Inside the OZ Fund That Skips Development Risk

Almost every Opportunity Zone investment is a development deal: two or three years of construction risk, lease-up risk, and financing risk stacked on top of the tax play. One fund is built to do the opposite, offering stabilized assets, cash flow from day one, and Opportunity Zone benefits without the development risk.

Michael Treiman of Standard Asset Management and Investments (SAMI), joins the show to break down how that fund works, and how it also functions as rescue capital for OZ 1.0 developers facing today’s cap rate expansion and financing gaps. Mike explains the mechanics behind the strategy, who’s investing, and how it’s already deploying capital on a seed asset in Washington DC.

Guest: Michael Treiman

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.

Listen Now

Episode Summary

Michael Treiman, President and CEO of Standard Asset Management and Investments (SAMI), joins Jimmy Atkinson to discuss the fund SAMI has built around stabilized assets rather than ground-up development.

Jimmy opens by noting that almost every OZ investment is typically a development deal, carrying construction risk, lease-up risk, and financing risk on top of the tax play. Treiman’s fund does the opposite: stabilized assets, cash flow from day one, and OZ benefits without the development risk, which Jimmy notes can also serve as a lifeline for OZ developers.

SAMI is the investment arm of Standard Management Company, which invests in long-term multifamily and has held its current portfolio for an average of over 15 years. By coincidence, the company already owned two multifamily assets located in OZ 1.0 tracts, purchased before the OZ program existed, which Treiman says made the OZ program “a huge natural fit” when it came along in 2018.

Solving a Mismatch Between Risk and Investor Type

Treiman explains that OZs have always been a tremendous advantage for long-term investors, but long-term investors typically aren’t looking to take development risk, calling it “sort of antithesis to the thesis” of what a long-term investor wants. SAMI’s solution is to take on that risk itself, get the asset to stabilization, and then place permanent financing on it, which Treiman calls “the last moment of de-risking a stabilized multifamily asset.”

From that appraised value, the fund invests, and the investor comes in at the stabilized value with the full benefits of the OZ program. Treiman says this better aligns risk-return profiles: the long-term, wealth-preservation investor accepts a lower return in exchange for lower risk and tax benefits, while merchant capital investors either invest alongside SAMI or SAMI takes that risk itself while supporting developers to reach stabilization.

Why This Moment in the Market

Asked why now is the right moment for this strategy, Treiman points to the cap rate and interest rate environment. A group of OZ 1.0 owners, through no fault of their own, got “crushed by the higher interest rate, higher cap rate environment” and the glut of investment that hit the market in the 2023 to 2025 cycle.

Many are approaching construction loan maturities or trying to move into permanent or bridge financing, facing what Treiman calls an “unplanned-for capital call.” SAMI’s fund steps in as a partner to bridge them through, and Treiman argues SAMI is better aligned for this than a typical bridge lender trying to get in and out in a couple of years, since SAMI is “in there for the long run as a co-partner.”

Core Plus Returns, OZ Benefits Included

Jimmy notes that most OZ real estate deals sit on the riskier end of the spectrum, opportunistic development rather than core or core plus, but SAMI’s strategy effectively unlocks a Core Plus hold for OZ investors. Treiman agrees, explaining that development returns in the high 20s IRR get diluted to roughly 13 or 14 once a developer holds the asset for the additional years required inside a 10-year fund.

Patient capital investors don’t want that development risk in the first place. Investors coming into SAMI’s fund buy in at the MAI appraised value at the time the fund invests, not at a discount.

As Treiman puts it, “the accretive value was provided 100% by the United States federal government,” since holding the asset for 10 years delivers the OZ benefits. He describes the result as core-level returns on the underlying investment paired with value-add after-tax returns.

Cash Flow From Day One

Treiman confirms that fund cash flow goes to investors “the moment they have invested in the fund.” He says the real risk in the kind of development SAMI is talking about isn’t construction cost overruns, since experienced developers know how to build on cost.

The real risk is the time between when a project starts and when it’s fully stabilized, and what happens in that window to the leasing market, the financial markets, and the cap rate markets. That is the risk SAMI takes on so investors can avoid it.

Patient Capital and the RIA Community

Jimmy asks who is writing checks into the fund, and whether that investor profile has shifted as OZ 2.0 comes into focus. Treiman says it hasn’t changed much: the bulk of investors remain high net worth individuals and family offices, patient capital looking to invest for a good 10 years out, or even another generation out.

He describes the fund as a valuable tool for the RIA community, pointing to investors who have taken a bucket of money out of their lifetime exemption, invested it in the fund, and placed it in an irrevocable trust for their kids. In 10 years, when the kids need money to start a business or buy a first house, they receive it tax-free, effectively grossing up the lifetime exemption two to three times on an after-tax basis.

Staying Fully Compliant with OZ Rules

Asked directly whether the strategy is OZ compliant, Treiman answers “100%.” SAMI seeks tax insurance on most of its deals and gets it at modest rates, which he says reflects that the fund isn’t taking aggressive tax positions.

Treiman, who spent his earlier career as a tax professor, explains that OZ benefits aren’t determined by when an investor invests in the fund, but by when the fund invests in the property, and whether that property meets the definition of Qualified Opportunity Zone Business Property. If it does, it allows the QOZB to meet its 70% test and the QOF to meet its 90% test, which lets the fund qualify and deliver the benefits regardless of when investors come in.

Two Ways SAMI Deploys Capital

Treiman lays out two structures. In the first, SAMI provides new capital to an existing Qualified Opportunity Zone Business, as long as that business is properly registered and meets the 70% test.

This capital can come in even after leasing has started, since the timing of the fund’s investment relative to construction doesn’t affect compliance as long as the property qualifies. Ninety-nine percent of the time this is an original use transaction. SAMI typically recapitalizes and takes out the original capital once it hits its 10-year mark, allowing the current owner to exit without waiting the full 10 years for SAMI’s investors to reach theirs.

In the second structure, used for true development deals, SAMI puts capital in pre-TCO and makes a forward commitment to purchase the asset from the fund at fair market value once it reaches stabilization. In both cases, investors avoid depreciation recapture and capital gains, since everyone receives a step-up in basis at the 10-year mark.

Rescue Capital for Developers

Treiman describes this as effectively rescue capital for developers. In the first scenario, matching the deal he’s actively working on, a QOZB asset with a strong location and project ran into roadblocks from cap rate expansion and the volume of construction that hit the market. SAMI comes in with new equity that sits side by side with the existing equity, then recapitalizes to take out the original investors at their 10-year mark.

In the second scenario, a new construction project still underway, SAMI provides capital to help fill the capital stack and takes out the non-OZ equity pre-TCO or at stabilization. This lets the developer raise both OZ capital, which rolls along with SAMI for 10 years, and merchant builder capital looking for a quicker exit.

The Watermark at the Navy Yards

One of SAMI’s first assets under this strategy is the Watermark at the Navy Yards in Washington, D.C., next to the Washington Nationals ballpark. Treiman says real estate starts with location, and the two things that drive any real estate deal are location and timing.

He calls the Navy Yards area “incredible gentrification” since it was first designated an OZ in 2018, with some of the finest construction in the city and strong proximity to downtown and the Capitol. He also points to the timing: since new deals largely stopped two years ago during the interest rate hike, he expects roughly two more years of runway with no new construction coming online.

The deal is structured as preferred equity, though Treiman notes other SAMI deals could use common equity or other structures depending on what the deal needs. He describes the developer’s response as very favorable, calling the relationship “very much a symbiotic” one.

A Two-Year Shelf Life

Asked about market trends he’s tracking, Treiman says he believes this specific rescue capital strategy has “got, like, a two-year shelf life to it.” He expects the disruption currently in the market to largely work itself out within two years, at which point SAMI’s focus shifts toward its other pipeline: partnering with developers on new construction deals from the start and taking out non-OZ equity through a forward sale.

He notes the risk profile to SAMI’s fund and its investors stays the same either way, since the fund always invests at the appraised value at stabilization.

Closing Thoughts

Treiman closes by reiterating that SAMI is “not in the development risk,” and that the company’s role is to take that risk onto its own balance sheet so investors can come into a true stabilized, cash-flowing asset in strong locations. He points again to the company’s 15-plus year average hold and describes the goal as delivering closer to net value-add returns on a core risk profile for high net worth individuals and patient capital.