The Opportunity Zone Expo Podcast

Stephanie M. Smith - How to Win Neighborhood Trust as well as Government Tax Games

August 07, 2019 Season 2 Episode 18
The Opportunity Zone Expo Podcast
Stephanie M. Smith - How to Win Neighborhood Trust as well as Government Tax Games
Chapters
The Opportunity Zone Expo Podcast
Stephanie M. Smith - How to Win Neighborhood Trust as well as Government Tax Games
Aug 07, 2019 Season 2 Episode 18
Stephanie M. Smith
Stephanie M Smith describes how to build relationships and navigate government programs: two essential qualities for success in the OZ.
Show Notes Transcript

Tax credits should be part of any developer's capital stack. But navigating the red tape can be a nightmare. That's where Stephanie M. Smith Esq. can help. Her long experience with government incentives taught her how to best take advantage of - and more importantly - avoid the pitfalls inherent in government programs.

She knows how to build relationships and navigate government programs: two essential qualities for success in the OZ.

If you're a developer, a sponsor, an investor or a fund manager in the OZ, you owe it to yourself to hear what she has to say about succeeding in the opportunity zone.

Stephanie Smith of SMS Global Advisors is my guest on this episode of The OZExpo Podcast.

Host: Jack Heald
Guest: Stephanie M. Smith

Website: smsglobaladvisors.com
Email: ssmith@smsglobaladvisors.com
Phone: 202-384-2652



Speaker 1:
0:01
Welcome back everyone. This is the Oze Expo podcast. I'm your host, Jack healed and I am joined today by Stephanie. Let's try that again. I'm joined today by Stephanie M. Smith who is the founder and principal at SMS Global Law Global Advisors Law Group. Stephanie, welcome to the o z Expo podcast.
Speaker 2:
0:23
Thank you jack. Glad to be here.
Speaker 1:
0:25
Good to have you. We'll see. So let's, let's slot you in for our listeners. The opportunities on ecosystem is broad. So as a, as a tax lawyer, your role is you want advise, um, real estate developers and how to structure deals. Is that primarily what you do?
Speaker 2:
0:47
Exactly? Um, well I can give you a little bit about my background so we can lead right into that. Um, I have about 20 years or so real estate legal experience representing developers, financial institutions and churches and the affordable housing and commercial real estate space. So I've been able to take that expertise in order to not only assist developers in doing an opportunity to zone deal, but actually help them, um, find capital and help them stack their capital with various financing forces, which obviously includes opportunities on financing in order to make the deal work.
Speaker 1:
1:29
I want to talk about the capital stack, but first, um, I want to talk about churches. Um, how, how does your work with these alternative forms of, of financing, and I'm not even talking about opportunities zone. How does that work? Nurtures,
Speaker 2:
1:49
I'm glad you asked. Um, actually it, uh, you know, the church has always been in, especially in the African American communities, um, the foundation for change and trust. So keeping that in mind. When I represented church groups, and this was in 2003 in Detroit, Michigan, before the major, um, uh, gentrification and renaissance in that town, we were looking to build affordable housing, nice housing for folks in those communities. And who led that charge where the churches in Detroit. Now, at that time I was teaching affordable housing at University of Michigan law school as an adjunct professor. And we had a clinic which allowed for, um, quote unquote pro bono services, um, to church group and other, Oh, and not just church groups, but other nonprofit organizations that wanted to change their communities. So, um, I was there with the church from start to finish, in fact, help them form their CDE to helping them joint venture with equity developers, CDE, their community development in entity, community development entity.
Speaker 2:
3:10
Okay. So that entity could take and be a partner with an equity developer. I help them, um, prepare their application, um, to submit to the state to bid on low income, 9% tax credits, um, so that they can get upfront capital from tax syndicators who invest in those projects in exchange for tax credits. So I was in the trenches with these church groups. I was there talking with them, going to their church meetings or even attending service if need be, because the church, as I indicated as the foundation in a community, they wanted to make sure that what was being built there was going to be good for their community. So I sit there in the, in the gap between the, um, secular world, if you will, and financing with the church group and helping them grow not only their community, but also their membership within the church.
Speaker 2:
4:12
Because clearly there was a, there was more trust that was even built knowing that the church really was invested in the community development. So in my mind, the opportunity zone is just, um, an evolution of that thought, looking at working with community groups. So not just churches, other community groups that want to make a real change and they may not have the expertise to be able to, um, form a, a raise capital to create a fund or, you know, do the complicated financing structure. So that's where I come in. I come in and I, I've, I've had the best clients that, um, in a church because they allowed me to do what I need to do to move the ball forward.
Speaker 1:
5:07
So the church, I'm trying to conceptualize the, the, the model that the church fits in there. I, I get it from the standpoint of, um, us an organization that is a stakeholder in the welfare of their community. And if you win their trust, you, you're, well that's, you've got to win their trust obviously. But from a structural standpoint, these community development entities, um, I, I'm, I'm not clear how that works.
Speaker 2:
5:46
Well, what we do is, you know, a church is a nonprofit and it's a different structure of a nonprofit. And then out of that, they would form an interview. For example, if you wanted to form an LLC out of a nonprofit, just generally speaking, you can do so. So they form another type of a, uh, business structure, organizational structure in order to dedicate that entity to work in this space, in work and joint venture with a for profit developer. And so that, and what is the purpose of that? So it, you know, no, we're talking opportunities though. But the purpose for the low income housing tax credit program, and this is with respect to Michigan, is to win the bid. You mean? It's a, it's a competitive bidding process. So they want to make sure that, uh, an equity to is just not coming into a community without knowing what the, what the community is all about.
Speaker 2:
6:49
So, and I'm speaking out of the, you know, from the minds of a state agency having worked in a state agency before that you want to make sure that the, the, the project is going to work. In order for the project to work, you have to get the buy in from the community. You have to make sure that, and that goes back either from the, the legal perspective of, of zoning, making sure that in order for it to be rezoned for certain development, that zoning committee leads to make sure that there's a buy in from the community. So that's why the search was a very integral part of an equity developer to a partner with, because once they knew that they were going to get more points awarded to them in order to get the bid for low income housing tax credits.
Speaker 1:
7:40
What, so does the, does the, um, does the CDE participate, um, on the profit side or is it primarily, uh, like a board of directors kind of thing? How does that work?
Speaker 2:
7:53
Well, the, it does participate on the profit side. Um, and so not to get too far into the weeds on how its structure because each church constructure it or each entity or nonprofit structure differently. But overall the, that's what we call the non, the, um, the CDE developer will be a part of the development structure and also be considered the sponsor of the project. Right? Right. So as a sponsor, as a project, they can be a part of the development scheme and still, and then basically they are the general manager of the whole entity and that general manager is responsible for making sure that the project is going to be sustainable for the regulatory period. So there's some, it's, yes, that makes sense. Okay, great.
Speaker 1:
8:53
You know, you just, just, just, uh, positioning them as the positioning. The CDE is the sponsor of the project that, that helps me conceptualize it. Now I just, the the, the idea that church, it just kind of threw me off. Church become all right, but, but now it makes sense. Hopefully I'm not the only one. Um, uh, who lives listening to this who, who was confused and now enlightened. Alright. That's really good. I love, I love getting the lights turned on for me. All right. So I completely took you down, um, uh, down a rabbit trail there with the churches that, without actually talking about opportunities zone. Um, but I think that's just incredibly important. So many, so many developers are out there wanting to make a difference. And I haven't had anyone on this show explicitly say the churches are the center of trust in the African American community. If you don't win their trust, you're not going to succeed. And I just, I don't, I don't know that you said that explicitly, but that's what I heard. And I don't think I, I overstate did I,
Speaker 2:
10:00
well, not, not at all. And not to a boil alert, I now have a church client that is, is a, has a wonderful business model for churches across the country. And I'm excited and talk about this business model, um, on my panel this coming Friday. So, yes.
Speaker 1:
10:21
All right, sweet. You've got a little teaser for the, uh, for the zone panel that's going to happen on Friday, August 9th. That's in New York, right? Yes, it is. All right, very good. Okay. So let me see if I can get this thing back on the track opportunity zone now. Um, as a tax attorney, you are advising your clients on how to, how to structure this thing in helping them, uh, build their capital stack. Let's dig into that a little bit more.
Speaker 2:
10:49
Okay. So in order for me to do that, I'm going to talk a little bit more, um, from my resume about what I've done and kind of, you know, usher into that conversation. So I served as attorney policy advisor to USDA, US Department of Agriculture, rural development, cooperative and business programs. Um, and I was also chief of staff for, uh, infrastructure finance programs. Um, I also worked as an attorney advisor for HUD multifamily division, um, where I oversaw the standardization process for legal documentation used in closing. So I call myself the, the renegade, right? I, I have worked in the private space for eight years during the Obama administration. I worked in the public space and I know how deals are done and I am, and I understand how the timing of these deals matter most and it very simplistic, but I'm able to address my client's concern about how they can utilize the variety of resources out there to staff their capital.
Speaker 2:
12:10
And then what does that mean? Because it's a, it's a term of art that we use in our industry capital stack. Basically that means you don't have all the money to do a development project, right? So you're using, you're using some debt, using some equity. You may use, um, some grant soft loans. There may be federal dollars out there that, you know, you can grab some state dollars, maybe some need the local municipal dollars based on, you know, where your, your project is going to be developed and what the overall scheme of that town is looking to develop. You may just be right there in the center of it and be able to, um, you know, attract those types of dollars as well. So what I do is I come in and say, okay, I'm the big picture with the ability to do, um, detailed work within that picture.
Speaker 2:
13:06
So what I always tell so I can see the puzzle and I know how to put the pieces in to make the puzzle. So that's kind of my, my thing. And I think that's because I'm ambidextrous. So I see the big answer, but I'll be darned. So let me, well, let me tell you just kind of a highlight of this. I, I'm a good Catholic girl and went to Catholic school most of my life. And with sister Rita said, you're a lessee. Why are you a lefty? And it's those of you all who are over the age of 45 may understand what this means. Oh yeah. I, I sit in upon myself and I've taught myself how to write with my right hand in third grade. Yes, I did. And, uh, I think doing so young enough, I may have strengthened both sides of my brain even though I'm a creative person, but yet I'm very technical
Speaker 1:
13:57
is actually, there's actually a great deal of brain science that, that, that would support that assertion. Handedness is related to the, to the, you know, we have two hemispheres in our brain, um, and it's fairly well understood that one hemisphere, um, has it buying, I mean where this is a gross generalization has one set of functions and the other hemisphere handles a different set of functions and people who are ambidextrous, um, in many ways are able to use both sides of their brains for both different kinds of functions, which is very, very rare. And it really does mean that, uh, frankly, um, depending on what realms that you're able to apply it, it really does mean that you are probably better at that combination of technical and creative things than, than other people in the same industry. Simply because I'm not going to go into the brain science of it. This is one of my goals, right? I've got another podcast that I actually actually host about those kinds of, wow. So, all right. So you know what I'm talking to Smith ambidextrous lawyer. Hi. [inaudible].
Speaker 2:
15:11
It is. Okay, great. I'm putting it on my website. That's it. And so, um, so yeah, so I'm able to kind of look at a deal and say, hmm, you know, you have to understand that having come from the governance space and I vote, I oversaw the budgetary and regulatory schemes. I know what matters and I know how, which deals would be in the queue, right? So if I say to someone, you want this deal to close in a year, whatever your reasons are, don't take out this money. Don't apply to this money. You want to look at another financing, um, program because, and you know, and I was black and look as I had been an underwriter before for state agency. So I, I can analyze any pro forma. I have put together financial analysis, uh, to, you know, 15 year, uh, debt service ratio by I know how to get to exactly what, I know an agency wants you to get you to service their debt.
Speaker 2:
16:15
So I can look at the numbers and say, if this is where you want to get by x year, that this is the type of financing you should go with or that type of financing you should go with. And incorporating in that framework. What is the end goal of the developer? You know, what are you trying to do in terms of developing that community? What is the exigent needs of that community to determine the timeframe when you are trying to get your project off the ground? Some projects can take 10 years and we're good. Some projects we need to get moving and there's a certain level of urgency. So we need to develop something within two years. So instead of having folks go down rabbit holes and in that rabbit hole you're throwing, you know, good money after bad and getting frustrated and, and possibly lawsuits because you've got folks writing on the ground to get going and break ground and you can't because now you have all these timing issues. I'm able to hopefully ward it off, you know, any potential issues. So that I think the, um, the benefit of having been in the government finance space, in addition to that, being able to pick up a phone jack and say, Hey, what's going on with my bill?
Speaker 1:
17:46
So I, I want to point out to our listeners because I didn't say that initially. You're, you're actually in Washington DC.
Speaker 2:
17:54
I am. So yeah,
Speaker 1:
17:56
you're, you're kind of there in the belly of the beast. All right. I want to make sure I, I wanna make sure that what I think I heard is what you actually said. So I'm going to, I'm going to tell you what I think I heard you say when you're, when I as a developer and putting together my capital stack and I'm looking at some of these alternatives to debt and equity, like these various uh, uh, uh, tax credits that the government provides. There are timing issues involved with those things, with those pre tax credit programs that you wouldn't know unless you'd already been through it and you've been through and so you know these things and somewhat someone who might be depending upon, uh, a low income housing tax credit as to be part of their capital stack could run into unforeseen problems, not because of of the development itself, but because of the timing of when they want it to close because of the types of tax credit that they're using. Am I, is that what you said?
Speaker 2:
19:04
Absolutely. Absolutely. And not just tax credit. Jack, even regular run of the mill government financing programs that I oversaw. And, and I mean folks who have left hundreds of thousand dollars at the table just because they did not complete certain aspects of due diligence at the front end of the, of the transaction that they thought maybe would not be necessary or required. In fact, even today, you know, I, um, provide, um, con consulting work with developers that seek financing, um, with USDA Rural Development Community facilities program because there's not a lot of field staff out there, uh, in the country that's just due to natural attrition and they need folks to be able to understand how their program work. So I'm part of that, that process of going around talking with just developers in the country and, and explaining to them how these things work and, and measuring their goals alongside with the requirements of these financing programs.
Speaker 1:
20:27
I want to talk about measurement. Um, but first as you, as you were talking, you repeated the, the, the phrase u s d a and I, all of a sudden I just realized, wait a minute. Um, when, when you, when you said that you worked at w, you know, in, in the government with regulators. I think I kind of, I think I kind of just zoned out for a minute cause I just in my mind, oh, okay. Housing. So that's hard. But you didn't say HUD, you said u s DNA.
Speaker 2:
21:00
Absolutely. Oh yes.
Speaker 1:
21:02
Can you do a compare and contrast for us with, with, um, development programs with USD a versus HUD versus I'm, where does that all fit in? I'm, all of a sudden my head is spinning.
Speaker 2:
21:17
Well, let me tell you [inaudible] it's, I won't say it's the best kept secrets because there shouldn't be, when I was at USDS, if we have to do a better way of marketing our programs because there's $200 billion a year to that, we can, you know, go out. So let me explain to you, the USTA has 17 agencies under this, under the USDA umbrella. And again, let me just say for the audience, US Department of Agriculture. Yeah. I think when folks think us department of Agriculture, they think, uh, food programs, right? Sure. Um, they wouldn't, they exactly. I kidding. Agriculture food. I get it. Yeah. Army. But it has a robust rural development agency. And I, I had the pleasure of working with such passionate and you know, these were unsung heroes. Let me tell you, because a lot of the folks who worked in the agency had been, um, had all come from rural communities and they had a mission.
Speaker 2:
22:17
They, their, their mission was the mission of USDA Rural Development Agency, which was to redevelop rural communities and, uh, which is a passion of mine and I, and hasn't been talked about a lot. I just want to add in this opportunity zone space. But as we, as we know, rural communities, um, are much, much needing of developing and creativity and housing and infrastructure and all of that exists in rural development. Um, I actually had the opportunity work in three of the sub agencies under rule development. So I started off in business and cooperative and I provided assistance to, uh, businesses, rural businesses. And there were grants and, and loan programs for rural businesses, grant programs that existed for, um, small and, uh, minority, uh, producers that were farmers and also who were looking to develop small businesses in those rural communities. Um, I was, uh, available to help electric cooperatives, um, develop, uh, you know, more widespread electric grids within their communities or regional communities in order to serve their residents electricity because that's a, not to get down, go down that road, but let me tell you, I'm trying to electrify rural community is very different than an urban community.
Speaker 2:
23:51
So, um, yeah, so there's a lot of need for electric cooperatives to, um, to, to get financing, um, in that way to make up their gap, um, because they're not going to reap the type of profits and, and cashflow in the red rural residents as you would in urban communities because there's just not as many people. I mean, it's just the, it's just a numbers game on that level. Um, uh, I helped to, um, oversee programs which laid down, um, pipes, telecommunications, um, in order to in lines, tele lines, telemedicine, um, anything that dealt with the ability to get Internet services into rural communities. USDA had the money to do that. Um, so, um, and then not even the housing. So to speak specifically to your question, Jack. Um, USDA has a wonderful rural housing program which provides not only funding to developers but to direct financing to rural residents that need financing to, to buy homes.
Speaker 2:
25:00
So it an in hospital community facilities. I mean, there any, any type of development that you would see in an urban community is necessary in a rural community. And USDA really is a one stop shop for that. And unfortunately it is that folks don't realize that because unless you live in a rural community, you may understand and know that you may have gone to our state offices and the technical assistance and financing, but the general public isn't fully aware to hopefully me now saying this and this podcast, I can make people aware that these programs exist. Absolutely.
Speaker 1:
25:43
I'll be darned. Um, you know, I grew up in a small town in Oklahoma, um, where, uh, agriculture was, it was primarily cattle country and, and, uh, an oil country. Um, so the, you know, the farm bureau was a big part of, of, of communities like mine, um, that, uh, I just never in a million years thought about the USD days as providing, um, development assistance for, I mean obviously if you've got a farm or ranch it would make sense, but it did not, golly, it just, all right, well that's extraordinarily good news. And the other number, I did have this brief moment of, of brain static when you said the number $200 billion.
Speaker 2:
26:34
Yes, absolutely. Absolutely. And yeah, it is a, it's its own industry and absolutely necessary. Um, one is, uh, I guess one of my pet projects at USDA when I first started is I would go around and talk with cooperative groups, which is a different type of business organization made up of members. Yes. And again, folks wouldn't even know that the cooperative program is housed in USDA. You know, even if you do rule, yes, you did know that. And, um, longstanding program. We provide a lot of technical assistance and you know, because it came out of a agriculture space, right? Agricultural producers that, you know, in the late twenties wanted to come together and, um, sell their wares without tripping over the Sherman Act, antitrust laws. And they were able to do so under this cooperative act. It was a, um, kind of a, a carve out for ag producers in order to, to come together and go to the market without being priced down.
Speaker 2:
27:45
Um, and I was so, you know, I'm an urban girl, I'll say, I mean, I'm originally from Chicago, but I am truly a Midwestern girl, like my whole family. And my father always reminds me of, you know, your granddad had a chicken farm and Wisconsin, you do come from farming people and uh, and having grown up in the Midwest, you know, I'm truly Midwest, like Indiana, Iowa and Nebraska, you know. Uh, so I'm there, I'm all there and it's, some would call it, you know, I lived in New York for a long time, folks to call it the flyover state. And I, I would get a little, you know, concerned about Bessel. I said, well, let me say about those flyover states. I said, you've, you ever eat a good steak? You know, it ain't coming from Manhattan, maybe from Iowa. So they uh, you know, so I home both some folks a little bit that all states in this country matter, all states in this country matter to make up this great, this great country of ours and each day has its own a particular brand of and unique brand of, of gifts that it, you know, provides to everyone.
Speaker 2:
28:56
We just don't recognize that. So I had a chance to talk with cooperative and, and build confidence and assurances that, you know, USDA was there for them too, to make sure that both it rural community where they mattered and that they can grow, that they don't have to have the used to call it the brain drain. You know, that trying to create rural communities so that folks won't feel the need to, you know, move out after 18 because there was not anything there within their communities. We help to shape the small farmers program to make sure that the family farms weren't going to die out. And you know, and I, we talk with a sense of urgency because I said I don't want to import all my food from somewhere else. I don't know. I liked having local farms. I like knowing that my food comes from within the, you know, the, uh, the four corners of the United States and that, you know, we have to spin, you know, $10, uh, on a, you know, on one tomato, you know, and that's where it could lead to.
Speaker 2:
30:04
So we did, we see, we built a lot of, um, uh, coalition around agriculture producing. And, and to this point, one of my clients now is an Agra producer in Selma, Alabama, African American woman who is doing wonderful things down there and meeting, um, investors to invest in her farming, um, production. And again, I'll be talking about what she does, um, on Friday, um, during my panel discussion. And so I am just, I, I, I'm humbled. I mean, Jack, when I talk with folks who are, who want to be in this opportunity zone space and the level of, not just creativity but depth of, of knowledge and they've already put together their market plans, the feasibility studies, they have their numbers down and all they need to do is find investors to invest in them. Um, I, I'm all there, I am more passionate maybe about what they're doing and they are, because I see this as bigger than me.
Speaker 2:
31:12
It's bigger than me because this is the next movement in which our country can grow together. Right? Urban Communities, growing rural community, everyone can make it work. Having a foundation, like a church, um, educating people in their community about the importance of investing. Um, and I, I, we hadn't talked about this at length, but one of the, one of the programs that I want to institute and, and smarter people than me could even help get this off the ground, but looking at creating an investment fund for folks who are in the community and not just, you know, those investors who are getting their wonderful tax deferral, but looking to see how can we create a fund for investors who small, small investments so they can turn a small as you know, a return at the end of the year. I mean they are, and there are a couple of, um, nonprofits that are looking to see how to do so, so that everyone, it has an investment in the community and that you're gonna cause it's not just about getting, buying in the front end, right jack. It's about a sustaining buy in and growth of not just the, the, the tax scheme, but the investment in that community to grow and it, you know, and make an autonomy.
Speaker 1:
32:46
I've got so many questions swirling through my head here. I guess I'm gonna just take them one at a time. That's fine. And these are, these are kind of more, this is a technical question. So, um, I'm a developer. I've got, I'm, I'm looking at, I want to be able to, to add some of this USDA, some of these USDA programs. We hadn't, we still haven't gotten the opportunities down, but we'll get there. Um, but I just don't want to, I want to go to USDA to try to get some of these programs. Is that strictly rural? Uh, is there, is there remit to work in the rural communities? Um,
Speaker 2:
33:18
yes. Okay. That is a rural, yes. Only broke community.
Speaker 1:
33:22
Good to know. All right, let's, let's come back around to opportunities zone in particular. So because of your extra, oh, I, you know what, I'm going to interrupt myself, which I'm very good at doing the, the expertise that you have, uh, as it relates to, to these government programs, both in terms of tax credits, uh, tax exemptions, grants, all that kind of stuff. Um, that's pretty well across all government programs, right? That's not merely limited to the U S da. No, it's not. Okay. All right. So you can talk at the word natively about all of these things. Just want to make sure I'm on that.
Speaker 2:
34:10
Absolutely. Hut. Yes. And I indicated before I detailed it HUD for about a year. So I have, I was able to sit and, and let me tell you how it is a amazing operation. When I sat with those attorneys and hut, it was if I was sitting with the attorneys in a private law firm, you know, that they're the knowledge space there. Um, and that just their passion for what they're doing, but you know, they're not getting a bonus at the end of the year, but they work like they are. So I was really, I was amazed and I learned so much from the attorneys that HUD, so I just wanna say thank you HUD attorneys because they, they, they go on Sung and they do a lot of work that, again, especially most of the folks who live in urban communities. If you, if you're looking at, um, affordable housing projects, senior housing, you know, you're looking at a HUD deal, you know, and they were responsible for making that happen.
Speaker 1:
35:11
Um, how, how do we make the distinction between the urban and the rural? I mean, I know when I'm in the country and I know when I'm in the city, but what I'm not exactly sure is when does the government decide which one is which? Is it the, is it the census tract?
Speaker 2:
35:28
It is a census track. And let me tell you, so there is, um, there's what we call morality, which his what is definitely,
Speaker 1:
35:36
Whoa, we're
Speaker 2:
35:39
alateen morality. Let me throw another monkey wrench in. So what is defined as rural differs among even agencies then the USTA because yeah, of course we've got to keep people on their toes. Jack. So, and guess what, if your community is rural today and you're developing now that this is going back to tiny, let's say that in three years, and unfortunately there had been deal that take three years to do, has now no longer is considered rural. Now, maybe it's suburban and for a variety of reasons, right? So it is important. Again, these are little nuances both with no out there. But if you're looking to do a deal in a rural community, you need to understand what community you're developing it and how long is it going to be rural. You understand? Because I've sat deals and folks were like, Oh, you know, we need to be grandfathered in, you know, but that now with no longer rural.
Speaker 2:
36:49
So those are the still, those are the little, you know, they call it the devil that then the detail, uh, that can, um, you serve, uh, you know, a whole project because now we've got to stop and you make the mens and do appeals and do all this stuff. And, you know, it's hard to tell a contractor you need to, you know, stop the deal. We can't pay you. We give further assurances, you know, from our, our lender, you know, so, um, yeah. So they're still over the kind of thing that need to be taken consideration.
Speaker 1:
37:25
Yeah, I guess so. Um, all right. So anybody who's been listening to the show for awhile has heard a discussion about the different ways to build your capital stack. However, I'm going to, I'm going to assume that we've also got people who are relatively new to this. So let's talk about the various ways when we're doing opportunity zone development to build that capital stack. Um, particularly as it relates to the various types of government grants and programs and tax credits that you can, you can acquire to fund, to fund a project.
Speaker 2:
38:05
Well, firstly you need to understand opportunities though. Financing, it's just, it's gap financing, right? And it's so for the developer, the developer is interested in developing a project within an opportunity zone so that it won't run out of money per se. So what do, what do I mean by that? So if you have a project and your growth development costs, you've done, I'm doing some rough numbers, let's say $1 million, and you know that you can only get debt for the say 500,000. So your question then becomes, where do I get the other 500,000 from? So the beauty of the opportunities zone investment pool is that you could go to a fund showing them this is the, you know, the financing structure that you have in place. These are the dollars. Now I've only used one other financing source was debt financing. But let's say we even broke out that debt financing into let's say two 50 debt, two 50 grant from your local, you know, a local municipal bond or what happened?
Speaker 2:
39:20
So you, you've, so you've got two sources of financing now you'd need a third, where do you get that third? If you're in an opportunities zone, then the benefit is to be able to go to a fund or seek out a fund that is interested in investing in your type of business because they see that their rate of return is going to be, you know, very lucrative or, or maybe they have a passion for your business and they want to invest in that type of business. So you go to that fund and you would seek, that would be your equity piece, right? And in exchange for that equity piece that you're getting because you're not, in essence, you, there's not debt. So there's no collateral per se. But what is it that the investors are getting? They're getting then that test deferral that is the quick pro quo for the investor.
Speaker 2:
40:15
So that's why someone would, especially someone who doesn't have the pockets, they don't, meaning they don't have their own equity or a, a brand, a line of credit from a commercial bank that they want to be positioned so that they can have ample opportunity to get money to do their development project. And, and I, let me just say this, this is not just about real estate now and talk about it in that. Yeah, because I, because as a real estate attorney, sometimes we can, you know, uh, be tone deaf, you know, with respect to other types of businesses, a business project. But when I mean projects, I don't mean just real estate development projects. I mean any type of project, any business oriented cause real estate is a business as well as just the business is real estate. Okay. But, um, I have a client that's looking to do a large scale, um, entertainment of zone.
Speaker 2:
41:15
I'm in Florida, which again, I'll be talking about that client on Friday and it's, so that's such an exciting piece of work that they're doing. So again, it's that, you know, what is the risk factor for doing a project like that? It, it may be very low for some investors, is that with their mission is, but that's what their excitement is, is to be able to invest in that type of a, of a venture. So that's what I do. I match up the developers project with investors cause I know a lot of investors and they're always asking, well we, you know, we, we like to start a fund or we have this fun and we want this fund to be able to invest in these types of projects. Where do we find them? And so I'm the person who, the CAE investor, I can find you the types of projects that you want in order to get the rate of return that you want because sometimes an investor May, may, may want to invest in certain projects that require more patients pay, should we call it? Maybe there's patient capitol that there's, um, this, that they don't mind waiting until their return comes because they want to see the growth of this community more so than just immediately getting their return on their investment. So, so there's a variety of reasons why an investor would want to invest in a, an opportunity zone project. And I'd like to be able to meet those, um, those objectives and match those objectives up with my developer clients.
Speaker 1:
42:59
Who's your ideal client? What's the profile of your, your ideal client?
Speaker 2:
43:07
My ideal client is someone who has had some experience in doing a commercial real estate deal, has some knowledge about it because at the end of the day, Jack, these are from a real estate perspective. They're just real estate deals, right? And understand how that works, how the flow works. Um, that's the kind of client that I can start with mid, mid, a client that's intermediary. I love my beginner clients, trust me. Um, that, that is, that's a whole section that I can start and educate them from top to bottom. But my ideal client is someone who has some knowledge of this, of the space of doing a lease, the real estate deal, not so much of a tax credit deal because I know that that's a niche market. Right. And so that, that I understand, but someone who has done a lease or understands the commercial real estate space.
Speaker 1:
44:08
Okay. I want to take the conversation a couple of different directions real quick because I think we've, I think we've demonstrated, you know, what the heck you're talking about. Um, pretty terrifically. However, we don't know anything about where you came from other than a Catholic girl from Chicago, which, which is, which is a good start. Um,
Speaker 2:
44:33
where'd you get your degree? Okay, well, I've got my degree from Howard University and where I got my, I've, I've heard my whole life, but I have no idea where it is. It's a Washington DC. Oh, okay. It's right here in the capitol. Let me tell you. And again, I have to always, uh, no, no, no. So let me tell you, I let me back everything up. That science person premed my whole life. And then me, my whole life from the age of 11, she was 19. Um, I come from a family of doctors. Uh, my, uh, my grandfather's brothers were the first class of my hairy medical school, um, which is a African American and medical school down. And I'm, I believe it's Tennessee and I, and for those I may have, you know, you said the right, wrong staple. Oh, May. Yes. I mean, I've been to some people, but um, but cause this was in the late 18 hundreds, so he, but I grew up with in a family that, um, was math, science, no attorneys is that one cousin.
Speaker 2:
45:48
Um, so I wanted to be a doctor and, um, something happened when I hit 19. I said, oh, I don't want to be in a hospital. I don't want to do medicine. Maybe I'll go on to the law. And so I switched my major from chemistry to analytical philosophy. Oh. And I'm a political, the philosophy allowed me to understand the nature of science and math because I just absolutely love science and math. So I understood it from a, I'm really from the foundational, um, understanding of, of how numbers are and, and, uh, Vic and shine was, uh, which is a philosopher about language. Yes. And so I just fell in love with, with that whole, you know, philosophical constructs and, and how things start. I was all, I was that person. I wanted to know the genesis of anything. I didn't, you know, I just want to know where it starts in order to understand how things work and I'm a deductive reasoner versus an inductive reason or which makes me very hard to manage because just don't tell me to do something right.
Speaker 2:
47:00
I need to understand the big picture first. Right. So, um, so with that I decided to, um, I went to Howard and um, from, I was at Illinois Wesleyan and then I went to Howard, uh, Winston to California to work with my in a family business that were venture capitalists and real estate developers in La and San Diego. And this was during a time, and I'm now gonna date myself, everyone, but this was in the nit aid. This was in the mid eighties. San Diego was not the way it looks now. Okay. But they helped to create San Diego the way it looks now. But I was around real estate people and I had come from an academic environment and trust me when they would have me work in their office and I was writing these long and lengthy composition is essays about really my uncle was like, no, we're real estate people.
Speaker 2:
47:56
We don't have time to read. I'll just give it to us straight, you know? And I was of course, you know, coming from college and you think, you know, you're this smart, smarter than the average person. And I learned there quickly what real estate business was all about. So that was my entree into real estate. And then fast forward to law school where I went to Rutgers. Um, I went in wanting to be a tax attorney because I knew that I would not do very well in criminal and family because I'm a numbers person, right. And I said, well, what's the closest thing can I get law that Kinda like Madison where I have a, you know, something to that was more tangible. So I thought tech and I love tech. I'm a tech Geek Freak, whatever you want to call it. My husband walks out the room when I start talking texts for like an hour.
Speaker 2:
48:51
He's like, you're the only one who's excited about this. But, um, so I, I, yeah, right. So I don't even want to go down that rabbit hole, but, um, just to be able to sit and read a textbook. But I said, what am I favorite vacation would be sitting on a beach with a Margarita and reading my reading the tax code and trying to figure out how one code connects with the next. And everyone goes, no, that's not my favorite thing. Usually. Yeah, I do that a lot more than it is to do that, Lord. So moving jack, moving forward, what did I do? What does a attorney do when she can't get enough tax? I go to Georgetown University Law Center and I get it. Ll Lynn and tax. And so always I was kid around and said I loved law school so much. I did it twice.
Speaker 2:
49:42
So I went back and got my LLM and tax and um, I focused on international taxation because I had an opportunity to work with cooperative agriculture producers, a USTA that wanted to export their products to um, foreign countries. And so that really rubbed up my, um, interest in, well what, what is the tax implications for that? And so I hadn't chance, you know, Georgetown is the number one tax program in the, in the world. And of course in Y U is going to probably contest that anyone who got there, if the LLM in fact from NYU, but they, you know, rival NYU. And I just mean the teaching of Georgetown was incredible and I just fell in love all over again with tax. And I feel I'm a tax attorney. I'm out of the closet. I love tax. That's what I did. And, uh, I have a conception yet I'm a tax attorney.
Speaker 2:
50:46
Let me tell you, Jack at dinner party, you know, when everyone's talking about what they do, and I used to just say, yeah, you know, I do real estate, whatever. Now I've come out and I'm like, I'm attached to this. I've been out and proud how they're proud. And guess what? Now that I'm in this age club where everyone's really concerned about their taxes, I just, I take up all the air out of the room. I've had people come to me. That was a cool kid in the girl. Now you're the cool kid. It's amazing what happens after 50. It really is, isn't it? Yeah. I like this age. It's, I, I'm a lot more comfortable with everything than I used to be except that my back and Oh god, tell me about it. Yeah. I have met before you. We'll talk offline about that.
Speaker 1:
51:41
Okay, good. That's, hey, I wanted to, I wanted to ask you one more question. Um, yeah, I know you're wired in here. Tim Scott, uh, Senator Tim Scott fairly recently, um, really stirred up the waters, uh, amongst the opportunities zone in the, in the opportunity zone world with some comments about, um, what he will do if, if, if we don't deliver. Um, have you gotten any insight into what's happening there?
Speaker 2:
52:13
I do, I do. In fact, I actually went to Senator Tim Scott's office because I had a lot of investor colleagues that were not so excited about that comment. So I said, well, let me see what's going because I actually was because I got it. I, let me tell you, I know Senator Booker and I know Senator Scott and they, let me just tell you this, we've had a real rough week and this country and opportunity zone is a bright spot because it shows you what bipartisan support can do and what it looks like. So, um, Senator Scott is so pro this program that, you know, that's not first and foremost on his mind when he was responding specifically to, with a line of questioning about reporting. And what he meant was that in that context, if the opportunity zone program became a math facilitation for significant fraud and abuse, then that's when he would take action to cancel the program. But it's definitely, you know, on more of an extreme, you know, side of it not, he would be, there would be some subjective look at how a community's doing and if it's not doing based on some subjective factor or some unknown, then he will look to cancel the program. But it's really about whether or not there's a significant fraud and abuse, um, you know, in the, in that particular fund or in particular, you know, utilizing that fund in a community.
Speaker 1:
53:52
Okay. I, I, you know what I know about, uh, about Senator Scott, um, I, I was pretty sure that was really what he meant, but it's good to get a little bit of insight information. Yes. Well, Stephanie, this has been, uh, I'll, I'll be frank. This has been way more entertaining than I had anticipated. Being able to, you know, when I see that I've got a tax attorney I'm talking to, I go, okay, strap in, have a shot of whiskey before this has been, I could, I could go, I could easily go another hour, but we're not going to do that. Um, if folks, you know, we're, we're going to have folks here who are sitting here with desperately waiting for this question. How do they get ahold of you if they want to know more?
Speaker 2:
54:42
Excellent. So they can go to my website. I'm at www.smsglobaladvisors.com or they can reach me, the uh, email at s Smith, s m I t h@smsglobaladvisors.com. And they can also reach me via phone at (202) 384-2652.
Speaker 1:
55:18
Very good. Well, I appreciate you taking time with us today. Honest to God, I've had more fun with you than any other tax attorney so far.
Speaker 2:
55:28
Thank you jack. Oh, you got to come to one of our, our, our fun events, uh, ABA tech section. I mean, we really are good fun group of people, but that is for my person.
Speaker 1:
55:41
There's, there's, there's two things I would have to do that I wouldn't want to do. One is go to the other side of the rocky mountains. The other is brave airports. So. All right. Hey, any last words for us before I let you go?
Speaker 2:
56:00
I am just really excited about this program opportunity zone and I think it is really a game changer in our society. So I am, uh, again grateful and humbled to be a part of this and looking forward to investors to reach out to me, um, so that I can put them with wonderful developer clients and to talk to them about how they can, you know, be really profitable in working with my clients and my clients, developing wonderful projects and community that are so, so desperately needed. So I just wanna thank you, Jack, for giving me this opportunity to talk and I hope to see most of you all this Friday at the opportunities zone expo in New York. Um, this Friday, August 9th for my panel on the social impact of opportunities. Don't invest.
Speaker 1:
56:58
Yeah, the I w that, that should be a good one. Well, Stephanie, thank you for your time. Um, we're going to sign off now for a Stephanie Smith of SMS Global Advisors. I am Jack healed for the opportunity zone expo. Thanks for listening. Be sure to go ahead and press that subscribe button so you're updated anytime that we drop a new episode that happens multiple times a week and we will talk to you next time.
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