Unveiling Hidden Strategies for Success In Opportunity Zone Investing

David Moore: Hello, David Moore, and I’ve got Greg Genovese here with USG Realty Capital. And as I said, starting off, I was blessed to be involved with an event he hosted in Tacoma about an OZ project. He’s not somebody that just talks about this stuff, he does it. And we’re just talking a little bit about how you got involved with all this stuff, your roots, and what led you to create USG and led you into the whole OZ or QOZ process.

Greg Genovese: Certainly. And that was nice. It was a great event and really happy that you and your son were able to attend. So, how I got into it, it was kind of interesting. My history really, like we talked about earlier, is real estate securities. I’ve been doing that a long time. And then we’re doing 1031 exchange programs. And we’ll continue to do those programs. But when…

David Moore: And you’re coming out with some more product in the future in that space.

Greg Genovese: We have our own 1031 exchange platform that we’re teeing up right now.

David Moore: And that we’ll be in what format?

Greg Genovese: It’ll be in the DST. It’ll be in the DST format. And so we’ll do it as a securitized format. I’m actually a securities licensed, which a lot of people in my industry aren’t, but I like to be securities licensed. It’s just an extra layer of liability protection for the investor and knowing that I have to comport to all the securities rules. I always do tell people there’s always another Bernie Madoff out there or like there’s the guy with…

David Moore: Yeah, the kid with crypto.

Greg Genovese: I forget his name, the kid. Yeah. I mean, so…

David Moore: It’s an acronym.

Greg Genovese: It’s never foolproof. But, you know, in our industry, when you’re talking about non-traded markets, whether it be 1031 or in the Opportunity Zone side, you know, mitigating your investor’s risk is paramount. When I got involved in the Opportunity Zone side, I went around the country and was luckily, you know, it was nice that I was asked by a lot of different cities to, you know, give talks, Chicago, San Francisco, Seattle.

David Moore: And that was all attributable to your prior life.

Greg Genovese: Oh, yeah. Yeah. They just wanted to hear what I had to say about it. And I would end every panel discussion the same way. I used to say, you know, mark my words, in six or seven years, you’re going to hear a New York Times story about two guys in San Diego that, you know, ripped off a bunch of people from Palm Springs. And the reason I said that is whenever there’s a tax initiative, and I think this is important, not just for Opportunity Zones but 1031s, whenever there’s a tax initiative, everybody and their uncle will come out with a program. And so vetting who you’re doing business with is just paramount. So, and I’m sure you being one of the top qualified intermediaries, actually, not only in the state of Oregon, but in the country, I’m sure, you know, I know you’ve done a great job of vetting where this money is going to go to…

David Moore: Well, I just tell people what’s good tax deferral if you lose the money. I mean, that’s the reality of it, right? So, I just want to see my people go into things where they’re, they’ve got a reason, they’re reasonably assured of success going forward. Otherwise, every dollar you spend more than you want on something costs you a buck. If you don’t spend it, maybe it’s 30, 40 cents. But why put your developments always going to be one of those things? There’s lots of unanswered questions and things that come up. And that’s what I really enjoyed listening to with that meeting. I mean, we spent a day just going over a single project that you’ve got going on. And we heard from, obviously, you and your internal team to the people with the engineering, the design, the construction side, the money people. I mean, you had team after team that came in and said, yeah, this is what we’re doing, why we’re doing it. And this is what we thought. And it was, I mean, it really sort of clarified and really showed how serious you take it.

Greg Genovese: Yeah. And I think, and thank you for saying that. That was kind of you. And kind of where I was going with it when, you know, again, tax advantage it’s, you know, anything you do out there, you know, our investing public has to be very circumspect right now. And when things are good and everything’s, you know, like I said, we were in a 10-12 year run there. I think we’re going into a period of time where we have to all be very circumspect in a good way. You know, crossing our T’s, dotting our I’s, doing our due diligence, not jumping at the, you know, the next bright, shiny thing. This is really where people doing good analysis counts. So, back to what you were saying as far as why I got involved in Opportunity Zones, I’ve been in the 1031 side forever. As I said, we’ve got that platform. But what was really intriguing to me about the Opportunity Zone initiative was, number one, it was something that was completely bipartisan. And, you know, you hear people say.

David Moore: We were talking about that earlier. I didn’t realize all the history, but…

Greg Genovese: Yeah, it really is. And people will say bipartisan a lot and not really mean it. This really is. It was something that, just to be as succinct as possible, the Obama administration actually wanted to bring the Opportunity Zone initiative out in 2012. Just didn’t get it done. And it was the 2012 Tax Act really brought out what’s called Reg A offerings, or, you know, you started seeing crowdfunding. And then, but it was a great idea. It was really was fostered by how do you take capital gains? And here’s the other thing. There’s six trillion, not billion, but six trillion dollars of capital gains that’s sitting in the stock market. Now, we’ve had the stock market go down. So I don’t know that number. Maybe it’s four and a half trillion now. But it’s still…

David Moore: Yeah, six trillion was last month or was it…

Greg Genovese: That was in 2018. But so you have this six trillion of gains that’s just sitting there. And of course, we don’t want another 2008. Right? And we don’t want to find ourselves at 45% or 50% of your 401k all of a sudden down, you know, down because we go into a major recession. So, I look at it from two perspectives. One is the administration was trying to figure out a way, how do we deflate those gains? And how do we get people to want to sell that Amazon stock or that Apple stock, right? And then, well, one way to entice it is to say, if, you know, if you sell that stock and you then invest in this particular type of program, you know what? We’ll defer your capital gains tax for a while. We’ll even give you a discount on it. So, it’s a way, it’s almost in a way for the government to deflate, to now rebalance people’s portfolios. But it’s great for the investor because it gives them that out to take those gains, to invest it into a fund or into a program, defer their capital gains tax, and then make the whole thing tax-free at the end. So, it was a great mechanism. The Trump administration brought it out in the 2017 Tax Act. And the only difference between the Obama version and the Trump version was the Obama version wanted the federal government to pick the zones.

David Moore: The federal government.

Greg Genovese: The federal government. There’s 8,700 of these zones. And they’re basically, I didn’t mention to your audience, but really these are mostly low-income areas around the country. They can be butted up against a middle-income area. So it’s not just totally low-income areas. So, there’s about 8,700 of these areas. The Obama administration wanted it to be the federal government to pick the zones. Trump’s administration, all they wanted to do was give it to the states. So, I’m sitting in the state of Oregon right now. So, your governor here in Oregon got to pick those particular zones in Seattle, I’m sorry, Washington, California, and so forth. So, it’s really something that was bipartisan. And it’s gotten a lot of support from both the Republican side and the Democratic side. The other great thing about it is that, not to sound too Pollyannish about it, to be honest with you, but it’s really a way of giving back to the community.

Greg Genovese: Now, just so your audience doesn’t think these are like dilapidated, you know, areas, there are some areas that are like that, but the majority of the Opportunity Zones that were designated throughout the country really are areas that they’re doing good, they’re growing on their own steam, but if they were to receive some infusion of capital, it’s just going to kind of move it ahead. I’ll tell you, I kind of liken it to like Brooklyn was 15 or 20 years ago in New York. You know, now you can’t touch anything in Brooklyn. I’m from the San Francisco Bay Area, Alameda and Oakland, California, those kinds of areas. So, it’s not that investors would be putting their money into these terrible areas. They’re just areas that need a little bit of infusion. So, the really neat thing is groups like us who put these funds together, we’re supplying the equity to build. Most of the time it’s multifamily housing. Multifamily projects with good returns of 10% or more, and the investors actually get that 100% tax-free.

David Moore: Tax-free on the growth on the project.

Greg Genovese: And I always like to say, you know, there’s a famous quote by Benjamin Franklin. You know, he said, you know, “Do well by doing good.” So, on top of the fact that you have a tax advantage, a great tax advantage program, you’re also able to invest and you’re actually helping communities. And what’s really neat about that is, in most cases, you’re getting the city councils on board, the local economic development alliances are on board, and on top of that, you’re usually getting some extra benefits from tax credits. So, not only are you getting Opportunity Zone tax benefits, in most cases you’re getting multifamily tax credits as well.

David Moore: So, you’re taking advantage of several different buckets to get the funds to get the project?

Greg Genovese: Yes, sir. Yeah.

David Moore: Yeah. So, before we started on today, we were talking about, and Greg was sort of asking, so well, I understand, you know, the OZ stuff, but what do you want from me? I mean, really, as far as, well, I’m joking about that, but as far as it’s not really a 1031. They will talk about how it works with 1031, but it really has nothing to do with 1031 other than the 180-day timeline. But, you know, Greg asked me point blank, you know, so what’s the interest there? And my interest is for you guys to understand what options are out there. And 1031 is not always going to be the right thing for you. And I think this is a situation where it’s just another tool in your toolbox to get out of what you don’t want into what you do want. And it’s a way to maybe salvage some tax benefits from an exchange that maybe isn’t completed because today we’re having more that are not being completed. And we talked a little bit about financing. Financing is one of those components that comes into play that can be difficult for people in today’s world. So, we’ll be right back with the next set of questions, but don’t go away. David Moore and Greg Genovese.