Investing

Eve Picker: [00:00:05] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich, or poor, beautiful, or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone.

Eve: [00:00:45] Rich Rogers is an urban planner and attorney in Buffalo, New York. In his practice, he focuses on tax credit financing and on creative problem solving to help public and private sector projects work from concept into financing and implementation. Rich is also a real estate developer with a project in lease up on Buffalo’s Main Street. There he’s put his knowledge to good use, converting a 30,000 square foot historic building into modern retail and affordable housing units, and employing every trick in his book to build his super complicated capital stack, which of course includes tax credits. If that’s not enough, Rich has a crowdfunding platform called Common Owner, focused on real estate and you guessed it, crowdfunding tax credits as well. There’s a lot to learn here. You’ll enjoy listening in.

Eve: [00:01:51] Hi, Rich. I’ve been looking forward to this conversation.

Rich Rogers: [00:01:54] Likewise.

Eve: [00:01:55] So what led you to study both law and urban planning?

Rich: [00:02:00] I think there were a couple things that influenced that decision. When I was an undergrad, I was, in the SUNY Model European Union program, traveled to Exeter and Limerick in Ireland and just kind of saw some really great urbanism right up against some really beautiful countryside and, you know, wanted to learn about that and ways to replicate that, you know, here in the States, hopefully. And then also when I was out hiking the Appalachian Trail, I got really into conservation easements and, you know, similar kind of legal concepts where I really wanted to study both things.

Eve: [00:02:50] Interesting. So, what is your specialty in law today?

Rich: [00:02:55] In real estate development and commercial finance, typically representing developers. But, you know, largely focused on tax credit syndication and the monetization of tax credits. So, that includes historic tax credits, new markets tax credits, Low-Income Housing Tax credits, and kind of other subsidies to help close construction financing.

Eve: [00:03:19] So that kind of really puts you in the, I don’t want to say distressed, but I suppose distressed neighborhood realm, doesn’t it? More often than not, with those types of credits.

Rich: [00:03:30] In many cases, I think, particularly in upstate New York there’s a lot of communities that have, you know, eligible buildings, to undertake historic rehabilitation projects. So, we see, we kind of see it all over the map. And in particularly more recently with higher interest rates and high construction costs probably folks looking at using those types of credits who wouldn’t do so maybe a few years ago, you know, as capital kind of gets tighter.

Eve: [00:04:09] Interesting. Okay. So, I know you have a lot of other things cooking. You’re a very busy person. Tell us about your real estate development projects. I think you have done a few of your own, including renovating your own house. Right?

Rich: [00:04:25] Yeah, that’s right. Right now, so we’re undertaking the rehabilitation of the Monroe Building, we’ve called it. It’s the former Record Theater in Buffalo, New York. Roughly $7 million project, roughly 30,000ft². We have 17 apartments that will be affordable to folks making 80% of area median income. And we have, six commercial spaces that kind of range from 750ft² to 5500ft². We have kind of an exciting mix of tenants in there, including a coffee shop. We have a hair salon, some restaurants, some other stuff. So, it’s been a very exciting process, albeit a bit scary closing on the building just before Covid hit.

Eve: [00:05:21] Oh, yeah, that’s really bad timing. So, and how far along are you with the project now?

Rich: [00:05:28] So we are currently pre-leasing apartments for occupancy March 1st. The first ten apartments should go online next month with the other seven to follow, you know, likely in by April. Mid-April. Some of the commercial spaces are just starting construction. We do have several signed leases. We have a couple more commercial spaces to to lease and finish designing. But that lease up should occur over the next couple months with full occupancy by June, I would say.

Eve: [00:06:05] Oh, that’s really exciting. So aside from Covid, what’s been the most challenging thing about this project for you?

Rich: [00:06:12] Yeah. It has certainly been a challenge. I think, you know, Covid, kind of, the outcomes there, right? Certainly, a spike in, in construction costs have been very, very challenging to deal with. We’ve really great general contractor on the job BRD and they kind of worked with us through various value engineering and different kind of iterations of the project, which is unfortunate. On one hand, you hate to value engineer out some really cool amenities and things like that. But at the same time, you know, you need to get the job done, right? So, construction costs were definitely a challenge. I would also say holding costs. I think folks don’t think about that all of the time. You know, the building had a sprinkler system that had, you know, stay heated so the the pipes don’t burst in the winter. And, you know, so we had the gas on for a time. And we have recently, but also had to do propane the one year which got very expensive. Yeah. So, holding costs are tough. And then, you know, obviously interest rates were a big one. Ultimately, we were able to rate lock with our permanent lender. And that’s what kind of finally got us over the hump into the construction loan closing. So, there were a lot of challenges and factors to kind of tackle.

Eve: [00:07:48] So I gotta ask, how are you financing it? Are there any tax credits in there?

Rich: [00:07:54] There are. So, we have both state and federal historic tax credits which are 40% of the qualified rehabilitation expenditures, which includes, you know, most of your construction costs, certain design costs, architecture, etc. We’re working with Chase Bank to monetize credits, Chase Community Equity. They’ve made an investment in the project. They’ll make additional investments once construction is complete, you know, based on the number of credits that we deliver to them. So, we have a master lease structure, it’s called, with Chase Bank, not to get too technical. But so, you know, that ends up being, you know, roughly 20 to 30% of the capital stack at the end of the day.

Eve: [00:08:50] Significant. Yeah.

Rich: [00:08:51] It really is. But it’s, you know, really a necessary gap filler in places like Buffalo, you know, where the rents perhaps aren’t as strong as some other areas. We also are using what’s called the Small Building Participation Loan program through New York State Homes and Community Renewal. That’s a per unit subsidy for us to keep our rents at 80% of AMI on average. So, I believe we got $50,000 per unit, very low interest subordinate loan that closed simultaneous with the construction financing. I guess what’s nice about that program is when you’re doing one of these rehab projects, you’re kind of stuck with the building envelope you have. Right? And so we have some units that are nicer than others, some that, for example, we have two units that don’t have windows. Um, so the fact.

Eve: [00:09:48] I’ve got a building like that.

Rich: [00:09:51] They’ve actually come out great. I really actually prefer some of those units to some of the other ones.

Eve: [00:09:58] Yeah. We have, we have spectacularly big skylights in our windowless units that are just amazing, yeah.

Rich: [00:10:04] Same thing. And so, you know that worked out well. But I guess my point is that the flexibility with this program, where it’s not that every unit has to be below a certain AMI, some can be up to 120% of AMI, So, a couple thousand dollars per month. And then you can have some others that are far below.

Eve: [00:10:25] AMI, for our listeners, stands for?

Rich: [00:10:27] Area Median Income. So, essentially, yeah, there’s a rental rate based on, you know, how much money you take home per household, right?

Eve: [00:10:42] How much you can afford to pay. Yeah, yeah, yeah. So, this is brain damage, this capital stack.

Rich: [00:10:48] It’s a lot. We have another program that’s a permanent loan program through Empire State Development in New York. And that’s a transit-oriented development loan program called the Better Buffalo Fund. It’s funded from Buffalo Billion. And, you know, that provides low interest financing coterminous with the permanent loan. So, it’s a 30-year term. But where our project is on Main Street in Buffalo it’s directly across from a college and it’s very close, maybe a five-minute walk to two, light rail rapid transit stations, which, we only really have the one line that goes under Main Street in Buffalo. But I think this project really helps support that light rail system and, you know, kind of both ways. I think that’s a huge amenity for our project. And then it’s also on several bus lines. So, it’s definitely very transit-oriented.

Eve: [00:11:47] Fabulous. Okay. If that wasn’t enough, you decided to co-found ma real estate crowdfunding platform called Common Owner. What led you to do that? And that was also during Covid, right?

Rich: [00:12:03] Yeah. I would say just before Covid. You know, it’s a bit of a process to start a funding portal. If you’re not familiar, obviously you are, but for listeners who aren’t, it takes quite a long time. So, we started that process before Covid and were able to launch, kind of, during Covid, but, you know, essentially with our legal work and also consulting work and my partners’ consulting work, we found a lot of folks struggling to access capital, right? Under kind of traditional means, you know. Perhaps not having the network to raise the capital or, you know, kind of other challenges around that. So, you know, I think just the complexity around some of the rules raising capital or folks not knowing those rules or realizing them. And so, you know, by creating a crowdfunding platform those folks would then be able to access a broader pool of potential investors to help get their projects done, because in many cases, those projects were quite good. You know, they have grant funding, they had tax credits. They looked a lot better on paper than many projects that we did see getting financed all of the time. They just, you know, didn’t have the access to raise the developer equity. And so that’s something that we wanted to address in addition to, in some cases, monetizing tax credits can be very difficult if the project is smaller in nature. And so, using crowdfunding and bringing in additional partners and investors, you know, allows for some structures to spread out those tax credits a bit and, I think, many people would argue kind of the way that Congress intended with some of these programs. So those were the private and primary motivations behind starting Common Owner.

Eve: [00:14:11] So I’m sort of fascinated by the historic tax credit equity twist on your platform. How does it work? Like, what are the types of offerings that are listed and how does this, how do tax credits weave into crowdfunding?

Rich: [00:14:26] Yeah. Yeah, sure. So, typically in a real estate financing that includes tax credits, you have a tax credit investor that will come in and take 99% of the credits. And there’s very specific IRS rules around the way to structure these types of financings. But typically, a bank, an insurance company, a similar entity will come in and they’ll take 99% of the credits and they’ll put in capital during construction.

Eve: [00:15:02] And they’ll be a limited partner, right? They’re not taking control. They’re just a partner for the purpose of those credits. And then they give you a certain number of pennies on the dollar, right? For the credits, and they turn around and get value for that immediately as a credit against their own taxes, right? That’s why they’re interested. Yeah.

Rich: [00:15:30] Yeah. And so. Right. They have the type of income that these credits work really well to offset and, you know, they know, right, how much income they’re going to have. There’s a lot of things that work well for a bank or an insurance company to invest in these types of projects. Banks also get CRA Community Reinvestment Act credits for doing so. But the issue here is that, in many cases, these tax credit investors want to do the, you know, the smallest number of largest projects possible to reduce their due diligence overhead, asset management overhead, and the types of projects that a lot of cities and villages and urban areas really need are not necessarily these massive, you know, redevelopments of old factories or train stations. Right? They’re these kind of mixed use Main Street buildings and that that creates a challenge. Right? Because these more traditional tax credit investors may not want to be bothered with those smaller deals. So

Eve: [00:16:43] It follows the same pattern that all real estate investors follow. They don’t want to be bothered with smaller deals which are…

Rich: [00:16:51] Absolutely.

Eve: [00:16:52] …so important for our cities. Right?

Rich: [00:16:55] Yeah, absolutely. And I think, crowdfunding, I think, broadens the pool of potential investors, right? In general, but also if you have these tax credits, maybe you don’t need to undertake this highly structured, very complicated, you know, kind of financing where an investor comes in for 99%, especially in many states that have state historic tax credit programs like New York. You know, those credits in New York are refundable meaning that if you don’t have tax liability, the state will write you a check for the overpayment of tax. So

Eve: [00:17:36] Oh, wow.

Rich: [00:17:37] Yeah. So, it makes it a lot more user friendly for regular people to then benefit from some of these credits. But your typical, you know, real estate developer, sponsor, managing member kind of person is going to have a lot of losses, right? From depreciation. And won’t necessarily be able to use these credits. So, by bringing in a lot of different investors you can slice the credits more thinly where they can, you know, hopefully more effectively be used. And I think, you know, one thing with crowdfunding is, folks think about it as a, you know, kind of individual non-accredited investors. That’s kind of who it’s for. And I think that that’s a challenge in the industry right now because I think if you look at SEC data, you know, that’s in many cases you still have mostly accredited investors investing in many of these offerings. And I think really when you’re talking about these tax credits, you know, ideally you have a mix of maybe real estate professionals, some individuals, but then also, you know, starting to have, you know, corporations, maybe banks, you know, some other types of investors investing alongside these other folks to kind of, you know, raise more capital for some of these projects.

Eve: [00:19:04] So instead of a 99% like financial institution, tax credit investor, you could replace that with a crowd of people who own, or get their little pro rata share of however much they invest towards a tax credit which they may be able to use. Yeah.

Rich: [00:19:23] Right. Yeah. So right, you could, I mean there’s all sorts of ways to structure it, right? You could follow that more traditional model of the 99%. And then typically what happens in that type of a structure is after the five-year recapture period for the tax credits, the interest flip, right? So, the investor will take all of, or 99% of the credits for the first five years. And then the investor flips down to some lower amount, maybe 5 or 10% of the interest and in some cases will exit the transaction, right? So, here you might think of, if you’re raising equity anyway, perhaps you’re going to, you know, syndicate 30% of the interest in the deal to investors. You know, maybe instead you sell, you know, 50 or 60%. Those folks, along with the cash flow they would get, you know, may also get some tax credits. And that that can sometimes be a better, you know, or a way…

Eve: [00:20:27] You could also say that you, the developer, keep some of the credits for yourself. So maybe, you know, you keep 40% flow to you and the other 60%. So, there’s lots of ways to skin the cat, basically.

Rich: [00:20:40] Absolutely, absolutely. But it can be a bit more straightforward, I think, than some of these really complicated structures, you know, with hundreds of documents and hundreds of pages of projections and, you know, everything like that, you know, looking more like a more traditional partnership.

Eve: [00:21:03] Interesting. Okay. So, have how many historic tax credit deals have you had on your site and have they been successful?

Rich: [00:21:11] We only have a handful that I would say are really, you know, raising equity for the tax credits. And there’s a couple ongoing right now that you could check out if you go to the site. We haven’t had one fully closed that’s that type of offering, in terms of a regulation crowdfunding offering. We have had several deals closed that, you know…

Eve: [00:21:43] Just plain old crowdfunding.

Rich: [00:21:46] Yeah. Which might have a, right, plain old crowdfunding, but also, some Reg D deals on the platform that have closed that have a tax credit investor, right. A separate tax credit investor, this more traditional method, where the capital that’s being raised is more for that developer equity piece.

Eve: [00:22:10] Interesting. Okay. So, what do you think are the most challenging, the most significant challenges facing less experienced real estate developers?

Rich: [00:22:23] Yeah, I think there’s a lot. I think you know, in my mind maybe several years ago, it was mostly this, this equity piece. And obviously that’s a really significant challenge and problem. But I actually think a really big challenge is guarantees, right? And liquidity and net worth and balance sheet, you know, for folks especially who are starting out, who might, you know, not have a really strong balance sheet, maybe they have a lot of student loan debt or mortgage debt or, you know, something else. Right? Being able to close one of these loans is challenging, right? You’re going to need a partner not only to invest capital, but to also, you know, sign a guarantee and, you know, kind of be recourse on some of the financing. And that can be very, very challenging, especially, you know, for someone starting out to, you know, not only identify that type of partner, but negotiate a deal that still makes it worthwhile to do all of this work and be the general partner in the deal, right? You know, especially with some of these deals and, you know, some of these, I guess tertiary markets, you could say, you know, they’re already very thin from a cash flow perspective. And so, by the time you bring in a partner and dice it up, you know, for the guarantee, and then you also raise your equity, you need you need to really make sure there’s something left for you at the end of the day. And I think that can be a very significant challenge, especially once you get into these deals and perhaps you own the building, and now you’re committed. And, you know, it can be enormously stressful. But yeah, I think that…

Eve: [00:24:19] Also in sort of distressed markets where or softer markets where the returns aren’t as high, but construction costs are probably the same or close to the same. You know, this is why all those little bits of funky funding that you talked about become so important. Because there’s got to be something left for investors, right?

Rich: [00:24:44] Exactly, right. You know I think these subsidies are very important to essentially create a market where one doesn’t necessarily exist, right? In a lot of these geographies. So, but, you know, it doesn’t always quite get there, right? Especially in the, you know, this type of interest rate environment that we’ve seen. So, it’s challenging.

Eve: [00:25:12] So how do you think increasing interest rates are affecting developers in Rust Belt cities like Buffalo and Pittsburgh and…

Rich: [00:25:21] Yeah. I mean, I think it’s been a tough situation, right? Because I think a lot of people didn’t see it coming, obviously. And, you know, it’s made it harder to get deals done. You know, I think I mentioned we were fortunate enough to rate lock on our deal at a good time with our permanent lender, and that ultimately allowed us to get it closed. But, you know, I’ve seen folks who didn’t rate lock who, you know, never ended up closing their deal, right? As rates really climbed up. So that’s a challenge on the front end. But then also, you know, if you did a deal five years ago or ten years ago and that interest rate, resets right at the end of of that loan term, you can get in a, you know, a really bad situation, right?

Eve: [00:26:11] That’s one that I’m actually in. Yeah. I’m smiling because I really want to cry. We have a building which actually reset in mid-January. And fortunately, the upper interest rate was capped, or we would have been paying an additional 1%. So, and fortunately also at this point there are no prepayment penalties. So, if the rates go down we can we can go shopping. But still it’s another $2,000 a month that we have to pay on a building that’s limped its way through Covid, and we’ve had to discount rents and I. That part has brought us to our knees, you know, it’s been, it’s really tough. Yeah.

Rich: [00:26:59] Yeah. It’s really a bad situation, I think, for a lot of folks, especially in some of these deals where they don’t necessarily cash flow well. And, you know, at least in New York State, typically we’ll see these tax abatement programs for real property taxes that burn off in many cases simultaneous with these rate resets, right? So, you know.

Eve: [00:27:24] It’s really hard, it’s really hard. Yeah.

Rich: [00:27:28] So it’s yeah, it’s challenging, but I think that the interest rates have really brought many deals to a halt. I guess the as I mentioned earlier, the interesting counterpoint is, you know, projects that might not have, you know, been looking for tax credits or other subsidies, historically, you know, now might need them to make the numbers work. And some of these, you know, other markets that, you know, perhaps a bit more, stronger rents and things like that as rates go up, you know, those folks start to, to kind of seek these types of subsidies and alternative financing methods.

Eve: [00:28:09] So tell me then, how tax credits, not just historic tax credits, but maybe New Market and I don’t know what else is out there, how tax credits can move the needle for closing construction financing.

Rich: [00:28:23] Yeah. So, in many cases, you can, you know, reduce debt. So here in New York State, we have a brownfield tax credit program which is, again, a refundable tax credit. It’s based on, you know, cleaning up a historically, you know, contaminated site and essentially get a percentage of the overall construction cost that’s capped at either 3 or 6 times the site clean-up costs. Right? So, and there’s all sorts of adjustments. But at the end of the day, you know, that refund can sometimes be a source for the construction lender to pay down their construction loan. Right? So, when that refund comes in on the brownfield tax credit, you could make pay down to convert your financing or, you know, there’s some bridge loan products that folks are able to tap into. Some of the other subsidy programs, you know, New Markets Tax Credits is a very complicated program, but it does generate a nice subsidy if you can kind of get through the brain damage. You know, again, essentially, you’re reducing, you’re really reducing debt, right? And reducing leverage on the product, on the project, bringing in equity that doesn’t necessarily expect a traditional return, let’s say, on capital, which, you know, allows you to fill these gaps in your capital stack and get through construction financing, right? Because you need less debt on the project if you’re able to kind of raise capital by using these tax credits.

Eve: [00:30:09] And then there’s also opportunity zones, which are also another incentive for some investors. Yeah, so tax credits can be really huge, I think. But perhaps not, as you said, for small or non-accredited investors. So, it’s a slightly different market, right?

Rich: [00:30:28] Yeah. It depends, I think to really use the federal tax credits in particular, you have to have the right, you know, tax profile. You know, anyone who’s thinking about planning and trying to use tax credits should really have a long chat with their tax professionals just to make sure that they can use the credits. There’s all sorts of rules around that. And, which again, is creating this more limited market for tax credit, you know, monetization, right? So, but, you know, it varies, right? There’s things like, you know, the real estate professional election, if you’re a real estate professional to, you know, you may be able to use credits in a way that other folks can’t. So, it largely just depends on your tax profile. But that varies so dramatically from person to person, right? So definitely talk to your accountant.

Eve: [00:31:28] Yes. So, back to crowdfunding. What do you think are the biggest challenges for developers who try to crowdfund capital?

Rich: [00:31:37] Yeah, I think there’s a few, right. I think, you know, especially for folks who haven’t raised capital before, I think it’s just a lot harder than people think, right? At the end of the day, it’s really kind of sales, right? You’re selling your project in terms of pitching it to investors and, you know, that’s challenging, especially if you don’t really have the personality where you love sales. That that can be really hard. I think understanding the rules and complexities around crowdfunding and kind of the advertising regulations and prohibitions and stuff, it can be a challenge, right? I think especially for folks who, you know, the rest of the capital stack in many ways is more straightforward, right? Even if you’re going out and getting grant funding, right? And, you know, certainly applying for a construction loan, you know, none of that is all that complicated. Tax credits may be more complicated, but then you get into this capital raising piece that is really very hard work.

Eve: [00:32:57] It’s very hard work. I agree with you.

Rich: [00:32:59] Yeah. And so I think a lot of folks underestimate it.

Eve: [00:33:03] Yeah. Whether you crowdfund it or not, it’s hard work. It’s just different work. Right?

Rich: [00:33:08] Right. And so, kind of understanding those nuances and challenges. And then I think again, you know, being realistic in your anticipations of how much an investor is going to invest. Right? I think what I’ve seen a lot of is folks, you know, kind of have their list and they think that’s going to be sufficient. And then investors will come in and maybe they’re investing half or a third of what they anticipated. And that can leave you in a really tough spot, right? I think there’s definitely this, you know, build it and they will come kind of mentality for some folks. And that’s just not the case. Right? There’s not just people out there waiting to invest in your project in general. Right? You need to really build and cultivate those relationships. So, it’s hard. And especially in this environment.

Eve: [00:34:09] I think it works best when you have developers who understand that it’s just not a one-off thing, that crowdfunding offers them an opportunity to gradually build a group of investors who will follow them from project to project. And that is not just one project. It’s a series of projects. And I think those developers who get that really do best, and they sort of come up with a marketing strategy first with the first project, and they figure out what works for them and what doesn’t. And it can be wildly different for different people depending on where your network lives. Does it live on social media or the local coffee shop? You know, very, very different. So, I don’t know, I think, I wish people understood that instead of sort of believing, it’s just as you said, you just build it and they will come because it really doesn’t work that way. It’s really…

Rich: [00:35:10] Yeah, I agree. I also think that, you know, in some cases, I think folks who are, you know, really new or inexperienced or, you know, developing real estate, don’t realize that they’re selling securities and that they’re even, you know…

Eve: [00:35:30] And that was the other question I had for you.

Rich: [00:35:30] These rules, yeah.

Eve: [00:35:33] And then they have to follow the rules when they have these investors and they, you know, they need to do what they offered to do. You know, they need to follow through, you know. So

Rich: [00:35:45] Yeah, exactly. And so I think that’s a big challenge, telling people that they have to follow all these rules. And, you know, folks can sometimes get pretty defensive about that if they’re really confident that they’re right. And so, I think for that reason and, you know, it’s still fairly new, right? And I think, you know, I certainly thought that the crowdfunding, the equity crowdfunding space would take off faster than it has. But I think, you know, when you combine the fact that some people in real estate don’t realize that they’re selling securities when they’re raising capital and, that, you know, this is, you had this really long period with no changes to the securities laws, right? I think there’s still a lot of absorption that’s still kind of starting to happen. I do think, you know, over the last five years, there has been, you know, a broader swath of the population that’s hearing about crowdfunding and excited about it but I think there’s still, you know, we’re kind of scraping the tip of the iceberg, so to speak.

Eve: [00:36:53] Yeah, I agree. Are there any warts to the regulation crowdfunding rule that really irritate you? I have some!

Rich: [00:37:03] Yeah. I mean. I think, you know, the audited financial requirements. And I think they have made some good changes over time in terms of a lot of the rules that have bothered me. But, you know, just the cost of the financial statement audits.

Eve: [00:37:26] The financial statements. Yeah. So, I think what’s most upsetting about those, for, again for our listeners, is that there’s a financial review or an audit required if you want to raise more than $125,000. And that was, you know, I suppose that this rule was really intended for small businesses that were already operational. So, sharing financials makes sense. But in real estate, you typically have a brand-new inception entity that has done nothing. And often it’s formed right before the property is purchased. So now you’re spending money on a financial review or an audit of a whole bunch of zeros, and you can’t get out of it. It’s a regulation, right? It’s just, it’s very silly. And even for a small business, that’s a pretty high bar. You know, that’s a very high bar and I’m not sure that anyone looks at them.

Rich: [00:38:24] Yeah, except for us. Right. I think most investors. Well, it’s a bit hard to say, but, you know, also there’s a lot of rules and regulations around forward-looking statements and not being able to have these types of projections essentially, which is ironic because, as an attorney, you know, closing these tax credit deals, the projections really drive the deal, right? You have this set of 70-page projections and everyone spends hours and hours and hours poring over them, from the investor to the lender to the developer and all of their counsel, right?

Eve: [00:39:08] But it doesn’t mean that you can’t present a cash flow picture and an operational budget. You just can’t project an internal rate of return. You could, you can show investors how much free cash there is. You can show people exactly what the project is going to do, but you can’t, and an experienced investor is looking for internal rate of return, they’ll have to figure it out themselves. Right? That’s…

Rich: [00:39:36] Right. And I guess my point being is that, you know, on some of these other deals with these, granted, more institutional types of investors, that’s a specific, that rate of return is a really material thing that everyone is commenting on and adjusting the deal terms to accommodate, right? So, you definitely have a different kind of framework there. So that’s a challenge. I think the advertising, you know, rules and, you know, the way that these offerings can be marketed, I think could just maybe be a bit more clear for some of the issuers and the folks trying to raise capital, I think they’re a little confusing as well. And so then, folks, you know, don’t want to do something wrong. So they’re very scared about it. So, yeah.

Eve: [00:40:34] But Rich, we still love this rule, right?

Rich: [00:40:37] Yeah. No, I mean, I think the way it opens up, you know, access to investors is absolutely transformative and really important. Right?

Eve: [00:40:48] It is, it is.

Rich: [00:40:48] Even, you know, in spite of all the challenges that we’ve been discussing for much of the call, I think it’s really important. And I do think, you know, the thing that maybe gives me the most hope is that many of the changes that were subsequently made to the rule, I do think were really helpful in terms of, you know, the accredited investors and the special purpose entities and, and all sorts of changes. So, I think that there is, I’m cautiously optimistic about the future of the rule.

Eve: [00:41:25] We hope it will go mainstream, right? Okay. So, uh, just to finish up, what’s next for you?

Rich: [00:41:35] So, I have one more real estate development.

Eve: [00:41:40] This is a loaded question, too, right?

Rich: [00:41:45] Yeah, I have one more real estate development project, and then I am done developing real estate. I will be retiring from that aspect of my life. But, I’m actually looking forward to joining the Small Change team with some of my colleagues and really excited about working with you, Eve and your team, moving forward.

Eve: [00:42:10] And we’re very excited too. We think together we’ll be stronger, bigger, more mainstream, maybe.

Rich: [00:42:18] Hopefully.

Eve: [00:42:19] Well, thank you very much, Rich. And I actually can’t wait to see your project in Buffalo. I’ve got to go up and take a look.

Rich: [00:42:28] Yeah, it’s really exciting.

Eve: [00:42:29] It sounds fabulous.

Rich: [00:42:30] Yeah, it’s a beautiful building.

Eve: [00:42:35] Thank you very much for joining us.

Rich: [00:42:38] Thanks Eve.

Eve: [00:42:47] I hope you enjoyed today’s guest and our deep dive. You can find out more about this episode or others you might have missed on the show notes page at RethinkRealEstateforGood.co. There’s lots to listen to there. Please support this podcast and all the great work my guests do by sharing it with others, posting about it on social media, or leaving a rating and a review. To catch all the latest from me, you can follow me on LinkedIn. Even better, if you’re ready to dabble in some impact investing, head on over to smallchange.co where I spend most of my time. A special thanks to David Allardice for his excellent editing of this podcast and original music. And a big thanks to you for spending your time with me today. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.