Capital Square’s 2,000 New OZ Housing Units, With Louis Rogers & Whit Huffman

To date, Capital Square has nine different Opportunity Zone multifamily building projects in various states of development. When completed, these projects will have created roughly 2,000 new residential units in Opportunity Zones located in North Carolina, South Carolina, Tennessee, and Virginia.

Capital Square’s co-CEOs Louis Rogers and Whit Huffman join the show to discuss how their OZ fund management strategy has evolved over the years since their first OZ project launched in 2019.

Episode Highlights

  • The importance of adhering to regulatory guidelines for OZ funds, balancing compliance with effective fund management.
  • Strategies for achieving high returns on Opportunity Zone investments, with a focus on thorough due diligence and risk mitigation.
  • Insights on market dynamics, including demographic shifts and economic indicators that influence Opportunity Zone investment success.
  • Examples of Opportunity Zone projects that have revitalized underserved areas and increasing the local tax base, while delivering strong financial outcomes for investors.
  • Challenges in managing OZ investments, including navigating local markets and project-specific hurdles.

Guests: Louis Rogers & Whit Huffman, Capital Square

Featured On This Episode

About The Opportunity Zones Podcast

Hosted by OpportunityZones.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

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Show Transcript

Jimmy: Welcome to the “Opportunity Zones Podcast.” I’m Jimmy Atkinson. Capital Square is one of the largest DST and Opportunity Zone operators in the real estate industry. To date, on their Opportunity Zone platform, they’ve raised $235 million in OZ equity across nine different projects. That equity has gone into building 2000 residential units and over 50,000 square feet of retail, totaling $800 million of market value. Quite a lot of experience and expertise in this space Capital Square has. And I’m pleased to be joined today on the show by Capital Square’s two co-CEOs, Louis Rogers and Whit Huffman. They’re gonna be discussing how the management of these different funds has evolved over time. Louis and Whit join me today from Richmond, Virginia. Gentlemen, welcome to the show. Great to have you on today.

Louis: Wonderful. Thanks for having us. I’m at headquarters, and Whit is in an OZ building in Scott’s Addition neighborhood of Richmond, Virginia.

Jimmy: Oh, fantastic. Whit joining us from an actual OZ location. That’s great. So, gentlemen, a lot of my audience of real estate investors and Opportunity Zone investors and advisors likely are already familiar with Capital Square. You’re one of the top 10 largest sponsors of Delaware Statutory Trusts, or DSTs, and you have a very large OZ platform as well, as I noted in the intro. But in case anyone’s new to the show or maybe new to the real estate industry, for anyone unfamiliar, can you give some background on who the two of you are personally, and an overview of Capital Square as well?

Louis: Absolutely. I’m the founder and co-CEO, with Whit Huffman, the other co-CEO. Capital Square was formed 12 years ago. Our vision is tax-advantaged real estate investments, with an investor-first focus. We’ve built out our company to become fairly large. We have three prongs to our business. We invest, we build, and we manage. We’ve always done the investments. That’s your Delaware Statutory Trust, your 1031 exchange, for tax deferral. Before the pandemic, we started to build. Great time to build, right before a global pandemic. But we were able to build and deliver Opportunity Zone Funds on time and on budget through the pandemic, in spite of the challenges with labor and materials and inflation. That’s the build strategy. We have a dedicated development team in our home office, that is able to build 2000-apartment units on time and on budget. And most recently, we started managing our own property with Capital Square Living, our own property management company. So, we invest, we build, and we manage. We’ve always done the Delaware Statutory Trusts for 1031 exchange. Since about 2019 or so, we’ve done the Opportunity Zones. We were early on, back when there were no regulations, and no CPA in the world would sign on to the program, to today, when we have a track record of $800 million of newly constructed buildings in qualified Opportunity Zones. It’s been a phenomenal ride, right through managing the properties. And the interesting parameter is we have projects from completion to not even a shovel in the ground in development. And so, in the next 45 minutes or so, we can describe the experience of going from investing in a fund that is building a building, to actually owning a building that’s stabilized, leased-up, and performing, and headed towards a 10-year hold, when you get tax forgiveness without having to die. That’s a little joke about 1031, a step-up in basis.

Jimmy: Yeah, perfect. That’s a joke I make also, is Opportunity Zones are a lot like 1031s, except you don’t have to die to get the full tax benefit. Whit, I wanna turn to you, get a little bit of background on you. When did you join Capital Square, and what’s your role there?

Whit: Sure. So, I am co-CEO with Louis. I sit in Richmond. I’m in our Scott’s Addition office today, in one of our buildings that we built, which is actually our first Opportunity Zone Fund. I come from a development background. So, I worked at a large institutional developer based out of Washington, D.C., focused on mid and high-rise development, really mixed use and format. And so, I joined up with Louis in 2018, which was great timing, in conjunction with what was to come, which was the Tax Cuts and Jobs Act. And so, given my background and Louis’s background in tax-advantaged real estate, we thought marrying up that development expertise and legal expertise made a ton of sense. And we made the plunge, and did our first Opportunity Zone, I think we launched at the end of 2019.

Jimmy: Very good. Well, again, pleasure to have both of you joining me today on the show. Yeah, you have deals all across the spectrum of the lifecycle. Some deals are cash flowing. Some don’t even have a shovel in the ground yet, which is great. You recently launched Capital Square’s ninth Opportunity Zone Fund. All of your funds, I should note for our viewers, are single-asset funds. So, you launch a new fund for each individual asset. So, when an investor comes into any of your funds, they know exactly what they’re investing. It’s just one single deal. You don’t have a large, multi-asset blind pool type of fund. Largely, you’re building multi-family or mixed-use multi-family in the, I like to term it the mid-Atlantic and Southeast regions of the country. And when everything’s completed in these first nine deals, you’ll have about 2000 residential units built.

I was on your website earlier this morning, and looking for that press release announcement of your first OZ Fund. That press release was published in July of 2019, when you launched your first fund. So, you’re a very early mover in the Opportunity Zone space. Mid-2019 was really when the first funds were starting to get launched. So, you now have over five years of experience with Opportunity Zone Fund management, and these nine different funds are all in different phases. Fund I is already leased up and cash-flowing to investors. And Whit, you’re actually sitting in that building right now. And Fund IX, you’re just beginning to raise capital for, and you’re gonna present that Fund IX deal at our OZ Pitch Day event, on November 14th. So, looking forward to hosting you there. But what are some of the challenges of handling nine different funds across nine different assets, all in different phases of the lifecycle?

Louis: And it’s a different mindset. I think we all have to do a little better job of explaining to the investors what it means to be in a development fund. We have 7,000 investors in DST programs. The day they close, they begin to accrue a distribution, and the next month, they get their first distribution. And every month thereafter, by ACH, they get a distribution. Or in our REIT, you get a monthly distribution. Or in the preferred, you get a monthly distribution. The investors and the advisors need to explain that we have to build a building. Right? And that’s a living, breathing process. So, the goals are different. It’s not stable cash flow and appreciation through a holding period and a sale, and do another exchange and swap till you drop. It is first to find a lot in a Qualified Opportunity Zone, that meets a business parameter that works. We’ve done that nine times. We’ve found perfect lots. Build a fund, with investor equity, and match that with a construction loan. Typically, a local lender or a regional bank will make a construction loan. Then you have to build a building, right? It’s a pile of dirt to begin with. Build a building. Then you have to lease it up and stabilize it. You have to build your reserves. You’ve gotta fill it up with tenants. And then, our vision is to permanently finance the property, and make a special distribution to investors. And so far, we’ve been able to distribute 30%, 40% of investor equity years in advance of the 2026 tax payment date. At that point, we are stabilized. We have a building that’s performing, and we can begin to talk about distributions and cash flow. But not until we have designed, built, stabilized, built reserves to be ready. Whit, what does that take? About 24 months or so?

Whit: Typical construction timeline would be 24 months, and then call it 12 to 18 months for lease-up. And then, to optimize the rent roll takes another 9 to 12 months thereafter. So, to get to a place where the building’s fully stabilized, and operating at full speed, you’re really, call it three and a half to four and a half years, to be exactly where you wanna be. Your refinance will come inside of that. You’re likely gonna execute on that once you’re stabilized. And that typically, after the commencement of construction, is, call it 36 to 42 months after you begin construction. So, to Louis’s point, it isn’t a near-term cash flip play. Right? It’s a different strategy.

Going back to your original question, I think there’s merits to both the blind pool and single-asset funds. And to better explain what we’ve tried to accomplish, we’ve tried to have multiple offerings available, so that investors could diversify at their election. Our thesis was we’re gonna go and execute developments in markets that we know really well. Right, we manage over $6 billion of assets across the platform, with a central focus on housing, and we own 15,000 multifamily units. So, those markets that we went to were markets that we had already been investing in, that we knew really well. And not just from a macro level, supply/demand dynamics, employment growth dynamics, population growth dynamics, but knew it at the granular level, right down to the intersections, the streets, exactly where you want it to be, the neighborhood, the exact right spots. And so, when we went and did our first Opportunity Zones, it’s probably not surprising that you saw those in places that our DST investors are used to seeing us invest in. Places like Richmond, Virginia, Raleigh, Charleston. And so, when you think about the complements of our different business lines, I think from a geographic selection perspective, we’ve really been able to leverage kind of that in-house expertise that we had on the DST side, in picking markets and neighborhoods, and then flow that through to the buy box for our land acquisitions.

And one of the reasons we really focused on the single-asset was knowing how challenging development can be, right? It’s really easy to get off schedule. It’s really easy to get over budget. There’s a lot that can go wrong. It is a far riskier transaction profile than a DST. Now, I would argue the rewards are exceptional, and merit that level of risk. And I think what you’ve seen from a capital flow perspective is reflective of that. But by having single-asset funds, we’re able to more regularly and determinably figure out when is the refi going to happen, within a window, right? When is the sale going to happen, within a window? And for those folks that are relying on those refinance proceeds, we take out the construction loan and put on the permanent financing, those folks that are relying on that to settle up their deferred capital gains liability, we have found that that’s really important to them. And so, while we’ve had a lot of folks say, “Why don’t you go raise just one giant fund? It’d be more efficient?” Well, yes, it would be more efficient for us, but we’re not convinced that that’s the best execution for the investor.

Jimmy: Yeah. Great overview. Thanks, gentlemen. And definitely good to reiterate that the DST platform versus an OZ platform, a lot of similarities, right? They’re both capital gains tax programs, but there are some huge differences between the two. The investment strategy couldn’t be more different, really. I mean, you’re investing in real estate, but the type of investment that you’re making, you know, stable, cash-flowing asset, versus opportunistic, ground-up construction, taking on some additional construction risk as an OZ investor, and really having it be more of a longer-term, 10-plus-year hold, much different than a DST investment that cash flows basically within the first month, as you mentioned, whereas as an OZ investor, you’re gonna be illiquid for at least a couple of years before the property gets leased up and starts distributing cash to its investors. You mentioned you have these different funds, and you’re refinancing, so your investors can get a refinance cash distribution prior to their 12/31/26 capital gains deferral date, to pay that tax bill in April of 2027. Is that becoming more of a challenge for you to structure and deliver on that, as the deferral date gets closer and closer?

Louis: It’s becoming a challenge. We have, on OZ IX, we’re getting close, right up to the wire. And we hope we’ll get some relief in Washington, because the program has worked so well in creating housing and jobs and tax revenue, but we’re getting to the point where we won’t have an OZ X unless we get a little help from Washington.

Whit: One thing I would add to that, Jimmy, you know, something that we often hear is advisors will work with their clients to plan to not rely on the investment in the Opportunity Zone to settle up that deferred capital gains liability. And I think it was a super easy glide path when you were working on 2019, 2020, 2021 vintage deals. Tougher glide path for anything that’s put into production over the last two-year window. The timeline might add up, but as we know, with a rising interest rate environment, that refinance may not be as juicy as was otherwise anticipated. I think we’ve been very fortunate in picking our spots and timing, in that we’ve been able to return, you know, 20%, 30%, 40% to investors at refi, but we’re hearing oftentimes that a lot of folks, it’s cash-in refis. And so, obviously, that’s the inverse of what investors are looking for. And so, I think, as sponsors have learned how to execute on this, and there’s some proof of concept, that’s also funneled through the advisors, and we’re hearing more and more that the investors, from a planning perspective, are planning for that capital gain and that deferred liability, in a different way than just relying on the investment to settle that up. So I think it isn’t as easy an answer as it was, but I think, given the experience with the program that we now have, I think people are just attacking it in a different way.

Louis: Some of the advisors are withholding 20-plus percent of the cash, investing it, so that by April 15 of 2027, it grows to the capital gain amount.

Jimmy: Yeah, and I think that’s smart. I think, these days, if you’re investing in ’24 or ’25, you can’t necessarily plan on that cash-out refinance distribution, nor should…I would never urge anyone to count on Congress to do anything that would possibly… I mean, we’re hopeful, right? But I think you gotta hope for the best and plan for the worst. Hope for an extension, but plan for the fact that Congress doesn’t get their act together, and doesn’t extend this program, and then you are stuck with that 12/31/26 deferral date. I wanna talk more about that extension possibility and legislation a little bit later in the program, with both of you. But I wanted to ask about how, you know, has your strategy potentially changed over the past few years? When you first launched your first OZ fund in 2019, and you were doing some more deals in 2020, we were in a very low interest rate environment. The macro environment has changed significantly over the last four years here. Has that changed your strategy at all, the increase in interest rates? Has it made some real estate deals less feasible? Have you had to get more choosy, or how, in general, have things changed for you?

Louis: It’s a good question. It’s a lot harder today. In ’19, we were in a global pandemic, and the world was coming to an end. And we had inflation, and we had all kinds of supply chain issues. You’d think that it would have been terrible. But it was 2% mortgages, 3% mortgages. And so, things were underwriting. We had this migration from the major cities down to the southeast, that filled up our buildings. And we started building buildings. Our development team got their rhythm, got their confidence. And now we’re all revved up and ready to go. And now we have a, what, 6% mortgage, Whit? A lot harder to underwrite.

Whit: Harder to underwrite, and I think it was easier to be a little more, for lack of a better term, adventurous in site selection in a low interest rate environment. There was more wiggle room in the underwriting to meet untrended yield and IRR requirements. And I think what it’s led to is folks investing in Opportunity Zones where there’s a proven track record. If you think about Scott’s Addition as an example, we had good data to inform the revenue and rental rate assumptions on the first three deals that we executed. But there wasn’t a direct comp set in the neighborhood that you could then turn to to say, “Well, hey, I have pretty high degree of certainty we’re gonna get this per-square-foot rent, because the building down the street is getting it. We’re gonna have a better amenity package, better design, and it’s new.” Right? And so, it’s led us to go and say, hey, if we’re gonna go pick a market in this environment with less operating room, with a narrower glide path, we need some more certainty around the revenue assumptions. And so that’s why you see us focus on going back into a Scott’s Addition, where we can comp to the building across the street, we can comp to the building down the street, and there’s more reliable revenue assumptions. So, with a narrower glide path, we needed to reduce the overall underwriting risk, especially around rental rates. And so I think you’ve just seen folks rotate into markets that have a more definable comp set.

Louis: By the way, the building across the street is OZ V, and it was the building of the year last year in Richmond, Virginia.

Jimmy: Congrats. Yeah, a lot of success you guys have had building in Richmond. I wanna talk about the different markets you’re in, and maybe which other target markets you have your eye on, a little bit later in the show. But let’s talk about OZ legislation. That’s been a big topic of discussion on this show for the past couple of years. Obviously, there’s a perishable tax incentive. It’s set to sunset after 2026. Louis, you hinted a minute ago that you’re on Fund IX right now, but without some sort of extension, there might not be a Capital Square Fund X. What do you say to congressional leaders about the impact that this program has had on the country so far? Why do you think it should be renewed? Why should our congressional leaders care about renewing the Opportunity Zones program?

Louis: We have FT consulting data on each O Zone. Each building has generated hundreds of jobs, a large number during construction, but a meaningful number permanently, and tax revenue, for the jurisdictions, from a dirt lot to a $120 million building. The real estate taxes to the localities have been earth-shattering. The jobs are good and they’re permanent. We haven’t taken any housing from anyone. We’ve built in industrial neighborhoods. We knocked a shed down once, and the rest were old warehouses and things that were dysfunctional, and really not of any value. And we built phenomenal Class A mixed-use communities, providing 2000 or so units of new housing. We’re three and a half, four million houses short. We chipped in 2000 of them. It’s basically all good. We need to extend the program, to continue the goodness across the country.

Jimmy: Whit, I don’t know if you have any additional thoughts there, but obviously, I think we need to give…like, we, as the Opportunity Zone industry, need to have our voice heard. We need to give congressional leaders reasons why they should care about this program. And there are some in Congress who do care greatly about the program, but a lot, it’s just not a priority for them, or they even think, or at least they say that they think that the program is more harmful than good. What do you say to them?

Whit: Well, I would say, you know, in no way is it more harmful than good. And I think the data supports that conclusion. And I think a narrative that we often hear is, well, it’s dislocating legacy residents. And that’s just something that we haven’t seen. In every instance, in every Opportunity Zone we built, it’s been either a vacant site or a vacant commercial structure. If you think about the building that I’m sitting in today, it was a dirt lot, with a chain link fence and a shed, for a timber company. And from a highest and best use perspective, the tax revenue the state and local municipality is receiving off of an asset in that format is really, really low in comparison to what they’re receiving today. And so you have to think about what good can the state and local municipality do with that incremental tax revenue? Well, they can do a lot of good. And what does it do for their ability to enhance their bond ratings? And what does it do for their ability to help meet their affordable housing objectives, by filling the coffers? There’s a lot of good that can be done there.

And then I think, if you took a step back and said, “Hey, we’re short four-plus million housing units, how do we solve that problem?” one answer could be, well, allocating government resources, which is our tax dollars, to putting things into production to meet affordable housing objectives. You could also then say, well, Opportunity Zones allow you to get at the housing crisis, but it’s using private capital and private dollars. It’s generating increased state and local municipality tax revenues. It’s coming at the expense of some federal cap gains tax they would receive. And it’s always important to remind them that yes, there’s ultimate exclusion, but you are getting that deferred cap gains tax, right? And it’s gonna come through the door in 2027. So you’re not giving it up. You’re just taking a step down. And so, if we’re going to tackle the 4 million housing unit shortage, I think you’ve got to look at Opportunity Zones as a way to meaningfully chip away at it.

Louis: Yeah. At all levels. The affordable guys and the LIHTC credits work great. We’re in a different market segment. And we’re building garden style and mid-rise. That’s more of a middle-income, higher-income demographic. Those are housing units that didn’t exist before.

Jimmy: Yeah, and I think there was a recent Novogradac study that showed, I forget what the exact number was, but it was hundreds of thousands of housing units that have been built with Opportunity Zone equity since program inception. And that is the type of story that all members of Congress should care about, no matter which side of the aisle they sit on, and that our president should care about as well.

Well, turning our attention now to, I wanna talk more about your specific OZ platform. You have these six deals in Richmond, Virginia. You’ve done a really nice job building a lot of assets there, but you also have one deal each in Charleston, South Carolina, Raleigh, North Carolina, and Knoxville, Tennessee. What is it about those particular target markets that you like? And do you have your eye on any other target markets possibly for future OZ deals, especially if we do get an extension or a renewal of the program?

Louis: Yeah, I’ll defer to Whit, but this is a follow-on from the pandemic, the migration from the mega cities to the Southeast, where people have a little more room to breathe, and it’s more cost-effective, and the jobs, where the jobs are being created. What do we like about these high-growth markets in the Sunbelt?

Whit: The characteristic that they all share is significant job growth and significant population growth. And then, if you bifurcate that growth with different levels of earners, we see opportunity across the build sections, right? So, Class A, commodity, affordable, right? There’s opportunity to build and develop across all those segments of construction. And so, what we’ve tried to do is marry in that analysis, from a growth perspective, with operating performance, at assets that we already own in those markets. So, we know, based on our holdings in Knoxville, as an example, and just Tennessee broadly, that we’re still seeing significant rent growth. From an operations perspective, controllable and uncontrollable expenses are exactly where we want them to be. So, from an underwrite perspective, we’ve got a really good handle in those markets of how the assets should perform post completion. And so, when we tie that with our macro analysis from a growth perspective, and that looks at supply, demand, where are people coming from, how much are they making, how much can they support, that’s really what leads us to places like a Knoxville, right? If you look at Raleigh, there’s been a significant amount of supply. Everybody’s seen what we’ve seen, but we’re actually delivering into a period when that supply wave will effectively shut off here at the end of ’25 and into 26. And so, we’ve really focused on the Southeast. It’s done exceptionally well for us. And we’ve tried to cluster our holdings in markets that we have high conviction in. Places like Chattanooga, places like Raleigh, places like Knoxville.

Charleston was a super interesting case study for us, because it was a little outside of our traditional buy box. It’s a short-term hotel component. It’s 50 keys. It was designated architecturally significant, so it has a rooftop F&B concept. And Charleston’s one of those unique places with a zoning overlay where you can’t build more than 50 hotel keys moving forward on new hotel development projects. And so, there’s an artificial barrier to entry. And we felt like that supply constraint was gonna be massively rewarding over a 10-year hold, and worked really nicely from an Opportunity Zone perspective. So, each deal is a little bit different, but it does tie into a macro focus on the Southeast and Sunbelt.

Jimmy: Very good. Any other target markets you have your eye on for future OZ deals?

Whit: We’ve got a few, but I’d probably keep those a little bit close to the vest.

Jimmy: Fair enough.

Whit: But I’d love to talk about them when they’re in production.

Jimmy: Absolutely. Louis, I think I cut you off. You were about to say something?

Louis: No, that’s got it.

Jimmy: Okay. Got it. And let’s revisit that conversation we were having a minute ago about DSTs versus OZs, some of the differences there. You guys, as I mentioned before, you’re a top 10 Delaware Statutory Trust, or DST, sponsor. I think one of you mentioned near the top of the show, you have 7,000 DST investors on your platform. So, you have a lot of experience there already. I don’t know how many OZ investors you have, but my question is, how do you direct people coming to you on whether they should do a DST or an OZ, and which platform are you having more success raising money on these days?

Louis: Sure. Just to go back one second, for 1031 exchangers who cash out taxable, and invest in an OZ, what we do is not that surprising. But a larger number have sold stocks, bonds, bitcoins, businesses, and things that were not real estate. And so they really don’t have a clue on what it’s like to have a construction loan and construction draws, and to build a building, and codes and all that jazz. So, I think as an industry, we need to do a better job of educating them on what it means to be in a development fund. That’s sort of a starting point. When we compare DSTs to Opportunity Zones, the starting point for a real estate investor is, what are you looking for? Right? If you want a layup, a cash flow starting tomorrow, and a simple business plan, to buy a building, keep it leased up, raise the rent, and sell it in 7 to 10 years, great. The DST works perfectly well for you. You’ll cover your 1031 exchange. Your returns are modest, but very stable and very predictable.

If you wanna shoot for the moon, a development deal’s gonna make more money. It’s gonna make a lot more money, to compensate you for the risk of building a building, leasing it up, permanently financing it. Those are all our goals. We’ve been able to accomplish it eight times, but it’s not guaranteed. And so, an OZ investor will and should make a lot more, but they’ll make it at a different time. If we have a three or four-year stabilization, no cash flow for three or four years. Maybe your DST only pays 5%, but you’ve been collecting it for three or four years. The big pop comes at the end, when the OZ building is sold, and there’s tax forgiveness. That’s when the OZ investor really is happy that they did the OZ. But a lot of investors live on the cash flow, or at least they enjoy seeing those deposits come into their bank account by ACH every month. It’s really just two different flavors.

And then you reinvest your capital gain. And so, if you’re leveraged, it’s much harder. You may not have enough cash as a real estate investor to invest in an OZ, because you have to pay off your mortgage. Right? You may not have enough cash to cover your capital gain. If you’re stocks and bonds, you have nowhere else to go. The OZ is the greatest provision in the entire tax code, maybe in the history of the tax code, by allowing you to defer and exclude any capital gain, from the sale of any asset, including real estate. I don’t think people appreciate how amazing that provision is. If they were aware of it, we’d be sold out in advance on every program. And so, if you can continue your good work with the podcast, we’ll continue to be sold out on every new program, provided Congress gives us just a little more room to breathe.

Jimmy: Well, I’m doing my best. And I do call it the greatest tax incentive ever created, and I truly believe that. There’s definitely more risk with it, but that reward on the back end, and, you know, best part, compared to a DST, at least you don’t have to die before you achieve the full tax benefit.

Louis: There’s one more thing. There’s something that… I’m a damn lawyer. I’m not a development guy. I’m learning the development business. But there’s something that was new to me, the GMP. The risk in development is not what it used to be when I was a young lawyer. Whit, would you describe some of the safety valves, like the guaranteed maximum price contract with your general contractor? Because that takes an enormous amount of the risk out of the development.

Whit: Yes. There’s a couple different formats of construction contracts that you can execute. We use a guaranteed maximum price, or GMP. So, basically, that says we’re buying a complete building for this price. So, if something was missed in the drawings… I’ll give you an example. If there’s a sink shown, but no drain, that’s not on us to then have to pay for the drain. We say, “We bought a complete building. You can’t have a sink without a drain.” So that helps mitigate a lot of the cost overrun risk. And then as you think about, it depends on what’s going on in the market, you can do things like buying caps, collars, and swaps on your interest rates. There’s all sorts of things that you could do to help mitigate the construction-associated risks. And so, when prudent, we obviously execute on those strategies. But in every instance, on every development deal, it’s always a GMP.

Louis: Right.

Jimmy: Good. Well, we have just a few minutes left before we gotta cut you loose. I did wanna get, if you could, give us a preview of CSRA OZ Fund IX. This is a mixed-use development, that’s about to go under construction in Richmond. It’ll be your sixth OZ deal in Richmond. But what can you tell us about this project?

Louis: It’s gonna be a rock star of a trophy property. Whit, you wanna dazzle us?

Whit: Sure. So, it is directly across the street from OZ V, in the Scott’s Addition neighborhood of Richmond, a neighborhood we know really well, we’ve got a deep concept for. OZ V was the Richmond multifamily development of the year. It’s an asset that’s performed exceptionally well, exceeded all of our expectations. We were fortunate enough to acquire the site across the street, which is an old commercial building. And inside of the confines of that site, we’re gonna build about 250 multifamily units, and 100 hotel keys. What’s unique about the hotel concept, and I can’t yet divulge the flag, but we’re expecting to have a major hotel flag operate what we’re referring to as apartment hotel units, which will be a distinct branded concept, that will be fully furnished apartment units, that you can rent for a night, three nights, three weeks, three months. A really unique concept. We think there’s a ton of viability in this market. For starters, the hotel comp set is exceptionally strong in this part of Richmond. But also, given the amount of state government here, along with healthcare, there is demand for extended stay. So we think we can really blend well that nightly, weekly, and monthly rates on the 100 hotel keys. And then the multifamily side is really straightforward. It’s topping off of the products that we already had in the neighborhood, which are fully stabilized, fully absorbed, and occupied very well. And so, one thing that we did, which we did on OZ V, I we say, “How can we do something a little bit different? How can we change what’s going on from a development perspective in this neighborhood?” And so we have Morris Adjmi out of New York as the design architect. So, bringing a little bit more of that urban flavor, a little bit of a different vibe, and something different to the neighborhood, to separate itself from the other projects that are already there.

Jimmy: Awesome. Well, I’m looking forward to it. And I know you guys are, as I mentioned a few minutes ago, you’re gonna be pitching this deal during your presentation at OZ Pitch Day on November 14th, so I’m looking forward to that as well. Louis, Whit, it’s been a pleasure speaking with both of you today. Thank you both for your insights. Before we go, where can our audience of Opportunity Zone investors go to learn more about Capital Square?

Louis: You can reach us on our website, capitalsq.com, or you can call me directly on my cell phone. The marketing people are horrified when I do this, but it’s on the side of my horse trailer as well. My cell number is 804-833…guess the last four. 1031. 804-833-1031. capitalsquare.com. Jimmy, I hope you’ll come visit us, so we can give you a tour, a pub crawl of Scott’s Addition. It’s the greatest place in Richmond to live, work, and play. It’s the hottest neighborhood. We’re commanding what, Whit, $3-a-foot rents in penthouse apartments. And it is an absolutely phenomenally exciting time to be in the Opportunity Zone business. Thanks for all that you do for our industry, in providing knowledge and transparency, and we appreciate you, man.

Jimmy: Well, thank you, Louis. I appreciate you as well. Now all of my audience has your cell phone number too, so watch out. And for my audience today…

Louis: It’s ringing.

Jimmy: Yes.

Louis: It’s ringing already.

Jimmy: There you go.

Louis: I’ll send them wiring instructions.

Jimmy: I love the last four digits, Louis. That’s awesome. Hey, for my listeners out there today, we will have show notes available on our website, at opportunityzones.com/podcast, and there we’ll have links to all of the resources that Louis, Whit, and I discussed on today’s show. And please be sure to subscribe to us on YouTube or your favorite podcast listening platform, to always get the latest episodes. If you’re watching us on YouTube now, and you enjoyed today’s conversation, give us a thumbs up. Louis and Whit, thanks again so much for joining me today. Thanks for your time.

Louis: Thanks, Jimmy. Take care.