Genovese: Yeah. But the interesting thing, David, is that in 1989, really not many people knew how to spell REIT.
David Moore: Yes.
Greg Genovese: So I really have been involved in the industry since the late ’80s, then moved into the non-traded real estate investment trust world, worked for some of the largest non-traded REITs in the country, raising equity and doing management.
David Moore: Greg, just for the sake of the audience, would you define non-traded REIT?
Greg Genovese: Oh, certainly. So the main way of being involved in real estate from the stock perspective, there’s really two ways, the first is through what it’s called, traded REIT so your clientele, people listening to this can go to the web and look up traded REITs, R-E-I-Ts, and they’ll see that there’s traded stocks on the stock exchange that are invested in real estate, and those are great because they give you a lot of liquidity. But they also tend to rise with the stock market and fall with the stock market, so although you get the liquidity, it tends to move up and down or correlated with the stock market. The non-traded side is really what we call public non-traded, it’s a public stock. However, it’s predicated and invested in real hard assets and the values actually rise and fall depending upon the valuation of the assets, so they don’t give you the liquidity that a traded REIT would give you, but you’re not correlated with the marketplace, and it tends to be a hedge against the stock market.
David Moore: So if you go talk to your financial advisor and say, Hey, I wanna go buy some real estate, typically they’re going to sell you just a regular traded REIT.
Greg Genovese: In most cases, yes.
David Moore: And as far as access to non-traded REITs, what do people have… What’s access to that one?
Greg Genovese: A lot of wealth advisors, and I’m just… Some of your larger, we call them wirehouse firms, JP Morgan, Morgan Stanley and so forth, Chase, those groups tend to deal with, we call traded REITs. If they say, Hey, I wanna put money in real estate, it’s gonna be mostly the traded stocks, but a lot of them now will venture into the non-traded side because they wanna give the clients the non-correlation to the market. But the vast majority of the non-traded REIT market is mostly sold through private wealth advisors or your regional, what’s called broker dealers or financial planners, so you can find probably a bigger breadth of a product based there.
David Moore: So if we look at… And then we’re not scheduled… We’re gonna keep Greg around for a little while today, ask you a bunch of questions, but we’re not scheduled to talk about UPREITs, but the UPREITs are probably… They end up rolling typically into non-traded then?
Greg Genovese: Exactly. So just for your audience, so when you hear the word UPREIT, what that normally means is most REITs are formed as what’s called an UPREIT, and so you’ll find that in the non-traded REITs, so you’ll invest, let’s say your money into, we’ll call it the Moore REIT. Okay.
David Moore: I like that.
Greg Genovese: So people invest in the Moore REIT. Let’s say you raise $100 million, those investors have $100 million of equity. Let’s say you did 50% loan-to value on that, so you bought $200 million worth of real estate, so the value of that REIT each year is gonna be predicated basically on the valuation of that, of those assets. And then… But if somebody needs to get out, it’s gonna be based on that valuation and your ability to actually liquidate. However, the real advantage is that at some point when the traded REITs are at a premium, you could actually… The Moore REIT could actually take that REIT and go public, so it’s basically a pre-IPO and so you kinda get a double benefit. One is you’re not correlated with the market, you’re invested into real hard assets, it is a stock and it’s diversified, so you get some diversification there. But you get an extra benefit that you could actually sell it in an IPO market as well, and now you have a traded stock, and you don’t have to sell the whole thing a lot, so you could sell it a piece at a time.
David Moore: Interesting. So for those of you that were wondering why you’d wanna sit here and listen to a series of segments on OZs and all, I just wanna reassure you that we’ve got an expert in investment real estate here, and we’re gonna take advantage of that opportunity. So I think that explanation in and of itself was a great example of your wealth of information, knowledge in that space. So what led you the USG? How did you get there and what did you do to get there? And I interrupted you because I wanted to have a clarify… We keep that, the whole keep it simple, stupid deal, because I think we get in the field and we start using acronyms and people don’t understand, so I wanna make sure everybody’s on the same field.
Greg Genovese: Well, I’ll be succinct as far as the career, and sometimes I really believe people understanding the experts in the field and what they’ve done because it’s really indicative of the expertise that people can give. We’ve had a really good 10 to 12 year run on real estate and in the stock market, and so there’s a lot of people out there that haven’t really seen bad times, and we’re starting to see those now. And so recently I was able to give a keynote speech at an industry function, and when I got up, I think I made half the room happy and then the other half very upset with me.
David Moore: So it was a success. Yes.
Greg Genovese: So yeah, I guess so, yes. And the reason why is we have interest rates that have gone up, are gonna continue to go up maybe at a slower rate, whether or not we’re in a recession or not, we have a lot of recessionary pressure, so from an investment management standpoint, I kind of say to people who cares if we are or we’re not, we have to manage it as if we are. And the reason I made half the room happy and the other half not so happy is the same thing I said in 2008 when we went into the great recession, and that was, we’re going into a period of time where expertise is finally going to count again for something.
David Moore: I like that, I like it.
Greg Genovese: And I’m very… I’m being jokey a little bit, but it’s also very serious and in my history and 34 years in the industry, I’ve been through personally three major recessions, probably just as you have, and so you have to manage your programs so that they can benefit me during the good times, but they have to be able to mitigate their losses or mitigate the risk during the bad times, so it’s not always about how great things are at the beginning. As I like to say, getting out of the investment is just as important as getting in. So you mentioned opportunity zones and those are 10-year hold, so really doing your due diligence on the sponsor, on their expertise, quantitatively how the programs are built to withstand one, two or maybe even three recessions, I think is really important. So I’ve been in the industry a long time, involved in REITs as you… We talked about traded, non-traded, then got involved in the securitized 1031 exchange business in 2000.
David Moore: And that was institutional Tenancy In Common initially, right, before it was pre-DST.
Greg Genovese: It was pre-DST, it was tenant in common, and I know you do a lot of work in the DST space, but what a lot of people… Your audience may or may not know. It’s really interesting, the reason it went from TIC to DST in 2008-2009 had a little bit to do with the recession, but really it came down to the banks. Banks really have to… If you’re doing a TIC, everybody in that tenant in common group has to be vetted. And when things are great, that’s just wonderful, but during a recessionary period of time, it gets hard for a bank to vet 20-30 people, they only wanted to vet one entity, so the DST, the Delaware Statutory Trust, allowed the banks to feel comfortable from a risk standpoint of allowing the trust to be the borrower and that… So I actually like that a lot. So I don’t have to worry about my other tenant in common, I could do it in one structure. So I’m not sure you wanted to upload to DSTs, but I think that’s…
David Moore: No, no, no, no. I mean, no, I wanted to talk about all your experience in there. I think it’s interesting that today we’ve still got institutional texts and they’re typically a value-add play where the DSTs are stabilized assets, and I think you were OZ stuff, which we’re scheduled to talk about today sort of falls in between, honestly, and it gives that potential upside. And I started looking at the Roth IRA, limited deferral into it, what you make, if you hold it through maturity, is gonna be tax free.
Greg Genovese: Absolutely. So you’re speaking about opportunity zones. Given my history in the 1031 side and the DST side, you’ll never hear me say a negative word about the 1031 option. I actually believe, and I’m not saying this because you’re in that business, but I truly…
David Moore: There’s the money.
Greg Genovese: Yes, exactly. No, no, I truly mean it. The very best tax initiative in our history is the 1031, and I’ll continue to say that. When the opportunities on initiative hit the treasury, hit the public in 2017, the end of 2017, early 2018, I really look at that as being tax initiative 1B. It’s not quite as great as, from a tax standpoint, as a 1031 exchange, but it’s really close, and it gives the investors that option where a 1031 exchange, and I don’t have to teach you this, but the 1031 exchange is in a lot of ways an all or nothing proposition. Not that you… What I mean by that is you take your money, you put it into a 1031 exchange, and you really have to continue to do that over a long period of time, and that’s really the power…
David Moore: It’s tax deferral.
Greg Genovese: It’s tax deferral, for as long as you want, forever, if you can make that happen, so that’s really, to me, the power of the 1031 exchange. But sometimes that pushes people to overweight themselves also. So I’m also a big proponent of people getting their cost basis back in order from time to time. And so where I look at the opportunity zone as being a real… I’m gonna say medicine, let’s say, to allow certain investors to kind of let out some of the steam from a 1031 exchange, is an opportunity zone, the government actually allows you to take your capital gains and defer it for a number of years. Now, they will make you pay your taxes on the amount that you’ve deferred. You don’t have to do the whole thing, you’re gonna do just part of it, which is kind of a nice thing.
David Moore: Oh, yeah.
Greg Genovese: And you’ve deferred it for a certain amount of years, you do have to pay taxes on it at some point. However, you’re using 100% of your capital gains during a period of time, and you’re getting the benefit of that working for you. The other great thing is, after that 10-year period of hold, 100% of the gains from the opportunity zone fund is 100% tax-free.
David Moore: Which is amazing.
Greg Genovese: So the… I would say the superpower, the superpower of the opportunity zone investment is it’s tax-free growth for a 10 plus year period of time. And just like, I’m sure you tell your clients, there’s always a trade-off. The 1031 exchange is great because it’s basically 100%, you can continue to defer, but sometimes your risk starts to go up a little bit with that. The opportunity zone site, yes, you will have to pay taxes on that gain money at some point, and if this extension bill, which we’ll talk about goes through, which we all expect, it’s going to give some nice discounts to the investors. But it really is a way for investors to invest in something with higher than average returns and as you know, getting good 1031 exchange replacement property right now is a little bit tougher.
David Moore: It’s tough, yeah.
Greg Genovese: It’s a little bit tougher, but you get 100% tax-free at the end.
David Moore: So we’re gonna try to… We’re gonna take a break here in a second, but we’re gonna try to accomplish two things. One, my dad always used to say, any time you read anything about something, you know something about, you find out how wrong it is, so we’re going to give you the good information today. Correct, and it’s really interesting. I was watching a video this morning, I wanted to watch them, some OZ stuff before you came in, just to refresh my memory on it, and I came across this guy talking about 1031s and he’s got hundreds of thousands of followers and tens of thousands of views on this video. And he point blank, he says, “Hey, this is my great tip,” and it was something that was totally against the law. I’m like, oh, this is just crazy. So it’s like… Once again, Dad, you’re right. It’s like soon as you know something about what you see and read and whatever, it’s wrong. So that’s number one.
David Moore: Number two, my father-in-law always used to say, a very charitable guy said, “Well, how do you decide what you’re gonna get involved with?” And he says, “It’s easy.” I said, “Well, what do you mean it’s easy?” He says, “You don’t go and do things where you can make a difference.” So I think that that OZ is one of those things, so it’s an opportunity for people to make a difference, not just for themselves, but for that community.
Greg Genovese: For the community, yes.
David Moore: And if you wanna make a difference in your community you probably have an OZ that’s pretty close to where you are. So once again, I’ve got Greg Genovese here, and we’re gonna take advantage of him today and ask him some questions, go over some stuff. So don’t go away, we’ll be right back. David Moore with Equity Advantage, and we’ll be right back. Thank you.
Greg Genovese Bio:
As Founder and CEO of USG Realty Capital, Mr. Genovese leads and manages all aspects of the company’s real estate securities operations. Throughout his 30 years in the real estate and securities industries, Mr. Genovese has held executive management and leadership roles for some of the country’s preeminent real estate securities, raising new investment equity for various alternative investment platforms, private placements, REITs, 1031 exchange programs, debt and IPO offerings.
Additionally, Mr. Genovese serves as CEO and Co-Manager of Investors Choice OZ Fund. With experience and expertise in such diverse areas of the financial securities industry, Mr. Genovese is regularly called on by the nation’s most-noted and well-regarded media groups to speak on topics related to alternative investments. Mr. Genovese continues to contribute to CNBC, Fox Business, GlobeSt.com, REIT.com, REIT Café, Business News Network and many other broadcast and print outlets.
Contact Greg and his team at: 1-877-938-0888 or email@example.com
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Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.