Opportunity Zone Pitch Day - March 23rd
Tax Advantaged Multifamily Investing In Tacoma, With USG Realty Capital
USG Realty Capital was a presenting partner at the Multifamily Investor Expo 2023, a one-day virtual event hosted by WealthChannel. In this webinar, Greg Genovese highlights the multifamily projects in his OZ fund.
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Click here to visit the USG Realty Capital website.
Webinar Presenters
Webinar Highlights
- Overview of USG Realty Capital and Greg’s real estate experience.
- Summary of the Opportunity Zone tax incentives.
- Overview of the Market Square Apartments project in Tacoma, Washington.
- Review of macroeconomic trends, and an assessment of what it means for the multifamily industry.
- Demographic statistics and drivers in the Tacoma area.
- Live Q&A with webinar attendees.
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Webinar Transcript
Jimmy: Welcome to our final presentation of the day, which will be USG Realty Capital.
Greg: Hello, everybody that’s here in attendance. I do wanna introduce myself. My name is Greg Genovese. I’m the CEO and founder of a company called USG Realty Capital. We’ve been around for quite a long time. I’m actually 34 years in the real estate securities business now, and we’re one of the top Opportunity Zone multi-family development securities groups in the country, and we’re now onto our fourth program and in our 10th asset in multi-family. And I do wanna say before we get started that we do everything as a real estate security. So we have to put up the proper risk disclosures, and we are monitored by the SEC, and FINRA has oversight of us and I’m a securities licensed individual, and we have a managing broker-dealer named KCD out of Green Bay, Wisconsin, who make sure that everything that we say and everything we put out there is fully compliant.
Today, we’re gonna talk about one of our newest assets that we’re very excited about called Market Square Apartments in Tacoma, Washington. And this is a multi-family investment opportunity. It’s a development investment opportunity with a preferred return of 10%. It’s performed much higher than that, but the preferred return to our investors is 10%. Again, development opportunity. It’s also in a tax-advantaged Opportunity Zone, and it’s also in a tax-free state of Washington. And for those that don’t know where Tacoma, Washington is, it’s a suburb of Seattle.
What I like to do in these presentations because we’re only given about 20 minutes, I’d like to tell everybody that if you want to find out a little bit more about our company, our offerings, about us, or need information, all you have to do is put up your camera or take a snapshot of this, and that’s our QR code. At any time during the presentation on the right-hand side, bottom right-hand side of every slide, you’ll see a QR code. So if you have to drop out or for any reason you need to leave or want information, just take a snapshot or put your camera on that, it’ll take you right to our website. You can fill out the forms and we’ll send you information immediately including this presentation. If you like the presentation, would like a copy of it, we’ll PDF it and we’ll send it to you.
I also wanna make a special announcement that we are going to do a deep dive into this presentation and into this asset on March 9th, on Wednesday, March 9th, in about two and a half weeks. We’ll be holding a webinar for about 45 minutes to an hour, a deep dive into this asset. We’ll also have our development partner, Plus Capital, who will be presenting with us to go over the details of the development, and this is at 11:00 a.m. Pacific Standard Time on Wednesday, March 9th. And we’ll also have an expert, somebody a lot of you already know, named Ashley Tison, one of the top Opportunities Zone experts in the country will also be attending to give all of us an update on the Opportunity Zone arena.
To jump right into today’s presentation, I really wanna cover three things, a little bit about our company and what makes us a little bit different and unique. Look at the timing of the world today from an economic standpoint regarding multi-family development opportunities and OZ funds, and look at the trends and statistics there. And then talk about our latest offering with Market Square.
What I’d like to start with is, you know, again, we’re a company that’s been around a long time. I’ve been doing this 34 years. We are one of the top development real estate securities companies at the country, and we’re very happy to say that our very first Opportunity Zone Fund, which was a multi-family project near Seattle out of Bremerton called Marina Square, was named the top fund in the country by both Real Estate Forum and GlobeSt magazine. And we’ve also had accolades in “Forbes,” “Real Assets Adviser,” and we sit on the New York Times Opportunity Zone round table, which communicates directly to the President’s Council.
So we’re a group that’s been around for a long time, and if I were to say just two words as far as us to a lot of other groups, it really comes down to experience and track record. Like I said, I’ve been doing this a long time. I’ve been through three major recessions as far as raising equity, managing that money and asset managing it for investors over a long period of time. Our group has well over 100 years of experience. We’ve raised over $2 billion in investment equity that’s bought a little over $5 billion in assets over the last 30 years. And we’re now onto our fourth fund and our 10th asset as USG.
Real quick, as far as our track record, we have four assets in the State of Washington in various ranges of being built, all the way from being completely built and leasing to being under construction. We have one project right now in Oregon, multi-family as well, one project in Connecticut in senior living in Bristol, Connecticut, and then multi-family in Milwaukee, Wisconsin. So looking at our track record, 10 assets, $258 million or almost, $260 million of assets under management. Everything from leasing to pre-leasing right now, to final stages of construction, to under construction. And you’ll see Market Square at the end, which will start construction in this project in June of 2023.
Looking at today’s Opportunity Zone investment world, I know we’re here about multi-family, but I do wanna make a quick segment into Opportunity Zones and where they stand today. As most of you know, you have a 10-year time horizon to invest that money for full tax benefits. And we’re all about tax-advantaged investing before we even get into the asset class. So as most of you know, and we will dive deeper into this during our webinar in early March, we are in a period of time that you’ll have full tax deferral of the capital gain money that you may put into your investment, and you hold that for 10 years. But where the real superpower, I believe, in Opportunity Zones comes to this line at the bottom where you have a full 10 years of 100% tax deferral on your investment into anything that’s in an Opportunity Zone, and then 100% tax elimination on that gain. In my opinion, that’s really where the superpower of Opportunity Zone investing lies.
You’ll see that this arena of Opportunity Zones continues to gain traction. We’re now up over $32 billion, almost $33 billion in Opportunity Zone investments, and we were on a record pace for 2022. We’ve slowed down a little bit in Q1 of 2023, but we see that picking up again. We also know that there are some improvements on the horizon. And as stated in my last slide as you can see on the bottom left there, the real superpower of the OZ investing arena is really that 10 years of tax-free growth with deferral on those original capital gains. And that’s why we’re a big proponent of not just multi-family, not just development, but also doing multi-family development in Opportunity Zones.
Today, we’re gonna highlight one of our projects, our latest project called Market Square Apartments out of Tacoma, Washington. We like to deal with smaller projects, smaller in-fill projects. This fits the bill for us. This is in Tacoma, Washington. A hundred and seventy-six units with a preferred return to our investors of 10%.
I mentioned earlier that we like in-fill projects. Some of you know what that is, but for those that don’t, what is an in-fill project? An in-fill development really refers to, as it says here, building within unused or underutilized lands within an existing development or development pattern, typically in urban areas. So really, you’re looking at areas that had developments at one time, maybe they fell on hard times and are now starting to come back, but they really have limited barriers to entry. That’s really the key to an in-fill project. And as I always like to say, this quote is actually, for me, “How you get out of an investment is as important as how you get in.” A lot of times things look great, you get in, but you need to be able to manage that for a long period of time in order to maximize your return.
And I’ve seen during my 30-plus years that the in-fill projects that are a little bit smaller, they get built a little bit quicker, they have better than average financing. The cash flow gets turned on a lot quicker, and same with the refinance. Those are the projects that really can hold their value much, much better than a lot of the larger projects, and that’s why we like the in-fill projects.
And what does an in-fill project look like? For instance, in our first project, Marina Square out of Bremerton, Washington, you can see that it’s in-fill. This was a parking lot right next to the ferry building and a conference center and a marina. And so there’s really nowhere to move. And if there’s a lot of demand in that area, these types of projects will hold their value for long periods of time. Milwaukee, Wisconsin, again, barrier to entry types of areas, in-fill projects. And these are areas with a lot of demand, but a lot of barriers to entry.
So moving a little bit into our Market Square Apartment and how it fits the bill as far as our platform is concerned, the basics on this project is this, 176 market-rate units, multi-family. We have a development partner named Plus Capital Partners, one of the largest developers in the Puget Sound, Seattle area. It’s right in the heart of downtown Tacoma in the fastest-growing income track in the county. Now, this project is a total project cost of only $47 million, meaning we only need around $20 million to $22 million of equity, which means our loan is only around $25 million.
Why is that important? Number one, raising $20 million to $30 million is not a difficult thing to do in this marketplace, especially with the demand. Trying to raise 50, 60, 70 gets a little bit tougher. But the reason we like to do these smaller projects with the smaller loans is we’re in a higher interest rate environment right now. And doing smaller projects that are local with lower amount of loan, allows us now to broaden our lending. And therefore, we can go to the smaller local and regional banks for not only the construction loans, but also, get the permanent financing in place ahead of time so that our investors know what their out’s going to be on the refi in the fourth, fifth or sixth year of the project itself. So, therefore, we’re doing our best to eliminate interest rate risk. And then, of course, you have a high 10% preferred return to our investors.
This is a project we love. It’s right in the heart of downtown, right next to the University of Washington Tacoma. All the amenities you can ask for this type of a project with top floor clubhouse, open roof and sundeck to look at Mount Rainier, a fitness center, a secured roof with nowadays you have to have pet relief areas. And then because of the dynamic of biking and such in the area, bike storage, bike repair and wash stations, and of course, all the amenities and very close to all the transportation. So in this offering, it’s $22 million, a little over $22 million, 10% annualized returns. The minimum investment for us is only $50,000. So very, very small. We like to keep it small for investors that have that amount. And then our return profile is 100% of all the returns go to our investors until we’ve returned all of your return of capital plus the 10% preferred return.
So we would have to get all the way to your 10% annualized return, and then the split would be 80% to our investors, 20% to us. And we do what people call, we do not do what’s called a makeup. We don’t reach back in and claw back, it’s just the next bucket would be an 80-20 split with our investors. So very investor friendly when it comes to returns and our waterfall distribution.
Getting a little bit into the demographics, which is what I really love to do. This is an in-fill project right in downtown Tacoma, and what I mean by that is it’s one of the top national Opportunities Zone locations. It’s in a top 50 Opportunity Zone out of the 8,700 that are out there. It’s literally across the street from the University of Washington Tacoma, who was actually going from 4,300 students up to 10,000 students over the next 5 years, so a lot of growth there. It’s in the fastest growing income track in Pierce County and a high walkability score of 86 out of 100, adjacent to multi-layer terminal as far as bus stop, street cars for downtown and Amtrak and Sounder to bring people into Seattle.
One of my favorite slides I like to show people is this, to look at the demographics. As most people know, Seattle is very high…it’s becoming a lot like San Francisco. The rents are to a point now where it’s becoming obtrusive and almost keeping people out of the marketplace, but it’s somewhat landlocked. To the west, you have the mountains… I’m sorry, to the east, you have the mountains, to the west, you have Puget Sound. And so what you’re finding is people are starting to go across Puget Sound into areas like Kitsap County here, taking the one-hour ferry.
And so those areas are continuing to grow, but where most of the actual growth is taking place is it’s going down south and into Tacoma because you can still get to Seattle very, very quickly. And then you look at the employment side of it, the companies that are all up there or headquartered up there, Amazon, Expedia, Alaska Airlines, Raytheon, General Dynamics, we talked about the University of Washington, a small company called Starbucks, Microsoft, Costco, Boeing, and then, of course, both the United States Navy and the U.S. Army has big presence there. They’re all starting to headquarter, co-headquarter or subheadquarters now going into the Tacoma area. So the demand for multi-family continues to rise very, very quickly in this area. And then, as I mentioned before, transportation for this area, high walkability score, popular with the bicyclists, and you’re only about 20 minutes away from downtown Seattle using the Sounder system.
And then looking at the market rent analysis, you’ve probably heard multi-family around the country starting to actually slow down a little bit as far as rents. Well, that’s another reason why we like in-fill projects in these types of areas because you don’t find that same drop in rental rates when you go into a recessionary period like we are seeing today. So for instance, looking at the last 5 years of rent growth, this goes to the end of 2022, the entire Tacoma market, 133 apartments, has experienced an impressive almost 37% rent increase over the last 5 years. Compared to the local areas of Olympia, Everett, Washington, Bellevue and Seattle, you can see that 37% in Tacoma is much, much higher and it’s on a better growth trend than any of the other desirable areas in that area.
So why do we like this project? Again, it’s an in-fill development. It’s got limited capacity with barriers to entry. We like the smaller projects, that means it’s a quicker build, we get quicker financing or refinancing to get investor tax-free dollars back to them, and then it’s a quicker time to the cash flow. We need a lower amount of loan, therefore the local banks can get involved and we can get better pricing. So again, as I like to say, how you get out of an investment is as important as how you get into it. Strong long-term demand for multi-family housing in the area. Strong employment characteristics with growing workforce, and multiple corporate headquarters. And as I mentioned before, UW is growing from 4,000 students to over 10,000. And then you have the local government and the local economic development alliances that are very supportive of this building and therefore we’re getting very good tax treatment and tax credits for this project. And then again, the rent growth continues to be well above the national average.
I’ve gotta get back over here. So what I will say before I turn it back over to Jimmy, and I don’t know if I made my 20 minutes or not, I do wanna say that if you’re interested in looking at this project or our platform at a little deeper level, I would recommend or and invite you to attend our webinar. Again, March 9th, Wednesday at 11:00 a.m. Pacific Standard Time. You can get the information right on your phone right now if you click on that QR code, or go to our website, fill out the forms, we’ll be happy to send you any information that you want. And we’ll also have Ashley Tison from OZPros speaking as well on that webinar. With that, Jimmy, I’m gonna turn it back over to you, buddy. I hope I was able to meet your time commitment this time.
Jimmy: You did great, Greg. I can’t believe it.
Greg: And I usually go over, so…
Jimmy: Yeah. No, great presentation. All of your presentations with us have always been really high quality. I love the OZ structure as you know very well. And hey, the QR code, that’s a slick new edition. I’ve seen your decks before but I haven’t seen the QR code and it works. I used it, it works, usgre.com. Please head over there to learn more about Greg and his team and his Opportunity Zone Fund offerings. Greg, I have a question…
Greg: Yes, sir.
Jimmy: …for you. We’ve got a couple more minutes and then I’ll bring Scott back up on stage here to wrap up our event. What have been some of the biggest challenges that you’ve faced with the Opportunity Zone structure in terms of bringing in equity or getting deals done? What have been some of the unique challenges, unique specifically to the Opportunity Zone structure?
Greg: That’s a great question and we probably need an hour. But honestly, if I had to peg it on two things, you know, and you know our process is we don’t wanna be vertically integrated because we put ourselves in the advisor position. So people that know us, we’re in the position of doing oversight of the development partner. And so what we’ve seen is, it doesn’t happen with the smaller projects as often, but some of the larger projects, what you’re finding is there’s a lot of variability right now in construction costs. And so, when an investor’s first going in, they’re looking at a proforma in the offering supplement and they’re going, “Okay, I love it. Sounds good.” But sometimes that’s not completely written in stone unless you have what’s called a GMP, a guaranteed max price.
So, even with those, the challenges I’ve seen is you’re starting to see some variability. Like, you know, for a while, we were worried about lumber, but now all of a sudden, lumber’s coming down, you know, it’s timing of…at the end of the day, the cost of the build is going to drive the return. And so one is making sure that you have a good operating agreement with your development partner to make sure that they have to take the cost overruns, which is what we do. That’s how we mitigate that risk. And then the second is on the financing. If you’re building big, big projects, which I’m not against, but you’re looking for $60 million, $70 million, $80 million worth of loans, what happens is you’re stuck really dealing with larger banks, insurance companies. When you’re doing the smaller programs, now, you’re opening it up to smaller regional local banks who could really give you up to, like, let’s say a half a point on the loans and also do the perm financing for you.
So we’ve tried to mitigate our risks by doing that, but those are also challenges. I don’t wanna say it’s easy to do. I would say right now we’re in a challenging area for Opportunity Zones because things are being invested in, they’re being built. Trying to keep the cost contained right now is not the easiest thing to do. That’s why you really need to know your sponsor and your operating agreement and all those things because as you’ve heard me say, at some point, investors are gonna go, “Where’s my money?” And so that’s coming down the line. So the real litmus test on Opportunity Zones will be in the next couple of years. But I would say, cost containment and pricing on loans is probably the two biggest challenges that we’ve had.
Jimmy: Great answer, Greg. Now I’ll admit, by the way, I wasn’t able to fully pay attention to your presentation because I’m pulling a lot of strings here behind the scenes. So, if you did cover this, I apologize. Do you have a deal in Las Vegas or at least a deal in diligence? We had a question a few hours ago from an attendee named Nick, and he wanted to know if any of our presenters here had anything in Vegas, and I thought you did. So I said, I don’t know, hold on tight for a few hours because Greg’s gonna come in at the end and he wants to know if you know about any of the… Sorry to interrupt, but he had a specific question. Do you know about any of the Clark County and Las Vegas incentives that are available for some of the housing incentives specifically in that area?
Greg: I’m sorry, I thought you were asking about our deal. We do have a deal that’s in due diligence right now and I can’t really talk too much about it because of the securities rules. But I will also say, I’m not a real expert on Clark County tax credits, but whoever that is, because I know all the people, if they just ping me, you know, go to our website, ask to talk to me, I would be happy…I know all those people, so I’m happy to, like, just assist in getting that person in touch with whomever. You know, frankly, the person I’m thinking of off the top of my head is our buddy, Lawrence. You know, he knows Vegas really well, but…
Jimmy: Oh yeah, he does. He does indeed.
Greg: Yeah. But I’m happy to assist your attendee.
Jimmy: Yeah, sure. Well, Nick, if you want to reach out to Greg and if you have questions for him on that, please feel free, [email protected], and I’m sure Greg will get back to you soon. Well, Greg, I think we hit our time. How about that?
Greg: There are some chat numbers here. Should I go on there and write? I mean, I’ve never used the chat button, or is that you chatting me?
Jimmy: I don’t think anyone’s been chatting you at the moment. I think we’re…
Greg: Oh, okay. I see. Okay.
Jimmy: I think we’re okay, Greg. I think we got all the questions answered. Thank you so much for joining today, Greg. Great to see you as always, and take care and I’ll see you soon, I’m sure.
Greg: Absolutely. Take care, guys. Thank you so much.
