Webinar: C-PACE in Opportunity Zones
Webinar by CleanFund, KPMG, and Terrapin Investments discussing the value and alignment of utilizing C-PACE financing in Qualified Opportunity Zones to drive resiliency and returns.
Webinar by CleanFund, KPMG, and Terrapin Investments discussing the value and alignment of utilizing C-PACE financing in Qualified Opportunity Zones to drive resiliency and returns.
welcome and thank you for joining today's webinar see pace in Opportunity
Zones I'm Graham Richard and I will be moderating our session today I'm excited
about the clean economy investment potential and opportunity zones based on my own experience as a clean economy
entrepreneur and as a mayor today's webinar is a collaboration between KPMG
a multinational Tax and Accounting advisory firm and clean fund a leading
national provider of commercial pace financing clean fund is based in the San Francisco Bay Area but works in active
commercial pace jurisdictions across the country now they provide an innovative financing solution that makes it easy
and affordable for property owners to make investments in energy efficiency water conservation and other resiliency
driven building improvements here we have the traditional disclaimer we look
now to talk about the agenda our agenda today will include a brief outline of
our intended outcomes an overview of qualified opportunities own tax benefits by Orla O'Connor and then the third
issue will be clean fund opportunities on funding and example projects with
rules and McKiernan and then we will talk about the capital stack implication spread wood and we also are delighted to
have a developer perspective from Tony Sherman we will also take your questions and look forward to making available to
all of you the audio recording and these slides after we conclude our session
today and so today we would hope that in our time together we could share
opportunities own tax benefits an update on that CPS financing benefits we also
look to have an outcome of sharing financing synergies and the added value that CPAs could have in Opportunity
Zones and the capitalist a canal analysis of project economics and then of course
some sponsor developers perspective on the Payson Opportunity Zones our presenters
are listed here we'll be introducing each of them as their session section
comes to the fore the first person will be sharing with us is the overview of
principle the National PMG good morning
thank you for that I am just again on brief intro I'm really proud to be part
of KPMG's national qualified opportunities known practice and that we've been taking a very strong
leadership position in this area really investing heavily in the program and working with a number of clients and and
other stakeholders throughout the community and the Bay Area and nationally so really happy to be here
today my job is to succinctly describe the tax benefits and requirements of
this program with respect to real estate projects that's a really difficult task because that we could have you know a
multi hour webinar just on that component but we have other important topics to address as well so just to
kind of set the stage in terms of where we are with this process I think everyone knows that this was part of the
broader tax reform package that was enacted at the end of 2017 it's a little bit of a sleeper in tax reform and
didn't get a lot of early focus because people thought that this would be more of a regulated program similar to the
new markets tax credit program and it wasn't until around April that the IRS released fa Q's providing that in fact
this program would be self-certified by tax payers you just check a box on your tax return so it's some that really
opened the floodgates to people seeing the potential and the broad application of the program then we had the process
the competitive application process by state governments by which we had census tracts designated to be qualified
Opportunity Zones that final that list was finalized in the summer we had some
guidance released in the fall which again stimulated some activity especially people who had gains to roll
over into the program who were anxious to get their dollars into qualified Opportunity funds so there was a big flurry of activity
toward the end of the year around that but where we are today is we're expecting both finalization of that
initial proposed regulations package and a second-rank package that would address a whole broad range of issues
operational issues for funds and we expect there'll be another flurry of activity when those are released obviously with the government shutdown
the timelines been delayed out a little bit there was originally a public hearing scheduled for January 10th on
the first set of regulations that now has just been rescheduled so Valentine's Day so hopefully that first reg package will
get finalized after the hearing at some point this spring and then the second reg package could be released
I mean potentially could be released before even the hearing on the first set but we're expecting that to be released
sometime in February and I should also just mention that there's been a lot of commentary on the regulations from
industry groups I mean most recently I think there was a letter last week released by Congress which is quite
unusual to the Treasury asking for some liberal rules to be implemented as part
of the future guidance so we're all on the edge of our seats we need to see what that looks like so moving on to the
next slide just high-level overview of the potential benefits of the program I think everyone who's dialing in is aware
of the very very powerful tax benefits that are attached to this program so just to level set as the gating item a
tax payer must have capital games that they are rolling over into a qualified Opportunity Fund in order to like a
gating item just to gain entry to the program and get the whole host of benefits and then the three benefits
that you get are you get deferral of those gains that are rolled over and that deferral ends in at the end of 2026
as a temporary benefit and when you pick up those gains in 2026 they retain the character of the original Capitol game
that was ruled over so that's temporary benefit to the extent you make your
investments this year there's a potential 15 percent forgiveness on those gains that are rolled over and if
you invest before the end of 2021 that benefit goes down to ten percent but there's still a forgiveness benefit with
respect to the initial gains but then what's really powerful and where we think that the you know people
are getting really excited about the program is the investment that's made in the fund the new investment you get a
step up to fair market value when you exit your fund interest and that basically means that you're your capital
gain on the new investment could be permanently excluded from the tax base and that's that's what people are really
excited about what we're trying to achieve so this is just a quick level set in terms of the structure that we
expect to be used most commonly so just you know you see at the top the investor is rolling over gains into the qualified
opportunity fund at the top but then the qualified opportunity fund most likely would make an investment in a qualified
opportunities own business down below that's where we think the real estate development activity would occur at the
lower tier and the partner at that level could be the developer or operating partner so just going next to the
program requirements couple of things to highlight and actually I don't think we
mentioned this on the earlier slide but to get the third tax benefit the permanent exclusion there's a ten-year holding period requirement that's a very
key requirement that was highlighted on the earlier slide and then on this slide I want to call your attention to two
things so we said there's a gating item of having games to roll over into the
qualified opportunity fund the other absolute must-have is you have to have qualified opportunities owned business
property so in the context of the upper tier lower tier we think that it'll be a
70% requirement where you look at the lower to your real estate development project and today 70% of the tangible
property would have to meet the definition of qualified opportunities on business property I'll talk in a minute
about what that looks like but the other key requirement to highlight on this slide is you have to have not only 70%
of your property meet that definition but you also can't have more than you
can't have a significant amount of non qualified financial property this is the less than 5% test that's in here and
what's important about that is you know obviously there's a huge push to roll over games into these structures but if
you roll over a hundred million dollars in gain and then that cash is sitting idle you could fail this test so one
really helpful piece of guidance that was part the package in the fall with this working capital safe harbor it basically
gives you 31 months to deploy your cash toward a development project provided you have a written plan that sets out
some some details of how that cash will be spent and so that's a really helpful piece of guidance but there are some
limitations around around what's included and not included and we can get into that later in Q&A if people are interested so then just to round out the
level set on the tax requirements we put to the next slide what is qualified
opportunities on business property and this is really the core thing that you need to think through if you think you
have a real estate project that could qualify for benefits here you have to have tangible property acquired by
purchase after 2017 from an unrelated party so unpacking that there are lots
of people who already held real estate within qualified Opportunity Zones who are wondering how they can benefit from
this program it is theoretically possible you just have to navigate this first requirement so either you at least
that land into a new Fon structure or you could sell into a fund structure but
you have to make sure you meet this unrelated party requirement which is basically 20% ownership tests between
the seller and the acquirer and then secondly you have to meet this original
use test which has two prongs to it either the property has to be originally used within the zone so we need guidance
on what that means but if you think about ground-up development say you acquired Brawl and we would think that
the new building year a quiet year your building would qualify for the original use test but a lot of comments on what
that should look like and how to the for the parameters of that might be and then the second prong is the property needs
to be alternative to original use the property would be substantially improved which I think people understand broadly
to mean you double the basis of the property so there was a piece of guidance in the fall revenue procedure
that very helpfully set out a fact pattern of you acquire land with the building on it and it said for purposes
of meeting this test you really have to just double the basis of the building and you can ignore the land this leaves
a lot of unanswered questions about what happens if you're actually just acquiring the raw land and again we can
get into that in more detail people are interested but looking at that instruct if you acquire a building and you're gonna double your basis in the
building what's really important from a technical perspective is make sure that all of your expenditures actually would
qualify as additions to basis with respect to the property and we can talk more about how some of the the solar and
and other energy and efficiency improvements that you would be funding using your pace financing might qualify
but the language is fairly broad additions to basis with respect to the property so our view at least is that
you would not need to necessarily capitalize all of those expenses into the building as such but you would
definitely need to capitalize them into property so for example financing fees they get capitalized into the loan
wouldn't qualify and obviously anything that's a deductible expenditure wouldn't qualify we can talk more about that
later but this was just a general level set to make sure we're all on the same page about the basic program
requirements thank you very much although we appreciate those introductory comments
now we're going to do a clean fund qualified opportunities on the examples and we're going to be introducing Wolsey
mckernon senior vice president and chief revenue officer of clean fund as the SVP
here at clean fund he's been responsible for driving sales growth marketing execution and product excellence across
the company Woolsey has extensive background and global real estate industry including development construction structured finance
technology and energy efficiency Thank You Wolsey oh it's a mouthful Thank You
Graham and Thank You Orla we know qo Z's are real and KPMG included in someone's
title congratulations so good about clean fun to start clean fund is a
leading nationwide provider of CPAs based here in Sausalito California small town across the Golden Gate Company has
been at the center of the growth of commercial pace industry founded back in 2009 we did the first our first deal
with a national repro largest largest industrial developer and owner we broke
our own record for the largest pace deal in 2015 2016 and 2017 and we've
completed the industry's first public secure is a ssin with some of the world's largest insurer buying bonds we've got over a billion in
capital commitments and were supported by two of the top mortgage originators in the country
so hopefully pace is a bit of old news for many of you listening but just in
case it's new news it's a pace commercial pace is a relatively new financing mechanism that
offers long-term fixed-rate financing with no guarantees and it's really a
foundation based on 100 year old bond financed which is used to invest in the
public good broadly so think roads schools undergrounding power lines and the like
but pace is a voluntary tax assessment in support of in this case investment in
private property so would secure the lien is secured by a parcel tax
assessment which shows up on one's property tax bill and remains with the property in transfers on sale which is
which is unlike traditional debt of course legislation has been passed in 35 states in DC 20 of which have a live
program and are able to fajn transactions so shifting the next slide
thinking about what's eligible pace C pays commercial pace finances up to a
hundred percent of hard and soft costs focus predominately on building resiliency so smart investment in
buildings around HVAC thermal new doors and windows glazing water conservation
or renewables read-only solar and the property types that leverage pace include certainly the four food groups
but we've also done projects on a number of alternative asset classes golf courses storage nonprofits and alike old
buildings and retrofits have been the sweet spot and really where the need for pace originated but also more recently
new construction which has enabled owners to lean on pace to achieve higher levels of building performance so a
quick look at a case study clean fun completed the largest Pro predicted date
in Texas at 24 million the history Butler building was an adaptive reuse of
a downtown core office building a few blocks from City Hall and a conversion
into a mixed-use facility with a hotel and number of apartments the client
Altera came to clean fund looking for an alternative capital source to complete
the project we were able to parse the budget and come up with a number of CPAs eligible items that match the amount
that they needed looking at what they needed let's take a quick look at the capital stack as a precursor to Brad
woods section not overly complicated the
senior was eb-5 with some historic tax credits 15% of the stack was high octane
meds that had turned in which they needed to replace to complete the project so clean fun layered in six
percent approximately pace which resulted in a significant Delta and ultimately highly a creative to
ownership and got a nice quote there from Mike the principal it was the CEO
so coming to my last slide you know really talking about the alignment
between qualified Opportunity Zones and CPAs they think foundationally each is
is really based on supporting the public good the intent is focused on you know
direct investment into communities and projects that need resilient investment
ones that create sustainable jobs in real estate that is smart and
intelligent both saving energy or creating energy in the case of solar but
also delivering higher returns to developers and investors so when you look at pace commercial pace and
Opportunity Zones coupled up with opportunity's own equity funds
ultimately it's more cost effective than traditional forms of finance with a low
let's say 6% fixed rate in terms of up to 30 years without any guarantees on
ownership base is limited generally to 20 30 percent of the stack broadly so I
think by many measures rendering the end of our current real estate boom and if you think
investment in Opportunity Zones and paste as filling the gap and meeting the
needs of construction budgets that have been pressured for a number of years we're going to continue together the
upgrade of America's built environment so let me shift it back over to you
actually appreciate that we're now going to talk about capital stack implications and we're delighted to have Brad wood
another great leader from KPMG he's the managing director for economic and
valuation services brand heads up the group that does a lot of the EVs practice servicing with financial
services clients where asset management needs are focusing primarily on real
estate so Brad we appreciate your joining us great well thank you Graham
and first I wanted to just add on to what Wolsey had mentioned about the program and the alignment with pace and
that the program the really the initiative is is really about you know providing capital in these underserved
areas of 8,700 zones across the u.s. that are looking for capital that's it's
a fuel development really it's about prosperity long term and creating the businesses and clustering within these
within these areas and you know what we see a lot of time observations so far as the early plays are kind of the real
estate development these shovel-ready projects would have been developed already but really long term you want to
see more green development more than likely especially as tenant demand as
comes into the zones and these cluster into businesses are created you know that that's going to go hand-in-hand
with pace financing but with that I'll turn it right into the looking at the capital stack implications and what
we'll do really is a comparative analysis in measuring your standard stack relative to with pace financing
and then also what's what space finances look like as far as returns with a
property that's in the zone one thing I think it's important to highlight what we expect here to for properties in in
the opportunity zones to fueled by these capital gains is you're gonna have more likely a higher equity component there's
a few reasons for that a lot of times the funds are gonna be structured as single asset and they're gonna have this 90 percent asset test requirement
so that's one of the reasons but as we'll see it as we measure this further onto the slides but the you'll see that
impact by having a higher equity component and even but the traditional senior debt may not be as interested in
opportunities especially initially as these are you know historically underserved areas it may be a little
more risk associated with that and then also they're going to be competing against funds that are that are really capital gain capital gain fuel this
capital stack we're gonna look at you got ten seventy twenty here it's a really eighty twenty as far as equity relative to debt and you know looking to
come with up some of the benefits you have you know with pace twenty percent long term or long term date there excuse
me debt that's tied to improvements so you really have collateralized collateralized that what's obviously
very different than kind of your your your your senior and uncollateralized also non-recourse it's fixed rate those
are some of the other benefits it's important to note here you see on the bottom that your return on equity is certainly needs to be north about your
excuse me your return on equity it should be north what the pace the pace rate is for this to pencil but we'll go
over the next slide and we'll measure here the kind of how the higher pre-tax IRR basis it will also talk a little bit
about after-tax if you think about Gades so looking at this slide on the Left we have some of our divided assumptions we
want to keep these even throughout throughout the h-1 of these three scenarios to be sure we have a true comparison and we'll start with that and
what we'll go into kind of the some of the visuals so you have a sea level debt
we have here to nine percent again that's gonna play into your standard stack pace debt rate of 6 percent
typically gonna be in between five and seven again a lower debt rate longer term and also you have it more or less
collateralized with improvements opportunity final put at a kind of a standard 10 percent for that equity
component and and you know a few other inputs there for operating assumptions a couple things to highlight here on these
some more than others the exit year is important to note with a 10-year exit
with properties that are within the zone certainly going to maximize benefits by having that ten-year hold to realize
that a third benefit of the upside in you creation in appreciation so but also
a ten-year-olds kind of your standard investment property maybe not be so for a development property but it is will
keeping even with each one of the scenarios an extra kappa7 I guess that's
a fairly modest number we could very much argue that it could be lower and that will have impact clearly to the the
bottom line as far on an ir basis and then our project here is a simple
analysis it's a ground-up development we're acquiring the side for 10 million we're going to develop it with
construction cost at 40 million so we're all-in at 50 million and between land
landen improvements now the pace savings rate it's really the kind of effect Noy an upward impact on Noi because if
you're essentially saving 20,000 per year get a simple simple input here
within the cash flows so moving to the graphic left-to-right the traditional
capital stack on the Left shows the more the higher more the higher investment
excuse me the few the higher initial equity investment from the owner and
then the debt your standard does a senior rate debt layered in so you just see the bottom line here 12 12 24 as far
as returned to the owner and you get your standard traditional stack and then moving into the middle middle section
you've got your new senior standard stack with pace let's see a higher deck component your 68 percent equity your 32
percent remaining to the to debt that's 20 percent of that 20% is is pace
financed six percent clip and the rest they get that senior level debt any kind of you see the impact that pace has on
those are ours both to both to the investor and to the owner developer and
then moving on to the third one and that this is really showing the power of the combining pace with a property that sits
within the zone that is going to bring in that high that the equity again capital gain fuel equity within the fund
coming into these coming into these sites and you see at 80/20 split in that
case at a twenty bean purely pace and obviously lower 6% rate that's going to have a
huge impact and again you see the bottom line there you see the the IRR again on
a pre-tax basis so the owner the owner equity is going up anywhere from two hundred three hundred basis points I
mentioned before the exit cap is highly sensitive to this there's a few other inputs that are too but for the most part the exit is important because
that's what in the development property you truly realize your your returns upon
a sale you see that you get two hundred three hundred basis points differential between how your traditional then
compared to a pace development within within an operating zone now this isn't factoring in and we don't
show it here on the slides what's not factoring in the after-tax component that would go to the investor or the
fund and that's that's a certainly additional element very complex to calculate that it's gonna obviously vary
substantially from project project but if you do have a ten-year hold well we are what we are hearing in the
marketplace isn't anywhere for another 250 to 400 basis points that'll be tacked on to that again on an
after-tax are our basis so it all in all obviously see page showing this here by
this analysis by Nancy pace financing optimizes the capital stack for the for
the owner developer in particular and then subsequent to that the the after-tax IRR is a true benefit by
having a property within the zone for your own for your investor so with that
I'll turn it back over to you Graham thank you so much Brad we appreciate that we're now going to have a developer
perspective we're delighted to have Tony Sherman joining us from Colorado Tony is
the founder and principal of Terrapin investments and management he's considering a sea pace investment in a
qualified ozone in Colorado and he's had extensive hotel ownership development
and management business experience since 2003 where he has run the management and
operations of over 25 hospitality properties across the country as the founder and principal of Terrapin
Investments Tony Sherman
yeah thanks a lot glad to be part of this I think CK's is a great tool
I think Opportunity Zones or amazing piece of legislation and when you can do
them both on a project then you really turbocharged your turns and your after
tax returns so you know you can kind of
see I'm in the hotel business I own and operate hotels around the country I'm a
developer I also build self storage I'm building one of those right now in California I'd actually spoken with CPAs
about financing the solar portion of it which they were willing to do then our
existing lender said they would do it at a at a very good rate was kind of simple but I'm dining you see pace and I think
this project I'm in play ball in Colorado is a perfect candidate I own
two hotels in Glenwood Springs Colorado you see the yellow box is a piece of
land I want to buy and you see right above the box is a Hampton Inn I owned
that there's also already an express that I own right next door there's this
parcel that I'm trying to buy it's owned by CenturyLink which is a telecom
company move real slow but but I'm working on buying it and if they're smart they'll sell it to me because I'm
the most logical buyer what I'd like to do is put a home to sleep on the site
which is a Hilton brand it's an extended-stay property and I don't think
it would compete too much of my existing properties and the markets are very very strong there so so I want to build it
now it's really coincidental that Glenwood Springs happens to be in an opportunity zone there are some
opportunities around the country like Las Vegas that that I'm targeting for deals this I'm just lucky that it
happens to be an opportunity so and the way I see it is an opportunity zone makes a good deal better and from
my perspective as a developer I'm not going to buy something in an opportunity
zone just because there are some tax benefits to me at least I want to make
sure that's going to be a profitable best thing if it happens to be an opportunity zone that makes it even
better for two main reasons one will make it easier for me to raise equity from investors because I think you know
there's all this opportunity so money out there and I know a lot of people with huge capital gains that are dying
to put it into a deal of mind so they can benefit from this and then and it's
just great because as you hold it for seven or ten years and you make money you don't pay tax so it's pretty awesome
in a lot of ways now see pace I think is
always a smart thing to do if your lender will let you do it assuming you
have a lender but most people most real estate investors always buy the debt not
every lender I think at this point is familiar with CPAs but the ones that are
and will allow it I think it makes sense just about every single time I really
think using see paces and no-brainer now it works best when a project is new
if you happen to own the property you can have a fixed-rate loan a lot of times those lenders aren't going to let
you put seed pace on so you really need to look at it I think when you're buying something when you're going to develop
so here is my simple development model
for this property I'm hoping to buy for two million if you start on the top left
I think the site can hold 113 rooms and
all the numbers add up to an investment per room and 142,000 can move far to the
right look at capitalization it shows where the total cost comes from about 85,000 hard costs per key it's
about 20,000 a room for furniture fixtures equipment sink sofas beds
whatnot architectural MEP is electrical engineering consulting and interest
reserve another Reserve alone fee franchise costs closing cost organizational dinners so it's about 14
million plus salon so that if you go up to the middle equity breakdown the total investment is going to be a little over
16 million it gets 142,000 T so I was
going to go out and get a construction loan I could probably get a loan to 60 or 65% and developers and investors in
general want to get more leverage rather than best now getting 95% leveraged
sometimes be crazy and you can't get it but anywhere from 50 to 80% is kind of
the real world and when you're building commercial projects general you have to put down 30 to 40 percent so in this
field I'm sure I could get a construction loan for 10 million 4 which means that I need to raise from myself
and my partner's 5.6 million produce a lot of money for some people that's one
phone call for me might be 10 or 20 phone calls so moving down the
financials the first year this is a very simple model taking builder than 12 months it's probably more like 18 months
the second year we're going to be ramping up we're going to have some cash
flow and the return on equity is a Casio
27.24 percent the next year if things go according to plan it really jumps up 23%
cash on cash and let's say we sell it in the fourth year and let's say that my
numbers are accurate here we have an NRI little over 2 million we sell it a 9
cap now I'm looking at the bottom right and we might get a little over 200,000 a
room so that'd be almost 23 million we're gonna have to pay the broker we have net proceeds of 22 and a half
million payback the lender returned the capital and if things go well here we've
made a profit of almost six and a half million which is one hundred fifteen percent of the original investment in
the IRR over four years is thirty now that's phenomenal and I showed this to
someone and they trusted me which I think my partners do and it worked out
according to plan we have a terrific return however the return would be better if we use C pace so let's go next
slide so everything is saying everything is the same here except in the middle
I've highlighted pace finance or 15 percent are we going to pay pace a 6%
rate I think it's a 30-year more analyzation then to the right in the
capitalization there's another fee there's a pace feed costs about 5% I believe in cost so my total
capitalization has gone up kissed by the pace 350 thousand which is insignificant
on a deal decides what's very significant is instead of having a raise
five and a half million now I only have to raise 3.2 million just a lot easier
to raise less money and maybe I'd put it
all in myself maybe I have that much money maybe I can have a bigger share of my own deal because less equity is required
and then when you go back down to the bottom right you see where it really
super charges your return and if you go to the bottom right since you have less
equity and more debt your return on equity instead of being
a hundred percent profit is closer to two hundred percent profit so on a three
and a half or three point three million dollar investment things work out you can make a profit of six point three
million and that's an IRR thirty nine as opposed to twenty nine so it's
interesting watching the gentleman before me showing in his model that using pace
makes a return 300 basis points higher my model it's like the thousand basis
points higher so that pretty much concludes what I want to say but I think
the math is pretty straight forward and I really like Payson look forward to
using it here and a lot to my future deals with clean fun Tony thank you so
much we appreciate that and in order to make sure we have time for some questions I'm going to cover the summary
here briefly and then turn to some questions that have come in particularly for Orla and Brad what we can see of
course is that as a wrap up that pace funding matches the intent of the
opportunity zones the public good investment it's geared toward renewable
or clean energy investments all kinds of improvements in the built environment that could produce cost savings and
reduce carbon pollution for example it's a semi urban and suburban focus they're
actually some rural opportunity zones as well in my home state of Indiana and other locations it's a long-term
investment and long-term resilience investment opportunity I see this is a
win-win-win where there's a public benefit there's a clean energy or clean economy benefit to communities and of
course there's a private return so a couple questions have come in but here's one Orla for you if we might when
thinking about pulling out the cash and distributions the refinancing that we talked about affect the regulations to
say regarding that 10-year holding period I know hard to predict but we do
have projects that are moving forward and interesting what about taking out
reading distributions or refinancing distributions what what do you think might be the direction there yeah sure
sure so we don't have guidance on this specific topic yet but we expect that it will come because it's a in a big topic
that a lot of comment letters have focused on what I would say is this there is a concept at least within the
tax community of there being you kind of your normal tax basis rules where you can always pull out cash as long as you
get outside partnership basis for your debt and those rules remain in place
right so in the absence of having something to limit that you generally be able to take those distributions whether
it's operating income or whether it's from a refinancing there is this concept of a parallel qualified Opportunity Fund
basis which would be a limitation on your ability to pull out cash so stepping back I mean the policy here was
definitely intended to be getting capital into these zones for a long-term holding period ten years you know it's
typically a bit longer than we see for your typical real estate fund or real estate project so what we expect you
know again the rules aren't there yet what we expect is something similar to what was suggested in the real estate
roundtable comment letter which we participated in and we agree with this recommendation that Treasury should
create a concept of benchmarking to your original equity in and to the extent the
project increases in value you could pull all of that cash out but you would have to retain at least that original
value in the project we think that would be a very reasonable rule that that
fulfills the legislative purpose of keeping money in the zone for ten years however there may be additional
liberalisation one one just comment to mention on that like we've seen a lot of
agitation for like unlimited ability to pull full cash out as long as as long as the project is still there right and the
economic development that was the whole purpose of the program is still happening the letter that I mentioned earlier from Congress to Treasury which
is a bit unusual from stim Scott and others had as a broad suggestion in
there and this has been a common theme that funds should be able to harvest real
estate projects and reinvest into other opportunities own projects within the fund subject to the caveat that cash not
be pulled out there were some troubling language in there that made it sound like at least from Congress's
perspective no dollars should be pulled out out of qualified opportunity funds so we're hoping that that they clarify
what they intended by that and that Treasury it makes it clear that that's just with respect to the real estate
investment that would be harvested and reinvested that that cash would stay in the fund but we do expect there to be
taxpayer favorable reasonable rules implemented hopefully in the next guidance package that's released maybe
turn this one to Brad what have you around impact metrics regarding the
funds active in the market are there any particular investors with more synergies for these resiliency oriented projects
in keeping with the goal of investing in underserved communities bread grab could
you perhaps rephrase the question they do so I mean so I think someone made the
point earlier that case and the purpose of Opportunity Zones really aligned nicely we've been working with a number
of impact funds and impact investors to help them clarify how do you define
impact around qualified opportunities on investments and we've seen basically three broad categories and environmental
impact is really kind of the one where pace aligns really nicely and I mean quite honestly it's it's a bit easier to
measure that you know just developments in the industry with LEED certifications etc so that in some ways is the easiest
you know social impact objective metric that you can have within a real estate
fund when the other two categories are economic impact and social impact so an economic impact we would describe
that more like path of development and and that I mean it is a great metric to
have and we do think real estate developments can achieve that it's just slightly controversial because you have concerns in different
communities about gentrification etc so that one's a little bit harder just from a you know perception public perception
and how specifically you define a perspective the third category of social impact which is more like community
resilience and jobs I mean again you know you have to have the right type of real estate project to achieve that
metric so we're seeing we're seeing funds come to market with you know a hybrid of multiple versions of those
those types of metrics but we're certainly seeing a lot that you have that environmental impact metric and
that's where we think pace would align really nicely thank you that we're
coming close to our wrap-up time and I wanted to again reiterate the thank you
to each of our participants to obviously Woolsey and Orla and Brad and Tony we
also wanted to make sure that any questions that you've submitted that we did not get a chance to answer we will
follow up with an answer to you directly and we will make available as mentioned
earlier all registrants can receive the slides for download purpose and we will
also have the audio recording and distributed to those who have registered in wrap-up thank you very much I think
that this estimated one hundred billion dollar potential investment and Opportunity Zones provides an
outstanding potential for pace financing and for economic growth and prosperity
around what I call the clean economy investments in Opportunity Zones
thank you very much for joining us