Opportunity Zone: Update | The Stoler Report-New York’s Business Report


♪ [THEME MUSIC] ♪>>WHAT IS THIS THING CALLED OPPORTUNITY ZONES. YOU PICK UP THE NEWSPAPER FROM A COUPLE WEEKS AGO, THE NEW YORK TIMES HAD A FOUR PAGE EXPOSE ON THIS, THE GREATEST THING TO HAPPEN IN THE REAL ESTATE WORLD FOR YEARS, THE BEST INVESTMENT AROUND. I’M NOT CERTAIN. SO TODAY ON AN UPDATE ON OPPORTUNITY ZONES WITH THE HELP OF MY FRIEND ABE, I BROUGHT TOGETHER A GROUP OF INDIVIDUALS WHO TRULY UNDERSTAND THE TOPIC OF OPPORTUNITY ZONES. WE WILL GET INTO THE INTRICACIES AND WHO SHOULD HAVE IT AND WHO SHOULD INVEST. MY GUESTS INCLUDE DAN FLANAGAN, THE OFFICE MANAGING PARTNER WITH POLSINELLI. RICHARD RICHMOND, WHO IS THE CHAIRMAN AND CEO OF THE RICHMAN GROUP. AND I WILL CALL MY EXECUTIVE PRODUCER SINCE HE BROUGHT RICHARD OVER THERE, ABE SCHLISSELFELD, WHO IS THE CO-HEAD OF THE REAL ESTATE PRACTICE FROM MARKS PANETH. I HAVE THE WIZARD OF OZ OF THE ATTORNEYS. I HAVE AN INDIVIDUAL WHO MAKES INVESTMENTS IN OPPORTUNITY ZONES, AND THE COUNSELOR WHO IS THE ACCOUNTANT PROFESSIONAL OVER THERE. AFTER A YEAR OF THIS HYPE, HOW MANY PEOPLE HAVE GONE INTO THIS BUSINESS? THE ONLY ONE I KNOW WHO IS IN THE BUSINESS IS RICHARD. SO WHO’S REALLY DOING THINGS?>>LET ME CORRECT YOU, IT’S BEEN 18 MONTHS, WITH A LOT OF TALK ABOUT OPPORTUNITY ZONES. WHAT’S REALLY EXCITING NOW IS THAT THE WHOLE WORLD WAS TALKING ABOUT IT, ALL OF THE EXECUTIVES WERE TELLING ALL OF THEIR PEOPLE WE HAVE TO KNOW MORE ABOUT IT AND LEARN MORE ABOUT IT. PEOPLE SUCH AS RICHARD RICHMOND AND OTHERS WHO REALLY KNOW THE BUSINESS AND ARE REALLY SERIOUS ABOUT IT, THOSE ARE THE ONES DOING OPPORTUNITY ZONE DEALS. THERE ARE NOT AS MANY AS THE WORLD WAS TALKING ABOUT SIX MONTHS AGO, BUT THE ONES DOING THE DEALS ARE REALLY SERIOUS.>>WE WERE TALKING IN THE GREENROOM ABOUT YOUR CLIENTS AND YOUR PEOPLE. THERE ARE 8700 OPPORTUNITY ZONES AROUND THE COUNTRY, WHERE DO YOU SEE THESE DEALS?>>I’M SURE DEPENDS ON WHERE YOU ARE AND WHO YOU ARE SEEING AND WHO YOU ARE REPRESENTING. WE REPRESENT MOSTLY DEVELOPERS. WE ARE NATIONAL. WE HAD DONE DEALS IN SALT LAKE CITY, SCOTTSDALE, CANTON, OHIO AROUND THE NFL HALL OF FAME. CLEVELAND, INDIANAPOLIS, KANSAS CITY, ST. LOUIS, ALL OVER THE PLACE. NOT MUCH IN NEW YORK, WHICH TO ME IS INTERESTING.>>HERE WE HAVE AN INDIVIDUAL WHO HAS BEEN OPERATING IN BUSINESS, CELEBRATING HIS 31ST ANNIVERSARY. WHO IS TRULY INVOLVED IN THE OPPORTUNITY ZONES IN A VARIETY OF PLACES, BUT DIRECTLY ON 125TH STREET AND 3RD AVENUE, LET’S TALK ABOUT THAT PROPERTY AND WHY YOU WENT TO AN OPPORTUNITY ZONE WHEN YOU COULD HAVE DONE A VARIETY OF OTHER STRUCTURES.>>NUMBER OF THE PROPERTIES, WE DID NOT KNOW WHEN WE STARTED THE PROCESS, PARTICULARLY WHEN YOU ARE DOING A PROJECT IN NEW YORK CITY, CITY OF NEW YORK TAKES PLANNING AND WORK FOR YEARS IN ADVANCE. WE HAVE ACTUALLY CLOSED AND ARE UNDER CONSTRUCTION ON THREE DIFFERENT OPPORTUNITY ZONE PROJECTS. ONE IS ON 125TH STREET IN NEW YORK. ONE IS IN NORTH HOLLYWOOD CALIFORNIA, ONE IS IN ST. PETERSBURG, FLORIDA.>>THESE ARE SUPPOSED TO BE FOR AREAS THAT NEED BUSINESS TO GROW NORTH HOLLYWOOD, CALIFORNIA, NEW YORK CITY, AND ST. PETERSBURG, THESE ARE VIBRANT COMMUNITIES. THERE IS BUSINESS THERE. ARE THEY TRULY AN OPPORTUNITY ZONE?>>I WOULD SAY ALL OF THESE AREAS HAVE BEEN IN TRANSITION. WHEN YOU WORK IN DEVELOPMENT IN THE UNITED STATES, TOUGHER IN SOME PLACES THAN OTHERS, IT TAKES YEARS WHEN YOU FIRST SEE THE PROPERTY AND DECIDE YOU’RE GOING TO DEVELOP ON IT TO GET THE APPROVALS AND START CONSTRUCTION. SO IT’S IMPOSSIBLE TODAY FOR SOMEONE TO HAVE STARTED CONSTRUCTION ON A PROJECT THAT THEN HAS SOME ACTIVITY GOING ON PRIOR TO THE KEY DATE, WHICH WAS JANUARY 1, 2018. BECAUSE IF YOU ACQUIRE THE PROPERTY BEFORE THAT, IT’S TECHNICAL THAT YOU MIGHT NOT BE ABLE TO DO IT AS AN OPPORTUNITY ZONE. WE WERE WORKING ON ALL OF THESE PROJECTS WELL IN ADVANCE OF THE CHANGE IN THE LAW. BUT IN EACH OF THE CASES, THEY WERE TRANSITIONAL AREAS BECAUSE AS I UNDERSTAND THE LAW, IT’S BASED ON CENSUS TRACTS, THAT THEY ARE LOW INCOME IN THE STATE AND THE GOVERNOR GETS TO PICK 25% OF THOSE ELIGIBLE CENSUS TRACTS TO BE OPPORTUNITY ZONES. THESE WERE TRANSITIONAL AREAS THAT IF YOU HAD GONE TO YEARS BEFORE, YOU WOULD LOOK AT IT A LITTLE DIFFERENTLY THAN MAYBE TODAY.>>LET’S GO OVER THE BENEFITS OF THE OPPORTUNITY ZONE TO TALK ABOUT IT.>>ESSENTIALLY WE WON’T GET INTO A LOT OF THE TECHNICALITIES. BUT IF YOU HAVE A CAPITAL GAIN AND WITHIN 180 DAYS YOU INVEST IN AN OPPORTUNITY ZONE, YOU DON’T PAY FEDERAL AND VIRTUALLY ALL STATE TAX.>>WHAT ABOUT NEW YORK, NEW JERSEY, AND CONNECTICUT?>>THEY COMPLY WITH THE OPPORTUNITY ZONE RULES AND BENEFITS, BUT NOT CALIFORNIA.>>SO FAR THERE HAS BEEN A LOT OF TALK ABOUT THEM NOT COMPLYING BUT AS OF TODAY NEW YORK COMPLIES. YOU DON’T PAY TAX CURRENTLY, –>>YOU POSTPONE IT, DEFER IT.>>IN 2026 YOU PAY TAX ON 85% OF YOUR GAINS. ESSENTIALLY IN 2026 YOU ARE GOING TO PAY TAX ON 85% OF YOUR GAIN BUT THE REAL SWEETENER IS THAT ANY APPRECIATION FROM THE DAY OF YOUR INVESTMENT UNTIL WHENEVER YOU SELL THE PROPERTY, SO LONG AS YOU HOLD IT FOR 10 YEARS, IS ZERO TAX. THAT’S REALLY THE BIG DEAL ABOUT OPPORTUNITY ZONES IS.>>IS THAT WHY YOU WENT TO THE OPPORTUNITY ZONES?>>NO. WHAT I WAS GETTING TO IS THAT WE FOUND OUT IN THE CASE OF THESE THREE PROJECTS THAT THEY GOT THE DESIGNATION AFTER WE WERE ALREADY STARTING ON THE PROJECTS. THEY ARE A HELP BECAUSE WHEN YOU ARE DEVELOPING IN THESE KINDS OF AREAS, THE CAPITAL BUDGET YOU HAVE GETS AFFECTED BY THE OPPORTUNITY ZONE. SO IN THE CASE OF 125TH STREET, THERE WAS AN IMPORTANT FACTOR IN ANALYZING THE TRANSACTION.>>BUT GOING INTO THE TRANSACTION, YOU WENT IN BECAUSE YOU FELT IT WAS WORTHWHILE. YOU WERE NOT DOING THIS AS A DEVELOPER WHO IS TRYING TO GET FEES. YOU ARE THERE BECAUSE YOU SAID THIS IS A VIABLE PROJECT, MIXED-USE WITH RESIDENTIAL AND RETAIL AND SO ON AND COMMUNITY FACILITY SPACE.>>THAT’S TRUE, WHEN YOU ARE WORKING WITH THE CITY OF NEW YORK ON PROPERTY THEY CONTROL, THE FIRST THING YOU DO WITH THE CITY AGENCIES IS TO DISCUSS WHAT THEY WANT TO SEE ON THE SITE. AND THEN, AS YOU GET CLOSE TO STARTING THE PROJECT, HOW MANY UNITS ARE GOING TO BE VERY LOW INCOME? HOW MANY ARE GOING TO BE MODERATE INCOME? HOW MANY ARE GOING TO BE MARKET RATE? WHAT ARE YOU GOING TO DO WITH YOUR RETAIL SPACE? WHEN YOU PUT TOGETHER YOUR NUMBERS AND CONSTRUCTION COST AND YOU SEE WITH THE RENT IS GOING TO BE, THE CITY WILL NEGOTIATE WITH YOU WHAT THEY THINK IS A FAIR RETURN TO START OUT. THEN THERE ARE ADJUSTMENTS MADE. FOR INSTANCE, I DON’T BELIEVE WE DESIGNATED ANY OF THE LOW INCOME UNITS AS BEING FOR HOMELESS POPULATION. I THINK WE ENDED UP WITH 28. AND THE NUMBER OF UNITS THAT WERE GOING TO BE AT CERTAIN RENTS –>>UNDER THE DIFFERENT AMI –>>ARE DECIDED. WHEN YOU HAVE AN OPPORTUNITY ZONE IT AFFECTS WHAT KIND OF RETURN YOU MIGHT BE LOOKING FOR AND THAT YOU WILL BE NEGOTIATING WITH THE CITY. WHAT KIND OF FINANCING AND SUBSIDIES YOU MIGHT GET. IT DOES HAVE AN IMPACT.>>AND YOUR DEVELOPERS, THE RICHMOND GROUP IS LUXURY, THEY DEVELOP APARTMENTS IN 49 STATES. YOUR CLIENTS, WERE THEY TRYING TO DO THESE DEALS IN AFFORDABLE HOUSING? OR IN OTHER AREAS? BECAUSE YOU CAN BUILD A HOTEL IN AN OPPORTUNITY ZONE. YOU CAN OPERATE AN OPERATING BUSINESS IN AN OPPORTUNITY ZONE, WHERE HAS YOUR CLIENT OR ADVICE BEEN?>>MAINLY TRADITIONAL REAL ESTATE PLAYS VERY MUCH LIKE MR. RICHMOND BUT ON A SMALLER SCALE AND DEALS THAT WERE ALREADY IN PROCESS. THAT SHOULD NOT SURPRISE US. HOW LONG DOES IT TAKE TO GET ANY REAL ESTATE PROJECT DONE? WE SHOULD NOT BE SURPRISED THAT THE RACE HAS GONE TO THE SWIFT AND STRONG AND THE PEOPLE ALREADY THERE.>>WE WERE TALKING IN THE GREENROOM WITH REGARD TO THE BROKERAGE FIRMS, MORGAN STANLEY ALLIANCE BERNSTEIN, GOLDMAN SACHS. PRIOR TO THE SHOW I WENT ON GOOGLE AND I PUT THE WORD OPPORTUNITY ZONES AND I PROBABLY SAW 30 ADS FROM DIFFERENT COMPANIES TRYING TO SAY WE ARE IN THE OPPORTUNITY ZONE BUSINESS. THE QUESTION IS, IT’S NOT FOR EVERYONE AND IT’S NOT FOR EVERY INVESTOR. IT’S ILLIQUID, PEOPLE DON’T REALIZE THAT THERE IS A LIQUIDITY OVER THERE. YOU REPRESENT THE RICHMOND GROUP ON ONE SIDE BUT YOU ALSO REPRESENT HIGH NET WORTH INDIVIDUALS. WHAT DO YOU SAY TO THE HIGH NET WORTH INDIVIDUAL WHEN THEY SAY I HAVE HEARD THIS INTERESTING PRODUCT CALLED OPPORTUNITY ZONES, WOULD YOU RECOMMEND?>>A FEW THINGS I REMIND THEM OF, JUST TO BE THE CAUTIOUS ACCOUNTANT, AS I MENTIONED BEFORE IN 2026, THE TAX IS DUE. YOU WILL NOT BE EXITING FROM THAT PROPERTY UNTIL AT LEAST 10 YEARS FROM NOW. IF YOU ARE GOING INTO IT YOU NEED TO MAKE SURE YOU HAVE LIQUIDITY IN 2026 IN ORDER TO PAY THE TAXES. I ALSO REMIND EVERYONE AS WE WERE DISCUSSING IN THE GREENROOM IS THAT THE TAX THAT YOU PAY IN 2026 IS AT WHATEVER RATES ARE IN EFFECT DURING THAT TIME.>>AS RICHARD BROUGHT UP, WHO KNOWS WHAT WILL HAPPEN, WITH THE CHANGE OF ADMINISTRATION, WITH WHAT CAPITAL GAINS TAXES COULD BE.>>IF TAX RATES GO UP TO 5%, A LOT OF BENEFIT MAY BE EVAPORATED. I DO WARN EVERYONE ALL THE TIME, MAKE SURE YOU ARE GOING IN WITH A REPUTABLE DEVELOPER. TAKE SOMEONE LIKE THE RICHMOND GROUP AND OTHER REPUTABLE DEVELOPERS OUT THERE THAT HAVE BEEN DOING THIS FOR A LONG TIME. THAT’S MORE LIKELY TO BE A GOOD INVESTMENT THAN THE 30 PEOPLE THAT ARE SHOWING UP ON GOOGLE SEARCHES AND OPENING UP SHOP IN THE LAST 12 MONTHS.>>WHEN YOU ARE FOCUSING TO YOUR CLIENT, AND THE JOKE OF CALLING YOU THE WIZARD –>>SELF-DECLARED.>>YOU’VE DONE A LOT OF TIME, YOU WENT TO THE BROOKLYN NAVY YARD, WHICH IS AN OPPORTUNITY ZONE. YOU’VE LOOKED AROUND THE CITY FOR OPPORTUNITY ZONES. WHAT’S THE FOCUS OF INVESTORS? ARE THEY TRYING TO BE IN THE REAL ESTATE OR OPERATING BUSINESS?>>MOSTLY REAL ESTATE. I WAS JUST IN A FASCINATING PLACE IN PROVO, UTAH, THE HALL LABS WHICH ARE A TRADITIONAL– BEEN AROUND A LONG TIME AND INVENTED ARTIFICIAL DIAMONDS IN THE 50’S, AN ACCELERATOR AND INCUBATOR AND THE OPPORTUNITY ZONE WAS PLACED RIGHT ON TOP OF THEM. THEY ARE TRYING TO USE THAT FOR WHAT IS ESSENTIALLY VENTURE CAPITAL INVESTING, BUT THERE’S NOT MUCH OF THAT. THE REGS DID NOT GET CLOSE –>>I’M GOING TO GIVE YOU A DIFFERENT IDEA, ONE OPPORTUNITY ZONE BUSINESS COULD BE MEDICAL MARIJUANA.>>OR RECREATIONAL.>>SIN BUSINESS, IF I REMEMBER THE RULES, THERE IS A 29% TAX ON THE GROSS REVENUES. I DID A SHOW ON THIS TOPIC, THAT’S WHY I KNOW ABOUT IT.>>STEVE MNUCHIN COMMENTED, IN EITHER APRIL OR MAY AT A HEARING IN WASHINGTON THAT THE INTENT WAS FOR MARIJUANA BUSINESSES NOT TO BE ELIGIBLE FOR THE OPPORTUNITY ZONE BENEFITS.>>BUT THE COURTS ARE GOING TO DECIDE.>>IT WAS NOT LISTED AS A SIN BUSINESS BECAUSE IT’S CURRENTLY FEDERALLY ILLEGAL BUT WE WILL SEE WHAT HAPPENS. PUTTING OPPORTUNITY ZONES ASIDE, NO PUN INTENDED, IT’S A GROWING BUSINESS.>>AND IT IS A 10 YEAR INVESTMENT. IF YOU NEED LIQUIDITY BEFORE THAT, IT’S PROBABLY NOT A GREAT INVESTMENT. THE SECOND THING I HAVE SAID TO PEOPLE, WE’VE DONE AN ANALYSIS TO SEE WHAT’S THE REAL BENEFIT ON REAL TRANSACTIONS OF THIS TAX DEFERRAL AND NOT CAPITAL GAINS. AND WE THINK IT’S PROBABLY ABOUT 250 OR 350 BASIS POINTS BETTER. SO REALLY WHAT PEOPLE SHOULD DO IS NOT JUST LOOK AT AN OPPORTUNITY ZONE INVESTMENT AND SAY, I CAN SAVE TAXES, THEY SHOULD THINK ABOUT WHAT IS THE ALTERNATIVE INVESTMENT THEY MIGHT WANT TO PUT THEIR MONEY IN. AND SAY THERE IS A DIFFERENTIAL YOU GET FROM THE OPPORTUNITY ZONE AND YOU THROW IT INTO THE HIGHER CATEGORY THAT YOU WANT TO DO IT.>>AND YOU HAVE TO REMEMBER THE LIQUIDITY SITUATION.>>AND ONE OTHER THING ABOUT OPPORTUNITIES ON BUSINESSES AND WHY THEY HAVE NOT BEEN AS POPULAR AS PROPERTIES IS BECAUSE ONE OF THE MANY INTRICACIES AND COMPLEXITIES OF THE LAW THEY PUT IN IS THAT EVERY YEAR YOU ARE PAYING TAX ON YOUR INCOME. THE ONLY REAL BENEFIT FOR THE OPPORTUNITY ZONES IS WHEN YOU ACTUALLY SELL THE BUSINESS OR THE PROPERTY AFTER 10 YEARS. WE ALL KNOW THAT REAL ESTATE IS A LOT EASIER TO SELL THAN A LOT OF OPERATING BUSINESSES.>>BUT YOUR FANTASY IS YOU START MICROSOFT AND SELL IT IN 10 YEARS.>>REAL ESTATE THAT’S TRIED AND TESTED THAT YOU CAN SELL.>>BUT THERE IS ONE CHANGE IN THE INTERPRETATION OF THE RULES, ALL OF US HAVE BEEN OPERATING IN THIS AREA AND WE HAVE BECOME INTERESTED IN THE IRS REGULATIONS. AND THEY HAVE TAKEN A COUPLE OF STABS AT IT. THERE HAS BEEN A CHANGE, AND I COULD BE CORRECTED ON THIS, ORIGINALLY THERE WAS A QUESTION, IF YOU HAVE OPERATING INCOMES IN AN OPPORTUNITY ZONE, BEFORE THE TEN YEARS, CAN YOU DISTRIBUTE THAT. AND I THINK MOST PEOPLE FELT YES.>>AND IT WAS APPROVED.>>THEN THE QUESTION BECAME, IF YOU RETURN CAPITAL BECAUSE YOU REFINANCED THE PROPERTY, AND YOU DON’T SELL IT, IS THAT OK? AND INITIALLY, PEOPLE WERE RATHER HESITANT TO SAY THAT WAS OK. I THINK IT HAS MIGRATED THAT NOW IF YOU HAVE A REAL ESTATE PROJECT AND YOU HAVE A CONSTRUCTION LOAN AND YOU TAKE OUT YOUR CONSTRUCTION LOAN WITH PERMANENT FINANCING AND YOU HAVE SUFFICIENT PROCEEDS TO RETURN SOME CAPITAL, THAT’S OK.>>SO THE RETURN ON INVESTMENT, IS IT TAXABLE?>>NO. IT’S A REFINANCING.>>WHICH WOULD CHANGE YOUR BASIS IN THE TRANSACTION?>>IT’S COMPLICATED, GENERALLY YOU ARE RIGHT.>>THAT’S WHAT MADE IT INTERESTING TO PEOPLE, BECAUSE YOU COULD REFINANCE CHANGE. SOME OF THE OTHER NUANCES THAT WERE CHANGED FROM THE APRIL LEGISLATION, THE DIFFERENT INTERPRETATIONS. SO WHAT HAPPENS IF THERE IS A NEXT INTERPRETATION? WHAT HAPPENS TO THE LOSS?>>HOPEFULLY THEY WILL BE AS TAXPAYER FRIENDLY AS THE FIRST TWO ROUNDS OF REGULATIONS. IF NOT — IT’S NOT SO MUCH THE REGULATION THAT PEOPLE ARE CONCERNED ABOUT. THE REGULATIONS ARE THEORETICALLY TO CLARIFY THE ORIGINAL LAW. THE ISSUE IS IF THERE IS A CHANGE IN WASHINGTON, A CHANGE OF HEART AS TO WHAT WENT ON WITH OPPORTUNITY ZONE PROGRAMS.>>NOT EVERY PIECE OF REAL ESTATE IS LIQUID. EVERYTHING MIGHT SELL, IT’S A QUESTION OF SELLING AT A CERTAIN PRICE. I REMEMBER 2008 AND 2009, HOTELS WERE DOING OK AND THEN THE RECESSION CAME AND THE HOTEL BUSINESS WENT INTO THE DUMPS. I REMEMBER SOME BANKS I HAD BEEN WORKING WITH AND THEY LIKED THE HOTEL BUSINESS. THEY LEND MONEY TO A GOOD OPERATOR. THE OPERATOR SAID I CANNOT AFFORD TO PAY. WHAT HAPPENS IF THERE’S A TOTAL LOSS? WE ARE TALKING ABOUT THE GAINS, WHAT ABOUT THE LOSS? IF YOU DON’T HAVE THAT PROFITABILITY YOU ARE TALKING ABOUT OR PROJECTED BECAUSE PROJECTED ARE PRO – JECTIONS.>>SO THE GOVERNMENT ACTUALLY DECIDED TO PARTNER UP WITH THE AMERICAN BUSINESS COMMUNITY WHEN IT CAME TO THE OPPORTUNITY ZONES. WHAT I MEAN BY THAT IS, WE BEEN TALKING ABOUT 85% OF THE TAX THAT YOU PAY IN 2026, THAT’S ASSUMING THE VALUE IS EQUAL OR HIGHER THAN THE CURRENT VALUE. IF THE VALUE GOES DOWN THEY PUT A COLLAR IN AND YOU CAN USE THE LOWER EVALUATION IN 2026 FOR YOUR STARTING POINT OF HOW MUCH TAX YOU PAY. I HAVE BEEN ADVISING PEOPLE TO START VALUATION COMPANIES IN 2026.>>IF YOU GET A PERMANENT MORTGAGE, WHO KNOWS WHAT THE RATES ARE? WE REMEMBER, WHEN PRIME WAS 18%, MY CRYSTAL APPLE IS NOT CRYSTAL FOR TELLING THE TRUTH, WE DON’T HAVE IDEAS ON WHAT’S GOING TO HAPPEN. THERE ARE CERTAIN PEOPLE WHO BELIEVE, AS I ALLUDED TO WITH GOOGLE ADS, THAT THEY ARE GURUS ARE INVOLVED WITH OPPORTUNITY ZONES AND YOU HAVE TO HAVE A NUANCE OF REMEMBERING WHO YOU DEAL WITH.>>THE LIQUIDITY ISSUE IS A BIG ISSUE. AND THE VALUE OF LIQUIDITY TODAY IS QUITE EXCEPTIONAL. THE BEST EXAMPLE I ALWAYS USE, EVERY WEEK I FOLLOW SIX REET STOCKS AND I LOOK AT THE YIELDS. IF YOU WANT LIQUIDITY IN REAL ESTATE A REET IS THE BEST PLACE TO HAVE LIQUIDITY IN REAL ESTATE BECAUSE YOU CAN GET A DIVIDEND, IT’S TAXABLE, BUT TODAY, IF YOU WANT TO SELL YOUR POSITION, YOU CAN DO IT IN 30 SECONDS ON YOUR COMPUTER WITH YOUR SCHWAB OR FIDELITY ACCOUNT. THE VALUE OF INVESTING WITH LIQUIDITY IS THAT YOU PAY PROBABLY TODAY 2.75 PERCENT RETURN IN DIVIDENDS, WHICH IS TOTALLY TAXABLE, AND YOU HOPE THAT THE STOCK GOES UP IN VALUE.>>THE APPRECIATION LEVEL.>>NOW, NO ONE I KNOW WILL INVEST IN A PRIVATE TRANSACTION IN REAL ESTATE FOR THAT KIND OF RETURN. FIRST OF ALL THE ADVANTAGE OF INVESTING IN A PRIVATE TRANSACTION IS THE TAX BENEFITS OF OWNING REAL ESTATE FLOW THROUGH TO THE OWNERS. MOST OF YOUR CASH FLOW IS PROBABLY GOING TO HAVE TAX SHELTER, AND A DEFERRAL OF THOSE TAXES PROBABLY UNTIL YOU SELL. AND THE RETURN THAT PEOPLE WANT, I KNOW WITH THE INSTITUTIONS, THEY TEND TO LOOK FOR A 14% PLUS OR MINUS RETURNS, COMPARED TO OWNING REET STOCK. THAT’S PART OF THE PREMIUM BETWEEN HAVING AN ILLIQUID INVESTMENT AND A LIQUID INVESTMENT.>>WHAT HAPPENS IN MANY CASES FOR PEOPLE THE REAL ESTATE BUSINESS, THEY MAKE AN INVESTMENT AND THERE IS A NEED FOR CAPITAL CALL. WHAT’S THE POSITION WITH PUTTING IN MORE MONEY. THE INITIAL MONEY WAS MADE BY YOUR CAPITAL GAINS, NOW YOU ARE PUTTING IN ADDITIONAL CAPITAL. WHAT ARE THE TAX RAMIFICATIONS?>>THERE ARE NO RAMIFICATIONS, BUT IT’S NOT AN ELIGIBLE INVESTMENT AND YOU WON’T GET THE BENEFITS –>>YOU HAVE TWO ACCOUNTS, VERY FEW PEOPLE HAVE BROUGHT THAT UP.>>A LOT OF THE BIG BROKERAGE HOUSES, WHEN THEY WERE SETTING UP THESE OPPORTUNITY ZONE FUNDS, THAT WAS THE MISTAKE THEY MADE, THEY SET THESE UP LIKE ALL THEIR OTHER FUNDS. THEY SAID I HAVE A ONE TIME GAIN, I WANT THE BENEFITS NOW, DON’T COME TO ME IN TWO OR THREE YEARS.>>OUR PHILOSOPHY HAS ALWAYS BEEN THAT WE NEVER HAVE CAPITAL CALLS, MANDATORY CAPITAL CALLS OF OUR INVESTORS IN THE HISTORY OF OUR COMPANY WE HAVE NEVER HAD ONE.>>BECAUSE YOU ALWAYS RAISED A SUFFICIENT AMOUNT UP FRONT.>>OR WE SAY, GIVEN THE FUNDS THAT WE CLOSED IN NORTH HOLLYWOOD, IF THERE’S A NEED FOR MORE CAPITAL, WE WILL PUT IT IN. YOU CAN INVEST KNOWING YOU CAN NEVER BE HELD LIABLE.>>WHICH I THINK IS IMPORTANT. THE BIGGEST PROBLEM THAT PEOPLE FAIL TO REMEMBER, I KNOW PEOPLE HAVE INVESTED IN APARTMENT BUILDINGS IN NEW YORK CITY BEFORE THE RENT RULES CHANGED. NOW THERE’S A ILLIQUIDITY AND ADDITIONAL CAPITAL CALLS AND CERTAIN RAMIFICATIONS. I THINK EVEN IF WE CAME BACK SIX MONTHS FROM NOW WE WOULD STILL HAVE BIG QUESTIONS OF WHAT IS HAPPENING. THERE WILL BE MORE PEOPLE AT THAT TIME INVESTING IN OPPORTUNITY ZONES, CERTAIN OF THE TAX RAMIFICATIONS WILL CHANGE BUT IT IS A TOPIC FOR DISCUSSION. YOU SPEAK TO YOUR ACCOUNTANTS, LAWYERS, AND DEVELOPERS. I WOULD LIKE TO THANK DAN, RICHARD, AND ABE, AND I’LL SEE YOU NEXT WEEK. ♪ [THEME MUSIC] ♪

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