Podcast: What an Opportunity Zone Investment Can Do for You and Your Capital Gains, an Interview with Brian Forcier
Opportunity zone investments can be worth a look if you're facing capital gains and have the ability to invest.
About the Host
Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called Growth and Exit Planning that helps in exit planning, value building and financial management.
About the Guest
Brian is from Minnetonka, MN. He obtained a BA in Finance and Management from The College of St. Scholastica in Duluth, MN and has worked in the real estate investment industry since 1997. Prior to Titanium Partners, Brian was the President of AtWater Group and the Executive Vice President of Oneida Real Estate Company. Throughout his career, he has been instrumental in putting real estate investments and deals in motion. Community service has been an important aspect of Brian’s professional career in Duluth, MN. He has served as a volunteer Board Director for the Duluth Area Chamber of Commerce, Greater Downtown Council, Udac and Damiano Center. He is also an active member of the Building Owners & Managers Association (BOMA), Certified Commercial Investment Member (CCIM) and Minnesota Commercial Association of Real Estate/Realtors (MNCAR).
If you listen, you will learn:
- Welcome back, Brian Forcier to the show.What is Titanium Partners and what do they do?
- How Brian and his team develop long-term relationships with clients.
- What is a 1031 exchange and what does it do?
- What are Opportunity Zones?
- The 3 steps to investing in an Opportunity Zone.How simple it is to register the investment as a fund.
- How are Opportunity Zone investments different from 1031 exchanges.
- The importance of reinvesting in an Opportunity Zone deal.
- Why you shouldn’t solely focus on Opportunity Zones.
- The time window for the program and possible extensions.
- Why nobody is really talking about this.
- Who should look into this opportunity and who shouldn’t.
- The top 5 concerns Brian sees his clients have with the Opportunity Zone option.
Announcer: Welcome to Life After Business. The podcast where your host Ryan Tansom brings you all the information you need to exit your company and explore what life can be like on the other side.
Ryan Tansom: Hey everybody and welcome back to the Life After Business podcast. This is episode 138 and today's episode is about opportunity zones because if you've been paying attention to blogs or emails that are coming through your inbox or you're watching the news, there's been a lot of chatter about these opportunity zones and not a lot of clarity about what it means to you and how it's actually actionable to you and whether it's something that you should be considering. So what I wanted to do is I rounded back to Brian Forcier, who is on the show about a year and a half ago talking about 1031 exchanges. And I want to have him on the show today because Brian's career has been devoted towards saving money on taxes through 1031 exchanges, deploying capital in real estate investments and managing the real estate investments and making sure that people have the chance to really grow their wealth in significant ways that they haven't been able to before.
Ryan Tansom: And so he was set up, in my opinion, to really dive into this because he's paying attention to this stuff all day long. So he has taken on himself and his company at titanium partners to really partner up with people that could take advantage of this into a whole new way. And so he has dove into opportunity zones to understand what does it mean for real estate investors, for business owners, how do you take actionable steps to using the zones and understanding whether they're right for you or not. He is actively using them in very, very large deals. And so he's on the show to really break it all down saying, here's how you can take advantage of it. Here's what it means to you. And the real net of it is the government created this program in the tax cuts and jobs act because they wanted to take 25% of each state's counties and say which ones are the ones that have not been revitalized since the '08/'09 financial crisis.
Ryan Tansom: And how do we find patient capital that's willing to deploy into these places to revitalize them through investing in the businesses, investing into real estate to help bring them all back up. And so it really makes sense in the crazy part is, is we only have about 12 months or so to really take advantage of this stuff and this program. So if you're looking at selling a business or real estate and have a low basis and you want to defer your capital gains and there's a sliding scale where you could potentially eliminate all of your capital gains if you keep your capital there for 10 years, which is a big deal when you're looking at a very large number of dollars that you're gonna be giving to the government if you sell your business or real estate. So I think it's something to pay attention to, especially if you've got a triggering event coming up in the near future. So Brian's on the show to break it all down, how you can take advantage of it, what are the different scenarios of what it might mean to you, and then actually looking at the dollars of how much you could potentially save. So if you have the potential to invest in one of these zones because you've got extra capital that you need to deploy or you want to defer your capital gains, this one hour could potentially save you a ton of money and also help a bunch of communities in the process. So without further ado, I hope you enjoy this episode with Brian.
Announcer: This episode of Life After Business is sponsored by GEXP Collaborative. Their proven process gives you clarity on all of your exit options and how those options impact your financial success, timing and future happiness. Sell your company on your timeframe to the buyer of your choice at the price you want.
Ryan Tansom: Brian, how are you doing this afternoon?
Brian Forcier: Great, Ryan, thanks for having me on.
Ryan Tansom: So round two, huh? I think it was what a year and a half ago, something like that, you were on talking about the 1031 exchange and kind of dive into that and a little bit about your background, but for the people that haven't listened to that and we'll put that episode in the show notes but kind of get what got to give the listeners a little bit of your background and what do, what do you in titanium partners do and uh, kinda before we kick into the opportunity zones.
Brian Forcier: Yeah. Well, again, thanks for having me on. And you know, titanium partners is a firm that I am the managing principal of. Basically what that means is I help people that want access to commercial real estate investing or a business investing and we're kind of a boutique, private investment advisory firm, if you will. But everything that we work on is typically for high net worth individuals. Most of our folks are accredited investors, however, we do work with private businesses and new business development as well, focus primarily on the Midwest. Uh, we do do some work down in the southeast us as well. Typically we're pretty focused on the Midwest. I like to say that we speak Midwestern. We'll find we'll true for audio listeners
Ryan Tansom: And you're up in Duluth, so you even know how miserable the Midwest weather can be.
Brian Forcier: yeah, the polar vortex next week.
Ryan Tansom: So actually before we even kick into this even more, so explain a little bit how about some of the inner workings of, you know, cause I think private, you know, what is commercial real estate investing and then how does that all work? Cause I think you, you've got a unique suite of services cause I think as we tee into this, you know, a lot of people are always chasing returns, but then also making sure that they've got tangible investments and there's a lot of people looking at buying businesses these days, commercial real estate and then having a portfolio of all the other stocks and bonds. But how did you get into this and then how did, how did you end up kind of with the suite of services and the, maybe we kind of explain how those different silos of, uh, of the services that you use kind of all, uh, work together.
Brian Forcier: Oh, that's a great question. Thanks. It really starts with the deal itself, with titanium partners, what I've tried to do is put a team together, people that kind of really help our clients evaluate if the deal makes sense, you know, and we'll tell her our clients have a dozen pair. If we think no, in our opinion, here's the 10 things that you should look for that how's this deal not going to make sense. Let's move on to the next one. You know? And so we're very careful. Very, yeah, very good. Uh, concentrated on um, returns, no doubt about that. But also on kind of the long term viability of the investment that folks we work with, um, are looking at, and we take that really serious because as part of the suite of services that we offer, we also do long-term asset management, property management, basically, somebody can hire us to, yeah, it mailbox money if you will. And we take care of all of the detail for them from, you know, the sale on brokerage of the building or the business to the no asset management other than making sure they get it, good profit loss information and then really watching for, you know, when's the right time to reposition an asset and add value and things like that. So typically are investment clients or are involved with us for years to come. And so I think that sets up well for us in a relationship to make sure that we're helping them make good decisions on the front end rather than just a one off brokerage or something like that. We're in it for the long haul.
Ryan Tansom: Well that's where I think when you say that, you know, what are the triggering events that people are looking at this stuff and maybe we can kind of tie into that because that'll kind of tie in to the, the kind of, the premise of the show of the opportunity zones and stuff. But no, is it the 1031 is it the triggering them into buying a, you know, or selling a business? Is it the real like how, like what are the different things that are like things that people like if they're experiencing those things right now like Oh, okay, this makes sense. I should start looking into different options.
Brian Forcier: Yeah. A lot of times I know we're going to focus our conversation on today is opportunities, I'm excited to get into that as well, but I still do believe that the 1031 exchange, which we did a podcast, I'm previously you and I, really is the best wealth-building tool available to us today. It's still is the best tool available. What the 1031 exchange does is it gives you an investor opportunity to reinvest their gains, you know, while deferring taxes and that that allows you to put your full amount of money back to work even though you might be going through a life change like a business sale or retirement or something like that. And so I counselor clients that it's never too early to be looking at that and it could be five or 10 years down the road. It's not too early to engage us in the conversation so that we're helping position their assets correctly so that they can maximize the value that allows me to have more equity of theirs to go to work with. So yeah, it's just really never too early to have us as the conversation goes.
Ryan Tansom: And as that kind of ties into the 10 31 is people are going to like sell their building or they're going to defer and they're trying to figure out what they want to reinvest in. Now there's this new thing called the opportunity zones that makes it even more interesting. Right? Because of the different things that are in there. So let's just.... Give us, I mean you're doing a panel, I think it's on April 17th year in the twin cities at one of the country clubs. We'll put the show, we'll put the link in the show notes for that. So you kind of get your template for the people that, I mean it's been talked about for everywhere now and they went from like no one was talking about it to now it's on every single newsletter, an email letter that I think I see. But what is it kind of give us the down and dirty of what it is and how did it all come to, to fruition?
Brian Forcier: Well, the opportunity is legislation was part of the 2017 tax reform bill and it really was a brilliant piece of legislation that, it had bipartisan support, Democratic senators can, I came up with, a set of opportunities on investing and of course, um, the Trump administration signed off on it as well. Okay. Really was a win in the tax reform bill, it did take awhile to gain traction. I actually found out about it through one of our CPAs that we work with called and said, well, you might want to look into this. And before, okay, you know, guidance was really released in October of 2018 so it went a whole year almost before it was passed as legislation. And December of 2017 and then guidance was released in October of 2018 this is a relatively new, you know, tool for us to use for people.
Brian Forcier: And you know, in a nutshell what it's doing is it's trading about 90% of real estate or equity wealth is created on both coasts. And so, what the government tried to do is give us a program that encourages investment into Middle America, uh, back into rural America, back into, um, areas of even Metro areas that might be economically challenged areas. Uh, and it's really a job creation tool is what it's meant to be. And you know, like I said, I think it's brilliant. And so what happened was the Federal government gave states the opportunity to designated there lowest income census tracks and they had until April of 2018 to do that. In some states, they actually didn't even jump on this. It was amazing. Minnesota was one of them that actually had had an extension of 30 days from the federal government because they didn't take advantage of it.
Ryan Tansom: We should be proud of that, right?
Brian Forcier: Yeah. And, you know, maybe again, I'm not trying to get political, but I'm sure there was some politics involved between the two parties. That was probably why. At the end of the day, and Steve Minnesota did come through, um, now your listeners can, can go on to the department of economic development site, d e e d the state of Minnesota, and see they've got a map of the census tracks that are, uh, qualified opportunity zones. Yeah.
Ryan Tansom: The one for the, the US there's one that's a little overwhelming, but there's one of the whole us and wasn't it Brian? 25% other jurisdictions or whatever. It wasn't each state that they could, uh, they could bring to the table.
Brian Forcier: It was, yeah. And what's kind of interesting to me is that if you do look at some of the, the maps, obviously there were some politics involved in this legislation because some of the areas that our opportunity zone friendly, you and I would look at and go, those are great areas. Well, why wouldn't we invest there? So I would encourage your listeners to not look at this as only economically challenged areas. It's kind of surprising, Oh, if you do look at that map and do a little bit of research and those terms are welcome to call me anytime too and I'll help walk them through it. But there's some really great areas included in the opportunities zone that that you'd want to invest in any way.
Ryan Tansom: So what are the parameters and boy and why would the government... So what is it they did and then why would someone want to actually invest in these areas and what are the benefits of that yet?
Brian Forcier: Okay, well I like to break it down to three steps cause it Kinda gets a little confusing on the, on the first step. And so let's start there. It's really a temporary deferral of capital gains. Um, and this is not just a real estate play. This could be any kind of capital gain. It could be from the sale of your, your apple stock that went from zero to 10 million. It can be any capital gain, business sales, small business, large business. There isn't a, there isn't a um, a guide that says, you know, this is excluded or that's excluded. If you were going to take a capital gain on the sale of something, you can defer it now with the opportunity zone. Yeah, and that's different than say a 1031 exchange where it needs to be a real property asset. This can be business, it can be stock, it can be anything that you sell. And so what they've done is they've basically said, look, let me give you a temporary deferral. Sell it now. You're still going to have to pay those taxes. What we're going to give you a stepped up basis. And if you hold it for different time periods, the longest being 10 years for longer, we're actually going to give you a 15% stepped up basis. So let's use an example that you sell something for $100,000. You actually, we'll get a stepped up basis of 15% and you'll pay tax on $85,000 not on $100,000 in gains.
Ryan Tansom: Okay.
Brian Forcier: You don't have to pay that tax until December of 2026 so they give you a 10 year, I guess it'd be an eight year deferral now. So when the taxes are actually going to be due, okay. Oh that gives you some time to build up equity in whatever you're going to go into. All right. Take your tax liability that you might have plus the 15% stuff that basis. So it's really, but the crush capital that you're bringing to these opportunities on investments, how's a benefit added benefit of it getting that deferral component? So 2026 and the stepped up basis of the holding 10 years or longer. So that's, that's the first one. piece.
Ryan Tansom: Maybe you're going to get to this, isn't there like a five and 10 year deal where then there's actually no gain. Like you don't have to pay... There's like a, like a, almost like a sliding scale of how much she actually had to pay in taxes?
Brian Forcier: Yep, that's right. So if it's held for, you know, five years or longer, then it's 5%. If it's held for seven years or longer, um, it's 10% and if it's held for 10 years or longer, it's 15%. Got It. The basis is that what you might be thinking about, Ryan is called the permanent exclusion, and this is the part that I get really excited about it because for long term holders, assets and businesses, and so for us, if you hold it 10 years or longer, it's an opportunity zone and you sell that investment that you went into with fresh basis, you actually are, you're capital gains-free. So well, she used that example of hundred thousand dollars that I sold apple stock. And I'm going to pay tax on $85,000 of the gain. Well, that 85,000 goes into a, a new investment. Let's say it's a new apartment building in opportunities zone, yeah. Well, let's see. I grow that investment from 85,000 to a million bucks over the next 10 years. I don't pay tax on that increase in value from 85,000 to a million. As long as I hold it 10 years or longer and sell it, I see zero capital gains tax after 10 years. Zero.
Ryan Tansom: Yeah, that's ridiculous. There's no other place that you can do that really other than some crazy estate planning maneuvers and stuff like that. Okay. Maybe I'll let you finish your too. Other points before I started rambling off with a bunch of questions.
Brian Forcier: Well, and this is a good time for me to remind your listeners too competent legal and financial advice from your CPA because there are a lot of nuances us to this program that you want to make sure you follow, but the one thing that I keep coming back to that I really enjoy, buy well at this program is it's a treasury department sponsored, meaning there's an IRS form that we fill out to become You know, a qualified opportunities zone fund and a fund can just, it's a fancy way of saying that the actual asset that you're buying. So it as a not a group of assets. Well, there are groups of asset funds that are being released. We've been dealing more with one-on-one assets.
Ryan Tansom: You're basically creating a fund wrapper around whatever they add to this.
Brian Forcier: That's correct. That's what they require us to do it. And you do that with one form. It's not, it's not a complex process.
Ryan Tansom: Oh yeah. Cause I was gonna say like most people out, they're probably hearing like all you'd have to go out there, create a fund, raised a bunch of money, then you deploy the capital and that sounds like a pain in the ass. But like this is literally just like you're filling out a form to make sure that you're just classifying that asset.
Brian Forcier: That's right. Yeah. And it's through the Treasury Department. So there's, you need to have competent advice from your professionals. But I, I would counsel people to, yeah, look at this as a pretty simple process. Actually set it up as a really streamlined, simple one form what the Treasury Department to qualify. So yeah. Well it's pretty easy to do.
Ryan Tansom: So the, for first of all, do you know like a 1031 Exchange, you have to do like for like acids, right? So you have to go from the building to a building, right? So if you sell your apple stock or your house or your business or you're trying to defer these gains, what is it like what, maybe this is part of your second or third parts of this, but what kind of assets qualify for this and like is it you have to buy something already existing or can you develop something if you still had your apple stock, can you go into real estate? Like what's kind of the, the nuances of that?
Brian Forcier: Yeah, yeah. As it does. Yep. Correct. It is a different mechanism than a 1031 and you hit on at the 10 31 is really a like-kind exchange, meaning no real property for real property. Yeah. Whereas opportunity zone potential isn't limited to like-kind exchanges. Yeah. Again, back to any economic gain and she would have made from the sale of a business, the stock, a bunch of rare coins are really gun collection. Any of that capital gain that you would have had done claim you can reinvest into any kind of investment you want to into an opportunity zones. Now for me, I'm a real estate person so it makes it easy. We're typically going into real estate assets. We are looking at some operating companies now putting some capital into because they qualify as well. And let's say we then that's where you can really realize some great gains. Now your risk is a little higher in operating companies and real estate. Yeah, the true reward could be higher too and so that ultimate reward at the end of 10 year hold substantial and operating business. And so we are looking at both real estate and operating companies right now.
Ryan Tansom: Are there complications out there or conflicting pieces of advice. Does it have to be the can be existing or like, cause like I said, okay. Verticals where there was like you can't go in there and buy an existing building or business. You have to like build it from the ground up or start an incubator for a tech incubator or something like that. What actually qualifies in that?
Brian Forcier: Yeah. What, what confuses people is that you do have to make an investment into these purchases if you will. So let's say I buy an older we're building opportunity zone. And it's vacant. Um, but it needs, you know what I'm say again, just using arbitrary numbers here, but I'd pay $100,000 for that. I have to invest at least another hundred thousand dollars over that hold period into that building to create the value. And so if you think about it this way, they're really encouraging us to spend money the government is with this program to reinvest into these businesses and, and into these properties to really clean them up or add value or, or job creation really with the operating company side. So you do have to reinvest at least double your initial investment.
Ryan Tansom: Okay.
Brian Forcier: To my knowledge isn't anything that says that you can't buy something that's existing. In fact, we're doing it.
Ryan Tansom: Okay. That's super interesting. So then can you do, does it have to be capital that is coming from your, let's say may, maybe we take an example for someone too, is like you literally take a hundred, 200 grand, maybe I can you take out an SBA loan and then so you, you take the money, you buy a business or a building and then does that money. One question is can you do that? And then the second question would be, is that, um, so can you use debt? Is My question in order to purchase it?
Brian Forcier: You can.
Ryan Tansom: Okay. So then the question is, does he, like, do you have to take the capital from you or the fund in order to do that? Or can you, for example, let's say you and I, you and I have talked about a couple of businesses, right? Where if we go buy a company that's doing a million in EBITDA, maybe we roll a couple of million bucks into that, you know, take out a loan. We buy this company, can we use the profits of that business as the reinvesting? So, for example, if we would have netted 800 grand next year on that after debt pay off, can we reinvest that money and does that qualify or did you have to spend, do you have to deploy capital that you is outside of that? Does that make sense?
Brian Forcier: There is an arm's length piece to the transaction, which means they want the new capital and your basis coming in. Okay. So it wouldn't be the capital that you generate, say from adding value to that deal, okay, but you're going to reinvest it. They want, they want fresh basis again. So we do, for instance, we're looking at a large apartment building in Duluth right now that we're building, it's going to be a 15 stories, 204 units, a skywalk attached to essential health care's billion dollar expansion. It happens to be in an opportunity zone. So if somebody comes in with us as an investor on that project, they're going to more than double. We're gonna more than double the, the basis of that investment in, in this building. That's a $70 million project. So yeah. You know, there's an example of a, of a building right now that we're creating, um, from scratch. Most of our capital is actually from an old side of the Minnesota area coming in because they wanted to have access to an opportunity, opportunity zone investment, but it's fresh basis coming in, which was my point.
Ryan Tansom: Yeah. Which makes it makes a ton of sense from a real estate perspective. And I think maybe to your point, I mean this is a different asset class and it's more risky, right? But like if I move were to go buy a business and, or if the sellers are listening and they wanted to sell the business, I think there's like so many like both sides of the coin that that people can negotiate. Because if everybody's talking about net proceeds and internal rate of return, then there will be an opportunity to, to like maybe connect or bridge a gap between a buyer and a seller and this stuff. But like, so you're saying if you, so someone comes in and buys a business like that, then they had to go literally take their own money and then put that into marketing or put that into hiring people or the growth strategy that is not coming from the current cash flow?
Brian Forcier: That's correct.
Ryan Tansom: Okay, got it. I'm good. How about like if you were to buy the business and then if the, if the building separate, would that count? So then you'd be bringing in...
Brian Forcier: Sure. Yeah, it's not specific to the.... It's again, this is not a real estate all my play versus say like a 1031 exchange so you can separate the two. Oh, you could do a 1031 exchange on the real estate side and do opportunity zone play on the operating company side. That's where I see the real potential.
Ryan Tansom: Okay. I see what you're saying. So you're saying like you could literally do a 1031 in the businesses building that's in the opportunity zone to buy the business in, in that same building?
Brian Forcier: Sure. What's real popular with us, we get calls all the time. In fact, I think you good about giving us some, some folks that need some help with this where uh, they want to recapitalize their, their business by selling their real estate and leasing back. So a company like ours comes along, we want to invest in real estate but maybe not the operating company. We'll buy the real estate from them, have them long-term lease it back from us. They can then take that capital and reinvest it into their business in an opportunity zone and qualify.
Ryan Tansom: That's awesome. And then again, this gentleman that we're thinking of, he's going to be growing so he's in the easily be able to hit that it you said it's two times the money?
Brian Forcier: That's right.
Ryan Tansom: Yup. Super interesting. So did I, did I totally a segue away from your three points?
Brian Forcier: No, we got through them and I think it was entertaining how he did it. Usually this stuff you fall asleep about halfway in. So I think we've done good so far to keep her and, and I will say again know like any complex piece of legislation, there are other nuances that we probably will not cover today cause we just don't have enough time. So I want to encourage people to make sure they're getting the right advice. We've got, you know, a team of accountants on our side giving us advice constantly to make sure that we do this right. I can't stress that point enough. But this opportunity zone, especially for somebody that's say in the middle of their career or in the middle of the business cycle for their business, for investing, it is a onetime shot here to set yourself up for retirement someday without a capital gains tax. I don't think I've ever seen anything like this.
Ryan Tansom: Yeah. Well I think what's interesting is like, I mean even if you, the people that are in Africa, so even if you're in the opportunity zone, could you just essentially do exactly what we just said and it would still count because you're just, you're in it. So it's technically not outside capital coming into the, into the... That county?
Brian Forcier: So there has to be some reinvestment that's going to happen in something new. What we see some people do for instance is, maybe they're already in the business of making, uh, blue widgets. And if they add a machine to their system. And let's say that machine is located within an opportunity zone, make additional blue widgets, then they qualify it as a business. But the, the product has the product or service has to be produced in an opportunity zone. Now that doesn't mean it can't be export it out of the opportunities on, so it same like your blue widgets in the, okay. Know in the opportunities on, but you, you export them to, Oh, some wealthier suburbs. Well, you can do that as long as your home base is in the opportunities on that's important.
Ryan Tansom: Got It. I think maybe what we can touch on for the listeners too, which I think is an interesting, well, I know this because, mmm. I, you know, what I think is interesting is that it's bipartisan. And, and why would both sides vote for this? And I read a bunch, like I think it is when I reached out to, cause I wasn't, and I was like totally geeked out on this for like a weekend and just like read everything I could. They're like, one of the things that I, I caught is just so intriguing is that it's one of the smarter things that I've ever seen any government do because it's actually how investors think. And so I, you know, there's a, there was a couple of articles I read, like this is white collar only for the, you know, the rich get richer and all this stuff. And it's like, you know, cause it takes a lot of intelligence and, or a big team to do this stuff. So you need a lot of people. And they say, well that's, you know, you know, there's a, it's totally the wrong way. But what I actually truly do believe Brian and I'm, I'm curious in your thoughts and this is it just when you say it literally rejuvenates because the, the one of the articles that I had and I can find it and put it in the show notes for the listeners, is that the sheer like how many jobs disappeared and '08, '09 and never went back to rural America is insane because so many people and moving to the cities for jobs and you know the, for all the different various reasons. So they're like this is it for patient capital and then actually with it, especially if you clarify the fact that you have to double your spend, you're going to actually revitalize these different areas. So I mean it's literally for job creation and value creation in places that normally capital or investors like yourself. I mean you wouldn't go to, you know, there's some places here in town, like the ethic, I don't know if it was Brooklyn Center, Brooklyn Park, where like you don't really necessarily always want to go there, but like this totally shifts the mindset. So, I don't know. What are your thoughts on that? Cause I just, I do find it super intriguing.
Brian Forcier: Yup. It is doing, it's having the effect they intended, which to your point about government-sponsored programs, we don't always get to see that. I'm being totally critical of our elected officials, but critical because they sometimes deserve it. Uh, in this case it's working and it, and it was brilliant because it does force us as investors of capital to look at opportunity zones first now. It doesn't mean that we won't do some deals are projects outside of opportunity zones. Of course the road. Yeah. It all goes back to this. The deal makes sense. There's still wonderful opportunities that are not in opportunity zones that you should look at and we are looking at them today. Yeah. We're purchasing for a hotel investment group, a hotel in Woodbury, Minnesota right now.
Ryan Tansom: That's definitely not an opportunity zone.
Brian Forcier: Not an opportunity zone. But it's a wonderful opportunity. And so you know, I still consult people to not become so focused on opportunity zones that that's all that they do. You know, you shouldn't do that. It's really kind of like a cherry on top of the, the investment is how we look at it.
Ryan Tansom: Oh cool. Is because it is about patient capital in for like, you know, my definition of that is that you're doing stuff. You ever heard of the book called Conscious Capitalism. It's a fantastic. So just like almost kind of like you're just doing the right thing all the time, but with profits in mind so that you're doing the right thing but then profits also come. But like you know, you go in, you go and invest in one of these places, whether it's a building or business and if you're forced to spend, you're literally going to be bringing jobs in or you're going to be taking a dilapidated building and making it better in a place that normally wouldn't get it. And, but the craziest part is because of this thing, you get the rate of return for it. So it's worth it. I mean it's just, you don't see that. That's kind of stuff that makes that kind of sense too often.
Brian Forcier: Yeah, no, it's really good policy. Oh is what's happened here. And again, bipartisan that we had a lot of distressed areas in the u s you hit on it earlier, jobs left, and now they're starting to return to its growth because of this.
Ryan Tansom: What is the timeframe for this? Like, I mean, is this, is this one-time deal? Like when does this end?
Brian Forcier: Yeah, so one of the things that really has hurt some of the energy and excitement for opportunity zones was at the federal government decided to shut down for about 30 to 60 days here in the middle of the, um, all of this. And so as investors and as professionals trying to play by the game of them, the rules of the game, um, weren't told old rules. And one of the issues that's coming up is the timing. Right now, the way the program is set up is that you have to make these investments by December 31st of 2019 Oh, we were shut down, like I said, two months in the middle of this thing and couldn't get any answers from the federal government to make sure that we're setting these up. Right. So what we're hearing is they are going to extend that the dates of this program today for this podcast purposes, you have to think you have to make this investment by December 31st of 2019, but know that those dates most likely are going to get extended.
Ryan Tansom: Maybe a quarter or something like that?
Brian Forcier: No, they're actually talking six months to a year. So I think it's going to probably go through the year 2020 would be my best guess.
Ryan Tansom: Huh. And I don't want to go on a soapbox for, okay. So this isn't about ridiculous mechanism, but there is absolute shit for like resources out there other than people like you finally trying to get the news out. Why in God's name do they have like a 12 month window? Something that's so awesome when it tastes that long to adopt and educate people and you probably like 99% of CPs probably do not even get it. So like how does it even like take a factor, have an impact when it's that sort of a window?
Brian Forcier: Well, I think what they looked at Ryan is that this was actually passed in December of 2017 that actually was going to give investors two years, two full years to take advantage of this. Which probably would have been adequate. Okay. The problem was that the guidance didn't come out, so they approved this, but the guidance from the Treasury Department didn't come out for 10 months later and then they shut it down.
Ryan Tansom: It sounds like a well oiled machine.
Brian Forcier: Right, right. Thank you. Here's our policy makers again the but brilliant program, but then didn't tell us how to use it for 10 months and then when they did, oh they shut it. They shut down so we couldn't register these things for another 60 days. So what was supposed to be a two year, a window of opportunity has become about eight months. And they admit that they, they see that, okay guys like myself that are trying to do, do this correctly are asking the right people to extend it. So I truly believe they'll extend it another year.
Ryan Tansom: That makes sense. So then, okay, I think you know, for the actual stuff for the listeners, so let's say you own a business or a building, yeah, maybe we can can kind of take this from a couple of different angles. Who in what situations especially given like call it like a 12 month window, what situations that are people that absolutely need to think about this? So I own a business and what kind of lifecycle or what kinds of situations and or I own property and like what kinds of things should I be need... how does that line up with my strategic plan? What are the, what or who should really like... Given these situations have to start looking at this now.
Brian Forcier: I think the first answer that comes to mind is anybody that's growth-orientated. If you're in a growth-oriented business You know, in that phase, um, cycle of your business or your career. Absolutely. You should be looking at opportunities. If you're not in a growth phase of business, let's say you're more mature in your site, ball in your, you're really only looking at positioning yourself too for an exit? You know, five years then opportunities on investing isn't for you. You should concentrate on more of the 1031 exchange, you know, because then we can help, uh, with setting up that you defer taxes still with the sale of your business or real estate, but it's not linked to just the opportunity zone, so I think it really comes back to where are you at in your cycle of investing and your career. And um, if it's 10 years or longer, then yeah, absolutely should be looking at opportunity zones, and if you're growth focused, you should be looking opportunity zones. If you're stabilized, not growing, then it's probably not for you.
Ryan Tansom: Okay. Interesting. So let's say I am a business owner and I own a business in a building, in an opportunity zone or maybe even not in an opportunity to, and honestly like a, let's say anywhere. Let's say I sold, but then invested into a fund like yourself or someone else is at does their spend count for me? You know what I mean? So let's say you wanted to do that, but you wanted to get out or something like that. Then with, would that work? Would you know based on like...
Brian Forcier: Yeah, arms like so they're not going to reinvest in that business. They just sold but they could invest in another business or a piece of real estate or, or asset that's going to appreciate over time. So. It does... Keep in mind you don't have to sell something that's an opportunity zone to take advantage of that stuff. That basis it can be, it can be from anywhere. It's the reinvestment that's important. That has to be in an opportunity zone.
Ryan Tansom: Okay. Yeah I was just kinda thinking, cause when you're saying that someone's on the in an accident, like making sure that, so if they didn't want to double down and spend all their own money, they get, they sold and then maybe they didn't want to do a 10 31 or something like that or this is interesting to them. They could do that investment but they wouldn't have this, you know, double their spend. Someone that they could have capital side, you know, next to them that would be counting as the, as the capital. Right.
Brian Forcier: They absolutely could do that. And also keeping in line up to confuse people. But you can prorate or proration investments, too. Lets say you decide that you only want to reinvest half of what you're going to be protected on that at least that half that you reinvest in opportunity zone and you and you're gonna pay your typical taxes on the other house. So you can do it in percentages, too. It doesn't have to be all or nothing.
Ryan Tansom: That's awesome. So then let's go into that second question that I was asking, there's so much chatter about this right now, especially with the urgency that, I mean, I looked at there's this opportunity zone fund list. I mean, my God, how many there are out there. And so there's people that are knocking on everybody's.... So what are people, what do people have to be aware of and be cautious of as people are knocking on their door?
Brian Forcier: Well, okay. Know most of the folks that that are, that we're working with our credit and investment folks, so they're probably pretty well heeled in business or in, in investing terms. And they probably have developed a gut read over time. It if it's too good to be true, it probably is. And so I'd say the, that adage is the first one to look at. If you feel like something, the story that you're getting is too good to be true, it probably is. Having said that, you know, so, so we've got some, some great investment opportunities that we're working on within our funds that um, investors can call us about and we'll go through them and somebody, many might say, well Brian, that sounds too good to be true too. The differences I think I can, I can ground with factual evidence of why I think my stories are good. Yeah. Usually it's, you know, here's where the rental streams coming from or here's where the actual revenue is coming from. Yeah. And if that fits your smell test of not being too good to be true, that invest in it. And if it doesn't take a pass. Use your refined credit and investment gut, if you will, to make your decisions. Because there are a lot of snake oil salesmen out there that are trying to take advantage of this program because it is just one form. There's a low barrier to entry for people to do this, they're also getting some people that it shouldn't be doing it trying to sponsor some of these investments.
Ryan Tansom: Also for the listeners or people that are potentially selling here shortly or they've got clients that are going to be or whatever. I mean I just think it personally of my own situation. Brian were like, don't technically we went from being broke to accredited investors overnight. So like we didn't have any sniff test where like, I don't know, everything smells Rosie. And so I think there's that and like, yeah, and you know, we still, we told some most stories last show, but, you know, I think for someone that is potentially going to be having the triggering event of selling a building or a business and the next 12 months and someone convinces them to move the money into a zone that is going to be deployed. I mean these people make asset management fees right before they deploy them. And then what happens if it's not deployed or they don't find the, the investment and all that? I mean, what, are there any ramifications that you want to explain?
Brian Forcier: Well, distinction that you're seeing with some of the opportunities on sponsors, people that are syndicating these deals. There's what's called blind funds out there where you don't know exactly what you're going to be investing in, just that you're contributing money to. They're fun. I'm going a little bit more nervous of those than I am, say, a very specific asset or assets are already predetermined and set up, you know, that you know what you're going into. So I, I'd say concentrate on the things that, you know, you're going in to first, not the blind funds. Yeah. Um, I, I do not have a blind fund and I don't intend to raise a blind fund. Our strategy is more of a go seek out the investments in opportunity zones that are good and then raise the capital for it.
Ryan Tansom: It's tangible. This is what we want.
Brian Forcier: It's there, you can see the plans it's going to get built, there's construction estimates, you know, what the lease is going to be in. All of those things are put together for any, a dollar of equity is raised. Oh
Ryan Tansom: So this has been a lot of fun. Is there anything that, you know, as I was kind of making the Juke and Jive, is there anything that we talked about that you want to make sure you reiterate or recap or is there something that we didn't talk about that you want to make sure you leave our listeners with?
Brian Forcier: Yeah, I think you know, again, back to the discussion that we've had about this, the deal really makes sense. We always survey are top investors and ask them what's their top concerns. I think your listeners would find this interesting. Yeah, there's really, there's really five main top concerns that come to mind. The first one being we're in a continuing a rising interest rate environment. So one thing to really be careful, there's anything that you invest in that you're, you're setting your interest rates for the long-term, at least 10 years or longer. If you're planning to take care of it, you know, advantage of the opportunities on who's going to be in at 10 years or longer know, watch those interest rates, make sure you're getting a good interest rate and then it's walked long term because many commercial interest rates are three or five years and that set you up for some trouble.
Ryan Tansom: Yeah.
Brian Forcier: That's one thing to watch for. I think the other one is, you know, the unforeseen shocks to the economy. About half of our investors are very concerned about that. That could be a terrorism attack. It could, um, political attack. It could be a.... Who knows what a currency attack. Um, things that you just can't do anything about, but we're kind of in an unstable economy.. Make sure that you're making decisions based on you. If we're in an unstable economy and another recession hits, your widget's probably still going to sell, so I caution people to be conservative on what they're investing in there. I think the other piece is rising operating expenses about half of our investors are really concerned with that know, because property taxes aren't going down, health insurance costs or not going down, utility costs are not going down. Anything that you invest in probably has a rising operating expense to it. So make sure you're checking and balancing that revenues going up in concert with the operating expenses.
Ryan Tansom: Right, right. Even on that note, the listener should be like, they like whatever they should have. Like someone should have all that modeled out, right. So they, if their concerns should be okay, they should be able to see, and that was right.
Brian Forcier: Yeah, no, that's right. And back to your question about how do you tell us an investment has to be true or not. If somebody hasn't done their homework and can't show you how that's going to work out, I'd say run, don't walk. They just don't know what they're doing. Yeah. And so, you know, a couple of other things that really concerned about right now is over-development. I think there's lots of articles coming out about, say, the multifamily market. Um, apartment building phase and especially in the Twin Cities market, it's okay getting close to over bake and most of our opinions. And so you want to look for areas no, hasn't been over developed to make your investments in, too. And then the last thing that people watch is global economic issues. And only about a third of our investors are typically worried about global economic issues. And again, we're, we're pretty focused on the Midwest and we're not as affected by global economic issues in the Midwest as they are on the coast. So I think that's, that's probably why you see that not be as big of a concern to my investors.
Ryan Tansom: This has been a lot of fun. We'll have a bunch of the links in the show notes and you've got some other resources that we can put in there. Contact Information. If our listeners want to get in touch with Ya.
Brian Forcier: They can look us up. Titanium partners llc.com. Um, I think all of my contact information is on there. My email, my direct phone number, call anytime. Love investing. I love talking about investing with people. So no hidden agenda to it other than if we can help each other and make some money, I'd love to talk to you partners.
Ryan Tansom: Sounds like a plan. Brian, thanks for so much for coming on again. Appreciate it.
Brian Forcier: Thanks Ryan.
Ryan Tansom: Well, if you were tracking with Brian and I and you're geeking out on ways to defer or eliminate all your taxes, I hope you enjoyed that episode. Here's my big takeaway is that do not blow up your current plan or put any capital at risk if you're not set up correctly for your timing or your risk to do this. But I'm telling you that if you have your plan and then you're looking at selling or deploying your capital in a place so you can eliminate some taxes and this fits into your growth and exit plan, then absolutely sit down with someone like Brian, dive in, run the numbers because people like Brian are willing to do that work because they want to know if they should be partnering with you and they don't want to put you at risk either. So if you have your plan and you understand when and how your liquidation event might happen with your business or your real estate, and this is something that could really significantly move the needle for your family wealth and or your plan on what you're gonna do afterwards, sit down and start looking at the numbers of see what your whole plan could look like with or without this.
Ryan Tansom: And this is why Brian and his team get involved in my clients because once we have the bigger plan, then we sit down and say, okay, Brian, how does this make a difference if we were to do this based on what we're trying to accomplish in the next 12 to 24 months? So I really believe that these are the mechanical tools that we should be looking at once we have the grand plan. What I really, really suggest is do not just jam something like this down your throat because you think it's really cool. Make sure you have context of how this fits into the grand plan of your family wealth and for your growth and exit plan of the business and your real estate. So again, it's got to fit into the plan instead of making the plan circle around this because it's super cool and you want to avoid some taxes.
Ryan Tansom: So I highly suggest that there's two followup action items. One is that if you are in the process of having a liquidation and the triggering event is pretty much already taken away and there's not a whole lot of quote unquote planning that you can do, but you have the opportunity to capitalize on this. Reach out to Brian, look at some numbers and see how you could potentially take advantage of this. The second one is that if you have some sort of idea that in the next 12 to 24 months that you want to potentially get out of your business, you don't know how, you don't know how to tax optimize a situation and you don't know what all your options are, reach out to me and my team will sit down and have a conversation and we'll walk you through a lot of the different scenarios, the five principles and then say, you know what, you need to sit down with Brian and or we'll get Brian involved on the back end.
Ryan Tansom: Once we have the master plan and we understand exactly what the whole growth and exit objectives are, then we start optimizing it with all the tax advantage strategies like Brian's bring it up so I hope you enjoyed it. If you think that there is someone that I should have in my podcast, whether it's an entrepreneur that was willing to share their growth and exit story, or if it's another specialists like Brian who was willing to give advice that is surrounding the growth in sale of a company, please reach out to me because I'm always looking for great content to bring you guys and it, I enjoy geeking out on new strategies that I've not heard of as well. So I really hope you enjoyed it. If you are also enjoying it, please go into iTunes. Give me a rating. It's a pain in the bud, but it makes a big difference as I'm trying to get new guests on and spread the word. So with that being said, I will see you next week.
Written by Ryan Tansom
Ryan runs industry-specific podcasts on his website which pertain to mergers and acquisitions, and all the life lessons he wish he had known then. He strives to bring this knowledge to his listeners in a way that is effective and engaging by providing new material each week from industry experts.