By recognizing the potential of Opportunity Zones early, one company has been uniquely positioned to offer the types of impact projects investors want.
The JTC Impact Medallion Program recognizes impact fund managers and industry stakeholders who embrace best practices in security, transparency, and compliance. In this series, we’ll showcase Impact Medallion recipients and how they’re leading the way on Impact & ESG.
When Opportunity Zones were first introduced in 2017, the program got off to a slow start. The gradual rollout of final regulations meant uncertainty around the rules in the early days of OZ, and investors needed to be educated about the tax benefits of the program. Some investors are still unclear on the impact benefits of OZ, though knowledge of the program has improved over the years. Those who were involved in OZ from the beginning have been able to cultivate a knowledgeable investor base that understands how Qualified Opportunity Funds can deliver impact, tax incentives, and returns for investors.
Caliber is a leading financial services company providing accredited investors and registered investment advisors with well-structured alternatives to traditional investments. With a reputation built on its vertically-integrated operating model, focus on growing markets, and robust off-market deal flow, Caliber offers a range of investment options for individual investors, financial professionals, and institutions looking to strengthen portfolio diversification, hedge against inflation, and reduce volatility through a variety of strategies.
The company’s Opportunity Zone funds allow individual investors to take advantage of OZ tax incentives through investments in multifamily, industrial, and commercial real estate projects aimed at revitalizing underserved communities. With several projects in Arizona, Caliber’s Tax Advantaged Opportunity Zone Fund II offers investors diversified exposure to real estate and the potential for significant tax benefits through the Opportunity Zones initiative.
We spoke with the team at Caliber about the advantages of getting involved in OZ early, what makes impact investing rewarding, and what investors value about in-depth impact reports.
Can you tell us a bit about the history of Caliber and how you became involved in Opportunity Zones investing?
Caliber was one of the first firms to open a Qualified Opportunity Fund (QOF) after they were created as part of the Tax Cuts and Jobs Act of 2017. At the time, we realized that we already had developed a number of projects in areas that eventually were designated as Opportunity Zones, and we understood how to develop the types of projects that were needed in those areas.
We also recognized the potential benefits this program could provide to our clients, many of whom are looking for ways to reduce or eliminate short and long-term capital gains tax liabilities. Creating a QOF enabled us to bring a potential solution to our clients and at the same time capitalize on our expertise in developing the types of impactful projects that are needed in designated Opportunity Zones.
As an early participant in the Opportunity Zones program, we’ve established deep relationships in this space and in the communities where we’re investing. As a result, we’re now looking to expand through co-investment and even merging smaller funds into ours to help smaller fund managers gain access to high-quality projects and take the burden of reporting off their shoulders. We intend to be a long-term, durable player in the Opportunity Zone space.
Caliber has several funds, each having a different focus, with options for individual accredited investors, institutional investors, and RIAs and other financial professionals. What have you found to be the level of knowledge regarding Opportunity Zones? Are individual investors less likely to know about the program?
In the investment world, Qualified Opportunity Funds are relatively new and different firms employ different strategies when it comes to the type of projects they include in their funds. So there is a larger need to introduce clients to the QOF product and then to explain how Caliber has developed its funds. The need for education exists both at the advisor and the individual level.
At Caliber, education is a fundamental part of our operating model, so spending time sharing information about various products and strategies is not new to us. We even developed an Opportunity Zone Calculator that is featured on our website. Our goal was to help potential investors quickly understand the potential tax benefits that may be available to them by investing in a QOF. We also strive to share information about the program and the benefits generated for both impacted communities and investors through other forums, such as podcasts and conferences.
Have there been commonalities among the types of people interested in your OZ funds? What has been the biggest selling point, the opportunity for impact or the tax advantages?
The most common investor is one who just sold their business, followed by stock and option traders. Generally speaking, the tax savings are what first draws an investor’s attention to Opportunity Zone investing. From there, it is the quality of the underlying portfolio of projects, and the benefits they bring to the community. Many investors prefer to invest in markets they are familiar with, especially if the projects are within a reasonable distance from their homes.
CTAF I included revitalization efforts in Mesa, Arizona, the creation of hundreds of jobs in Tucson, and a Behavioral Health Hospital in Phoenix. Has there been a particular moment where the impact of these investments has hit home for you?
Every one of our projects has had a meaningful impact on the community where it is located, so it’s difficult to call out a favorite. A unique aspect of our QOF strategy is that it is place-based, not asset class-based. For example, we just completed a new private school building in Scottsdale. We transformed a vacant assisted living facility into a state-of-the-art behavioral health hospital in another city. We built ground-up apartments in a former workforce housing facility. And we’re in the early stages of creating a large multifaceted entertainment development in the Salt River Pima Indian community.
Our strategy is based on identifying projects that are needed in a particular community and ones for which we can add a lot of value. Then we strive to acquire strategically so we can maximize the tax incentive as well as the exit for the investor. These types of transformative investments tend to create the most impact for communities, driving job growth and generating new taxes – all things that the Opportunity Zones program was designed to create.
In our second QOF, we’re looking for more conversion opportunities through an adaptive reuse strategy. For example, we could take office buildings that are functionally obsolete due to the pandemic, or even hotels, and convert those properties into housing. This is a win-win for the community because we would develop a property that is able to pay property taxes while also providing a needed service to the community by offering attainable and affordable housing.
Caliber has worked with JTC to generate impact reports for its projects. How has that data been useful when demonstrating project success for your investors and when fundraising for new projects?
The impact reports generated by JTC are very meaningful to our existing investors. They bring these investments to life by detailing the economic and community impact of each investment. These reports are also very effective educational tools for potential investors. Investing in commercial real estate funds and individual assets often is reduced to a simple financial statement. The impact reports provide a window to the full impact these particular projects are having and will continue to have on communities.
JTC has been a leader in fund administration for Opportunity Zones since the program’s inception, pioneering techniques for social impact reporting and methods for comparing investments with different impact goals. To learn more about JTC’s OZ fund administration solution, click here.