The Opportunity Zone Expo Podcast

John Lore - Top-Notch Legal Advice from Crypto to Opportunity Zone by way of Utah and Moscow

August 29, 2019 John Lore Season 2 Episode 23
The Opportunity Zone Expo Podcast
John Lore - Top-Notch Legal Advice from Crypto to Opportunity Zone by way of Utah and Moscow
Show Notes Transcript

John Lore left his home in the desert canyons of Utah for the concrete canyons of New York City. His Capital Fund Law Group was in such demand in the Big Apple that it made more sense to move his business. After a stint in Moscow - where he learned to speak Russian - he was a natural fit for a job in the Russian capital. Then 2008 hit. The financial crisis that shook the world ultimately led him back to the US and to founding his own law firm.

Today, he serves a wide variety of clients looking to structure financial deals both internationally and domestically. But for today's show, we talk about his work with the Opportunity Zone clients. John Lore is my guest on this episode of The OZExpo Podcast.

Host: Jack Heald
Guest: John Lore

Jack Heald:

Welcome back everyone to the OZExpo podcast. I am your host, Jack Heald and I'm joined in this episode of the podcast by John Lore, who is the managing partner of Capital Fund Law Group. John, welcome to the OZExpo podcast.

John Lore:

Hi Jack. Thanks for having me.

Jack Heald:

Well, where is Capital Fund Law Group headquartered?

John Lore:

We're in New York at 53rd and Broadway.

Jack Heald:

And when did you move ? When did you move there? Cause I know you didn't start there, right?

John Lore:

We've moved about a year and a half ago.

Jack Heald:

What precipitated the move from out over here in the cool part of the country? Well, I mean - I speak cool culturally, of course, not financially.

John Lore:

So we started the firm in 2010 , uh, in, in Salt Lake City. And uh, at the time it was a great , uh, uh , place to get started. Uh , I'd previously been in the New York office of a large international firm and we continued to grow and expand. And the , uh , clientele is primarily in places like New York, California, Florida, et Cetera, but we service them just fine from Utah. Uh , the problem is as we began to have increasing needs for growth, finding additional attorneys to join us with the needed experience became difficult. And moving to New York was a logical step for us to be able to access talent and to be able to be a bit closer. I spent a lot more time in the past few years writing airplanes than , than the reason I went there to begin with to ride mountain bikes. So , uh , okay . Made Life a little easier on the travel.

Jack Heald:

I understand now , I'm sure you get asked this question a lot. You've got an odd name for a law firm, Capital Fund Law Group. What's that all about?

John Lore:

Sure. Yeah. And there are a number of, of firms that are in the boutique , uh, space that are focused on, on either securities , uh, or various , uh, boutique areas like employment or intellectual property that have, have provided a name , um, that focuses on the, on the expertise they provide , uh, rather than the , uh, a bit more , uh, traditional and , and more antiquated , uh, view of, of naming the, the various partners. And it's helped us to , uh, quickly be identified. And as that [inaudible] brand recognition increases, particularly internationally , uh , it's helped us to , uh , quickly identify the type of work we do. We are solely focused on private funds, hedge funds and real estate funds and, and advising clients on capital raising issues.

Jack Heald:

Right. It actually was very effective when I saw your name. Now I'll be honest, I look at a lot of names and I talked to a lot of people. So when I saw the words capital fund, I pretty much just stopped reading. I assumed that you were fund managers. Then when I started my serious research for this conversation, I realized I had it all wrong. This guy's a lawyer. Okay. So at a high level, what are the types of questions that your clients come to you with and how do you advise them?

John Lore:

Sure. Yeah. So, so clients come to us , um, from, from two main perspectives. One is, is existing fund managers that have , uh, been , uh, running a, an existing or prior firm and looking for advice on, on ongoing operations and compliance. And then the other is , uh , new fund managers that are looking to start a okay , new private Equity Fund Real Estate Fund or uh , otherwise raise capital under a managed fund structure that are , are coming to this for the first time. Generally they have a background in finance or for real estate. It's often people with , with background as developers or other professionals , uh, and uh, brokers within the real estate space.

Jack Heald:

So I'm guessing in the opportunity zone industry, at least when we're talking about developers, you're speaking with developers who are trying to set up their own qualified opportunity fund for the first time. Is that right?

John Lore:

Exactly. The, the developers , um , will essentially become either the, the issuers of , uh, of , uh , uh, uh , security to, to raise capital for a single fund or , uh, managers that are coming from a development developer background that are looking to launch a diversified multi-asset real estate fund.

Jack Heald:

What's the most common question that you run into in your practice from that particular kind of client developers looking to set up their own opportunities owned fund to take advantage of this new program?

John Lore:

So in general, developers coming from a background that's outside of finance, they're fairly new to , to private equity. Um, they require a bit more , um, [inaudible] guidance in the process of, of understanding not only the , the regulations , uh, taxes, but also just the, that , the , uh, general business terms of private equity. It's quite common for real estate funds, both within and outside of the opportunities zone. A context to have a , a background that's, that's outside of finance and [inaudible] . I would say that the biggest, the biggest question that we get from, from real estate , uh , yeah , developers yeah . Is asking questions about their readiness of the, of the , uh , regulations to proceed. And , uh, people are, are concerned about, about unfinalized rules and it's, it's a new , uh, issue for some to grasp that , uh, regulation can be effective , uh , but not finalized. And, and this is, is fairly common and, and early movers that are able to avail themselves of, that have the benefits , uh, even prior to finalization, but that comes with significant , uh , uncertainty. And so they're really looking to see , uh , how close to finished are the regulations.

Jack Heald:

Well, I can understand that. That makes sense. But I will confess that was not remotely in the neighborhood of the kind of answer I expected from my question. I was thinking it was going to be, you know, a technical question, but it makes sense now that I think about it. Am I going to get in trouble since these rules aren't finalized yet? All right , let's change direction a little bit. I saw a couple of things on your website that I found really interesting, not related directly to opportunity zone, but they will certainly give us a sense of a breadth of the work that you guys do besides private equity and hedge funds. You guys advise on cryptocurrency funds and offshore funds. Tell me about the crypto fund market. I only know it from a distance. And how is it different from the typical private equity fund?

John Lore:

Sure. Uh , yeah, so, so , uh, uh, a crypto fund, an offshore fund, they're there . They're there , uh , various , um, yeah , components of, of, of, of the industry. Yeah . As a whole crypto cryptocurrency , the very new phenomenon and one that , uh, is extremely risky and really suitable only for , uh , the most sophisticated investors and primarily , uh , those [inaudible] are , are either testing out , uh, okay . A new , uh, approach to, to an up and coming industry and have substantial risk tolerance , um , or private equity, a firms that are looking to invest in the underlying technology. But in general , um , my real estate fund clients and my, and our cryptocurrency fund clients couldn't be further apart culturally and it's , uh , it's [inaudible] difficult to , uh, to relate , um, the two . But , uh, cryptocurrency is a , um , is it very , um , uh , uncertain , uh, asset class with a lot of interesting features for myself personally. [inaudible] represents an opportunity two from an academic perspective, look at a new asset class and all of the regulation that goes into that and that, that opportunity comes once in a lifetime. So it's been interesting to write about, to collaborate with [inaudible] . Uh Huh . Various regulators and professors and some of our are high level clients that are [inaudible] pioneers in the space. Uh , that said, I personally am not a, a strong proponent of , uh , investment into the space , uh, by especially by those that aren't okay . A suitable , um , but it's, it's, it's here to stay and in, in , in some form. Um , but I'd say very complex , uh , area .

Jack Heald:

The regulators have an interesting challenge with crypto though, don't they? Precisely. Because it's a new class of asset.

John Lore:

Yes. And the regulators have been, have been , uh , [inaudible] doing a good job early on by allowing , uh , the market to develop and not regulating too soon and then really focusing as they have lately on [inaudible] enforcement , uh , is that, yeah . Is looking at at abuses because there is, there has been rampant abuse at all levels. And so , uh, there we've, we've exited a lot of the phase of forbearance where we're, a lot of the actors, I didn't sure . No. If they would be a subject to enforcement and they're quickly learning that they, they are , are they, they continue to get those enforcements that we expect those to continue.

Jack Heald:

Now, as an attorney, your expertise has to be in US law. Is there a different set of regulations for foreigners who invest in US funds van for us, sinister , uh , US citizens who invest in offshore funds. Is that two different sets of regulations?

John Lore:

So, okay . Yeah. So , so yes, there are multiple , uh, levels of regulation and that requires coordination of legal counsel . Uh , on a number of factors. One, you have , uh, the managers that are located in the u s and they would be subject to us securities ly and Investment Advisory Law. And if you have a manager and that is located , uh , in another jurisdiction , uh , they're subject to their own , uh , jurisdictions management , uh , ah , provisions on which we, we coordinate, ah , advice. But we , we are a secondary too , the, okay . The law firm focused on, on the management side. And then you have the securities components . So if the, if a , uh , non US investors investing in the United States there , they're issuing securities. And this by the same token , uh, when, when we have us managers, and this is very common , uh, we, we represent a significant number of , uh , US managers that are accessing capital from Asia, Europe, clinical for region . Uh , there are significant legal issues, but there's also a great deal of tax, a structuring that needs to be done because of the unique nature of real estate. And , uh , whereas a hedge fund for example, can , can set up a [inaudible] , a simple master feeder fund in the tax neutral jurisdiction , uh , with [inaudible] with a, a non us fund there has that invested in domestic real estate. There are some, a protectionist , uh , okay . Tax Laws that we need to navigate using various , uh, uh , structuring that , uh , probably would be too boring for your listeners to hear, but they're all available on our website. Yeah . Okay .

Jack Heald:

Let's talk about opportunities zone now. Tell me about your history leading up to this program. Um, Opportunity Zone legislation itself , uh , became law less than two years ago at this point.

John Lore:

Yes . So early on , uh, we , uh, we started looking at this , uh, back in 2017 and we had a number of clients , uh , some of which have have moved forward with launching a , we advised our first fund in 2018 , uh , with a, with a launch and uh, these we're , yeah , really developer focused funds that, oh , we're taking , um , early positions in fairly fairly small , uh , assets. We gave a, a presentation at Columbia University with panelists from KPMG as well as , uh , one of our clients, so I can speak about it publicly. And they, yeah . Okay . Initially launched with a approximately $25 million a fund, fairly small for a private equity , uh , the fund. And this is a single asset. Uh, and that's how most of these early funds have been. We've, we've , uh , focused on single asset acquisition vehicles rather than rather than proceeding to a , a multi-asset traditional diversified fund .

Jack Heald:

Well, it , it sounds like you were already aware of and getting up to speed on the opportunity zone legislation prior to it taking effect.

John Lore:

It certainly is . Right. We were involved in a lot of the , um , and the analysis of the, or are they regulation , uh, being comfortable with, with, okay . W assisting with , uh , an initial okay . Launch. It took a quite a bit of , of preparation as well as education of the, the clients as to the risks for, for many we, we , uh , we did and still do , uh, recommend caution and, and staying clearly within the, the , uh, allowed provisions and assessing the, the risks that , uh, interpretations can vary. And so there's a fairly narrow group of, of target fund managers that we would recommend this to. Uh , and right now it's primarily single asset developers that are coming in and improving , uh, property and they , they tend to be right now in the, in, in the waiting , uh , stance for some of the larger players.

Jack Heald:

Right. Entitlements tend to take a long time. What do you advise to private equity funds that are looking to launch in the opportunity zone?

John Lore:

Sure. So , uh, the first thing that we would do , uh , is, is give them an understanding of where we are with the regulations right now. So , uh, first , uh, proposed regulations that were , were, were clarified in October , uh, were subsequently clarified in April. And that left a number of outstanding issues that are really Germane to our , uh , structural , uh , analysis. And , uh, one of the big issues that, that is outstanding is the application of the opportunity zone , uh , requirement for a yeah. Real Estate Fund that is his leasing . Oh . W we're not sure what the requirements are for establishing at u s trader business because the existing , um , okay . Safe harbors are really geared towards operating companies that looks at yeah . The , the thresholds for employment and, and uh, compensation. But that is difficult for, yeah . Say a real estate fund that , that is looking to leave. And so there are a lot of , of open questions [inaudible] that [inaudible] really make it, make it a bit challenging to proceed with, with full certainty.

Jack Heald:

Okay . Do you just caution wait in a situation like that?

John Lore:

I think that's the, that I think that's the general consensus of, of most practitioners , um , that we work with is that you either wait two , two , uh , yeah . Move forward with a full diversified fund or a fund like a leasing fund that requires additional mmm , uh , clarification. But for those funds that are within , uh , the non gray area that , that there doing exactly what uh , what the statute is is right . Good. Okay . The rules are our intended for that they are proceeding but proceeding with caution

Jack Heald:

center of the fairway versus running down the edge and often to the rule, I guess that's the way you'd compare it. Now if I recall, the 50% rule for operating businesses means you've got to generate 50% of your revenue or 50% of your compensation to employees or 50% of the hours inside the opport inside the opportunities zone. Did I get that right? Is that the three safe harbors?

John Lore:

Yeah. So, so there, there, there are three safe harbors for establishing the 50% , um, of, of the gross income is from a , um , uh , active trader business and the, the three , uh, potential safe harbors. Uh , the first is looking at employee and independent contractor compensation. The second a is looking at , uh, number of employees or independent contractors and making sure they're 50%. Okay . And then the third is a, is a , uh , combined analysis that looks at the importance of the , uh, property. And so it's, it's really the same definition that's used in elsewhere in the code. The problem though , um , is we don't know exactly what uh , okay . What it means. Yeah . [inaudible] say, have a, a independent contractor , um , within, within the zone. Does that, does that count? Various service providers. What about when we're talking about employees or, or , uh , independent contractors that are working from home for certain , uh, period and won't be in the zone in this could require quite a bit of, of compliance. Uh, and , and this is, this is really more important for the , uh, operating companies, non a non real estate focused. So no , we're, we're looking at at venture capital a target , uh, startups and technology companies , uh, and others. But for real estate it's pretty straight. That part is pretty straight forward . You're either physically located in the zone or you're not. There are a number of issues with property that sits on, it's partly within, partly without, but yeah , that portion is, is um, [inaudible] are they not applicable to real estate funds? Well, I think that's helpful for, for, for other non real estate and we, we've , okay . Interesting to see how that evolves. I think that's the key word evolve. It's going to grow over time. Tell me a little bit about your background. You started Capital Fund Law Group in 2010. What path led you to creating this firm? How'd you get to here? Sure. So I grew up in Salt Lake City and I joined the law firm. It can Gump a large international law firm as a and associate in, in there the New York office and also spent some time in Moscow. And then had in 20 2009, there was a , uh , firm wide , uh , layoff as large number of, of attorneys and I , uh, it's caught up in that, that layoff and rather than , um, okay , continue to, to , uh, practice law outside of the area. I looked at at , uh , going back to to salt lake where I was from and joining , uh , another firm and I became restless when I realized that I wouldn't have , uh , the type of opportunities that I would have. I was very focused on private equity and hedge funds and I had a, a opportunity because of a relationship with, with the key clients to get involved , um, with a family of funds and was able to begin the process of, of building that and quickly was joined by , um, by right next partner. Uh , it's been with us since, since 2012 and uh , okay . I have some good contacts at, at various , uh, full service firms that began to recognize the expertise and send over a lot of their content tax that they had conflicts with and various full service firms that don't have that expertise. And then that evolved to , uh , right representing clients of, of, of greater size and sophistication. And uh, they were able to allow us to, well , always to grow. We , we, right . Okay . Start approximately five to seven funds per, per month. And we're , we're very busy in the space.

Jack Heald:

I can imagine now, were you always interested in finance? Is that what led you into the law or was that as a result of, I can't remember the name of that firm you were with?

John Lore:

Yeah. Akin Gump. Yeah, it's interesting. I , I can point it to a particular lunch with a , uh , an attorney at Akin Gump that was heading to the , uh, Abu Dhabi office and he was in the funds space and [inaudible] I was at the time a summer associate planning for a long career in IP litigation and he described his experience with private equity and the international aspect and Aye was sold. And so rather than accepting the position within their, their silicon valley office where I was in Palo Alto , uh , I , I instead , um, went to there , uh, Moscow in New York offices too, do pursue a career in hedge funds and private equity. And I, I have had following that , uh , passionate ever since. Its , it's not for everyone, but , uh , for me it's a exciting space and yeah , each day I am talking to someone in someone in London, someone in Saudi Arabia. Uh , yeah , I have a Hong Kong night where , where we have calls with our Singapore and, and , uh, in Hong Kong based , uh , clients are their investors and they get to travel all over the world and it's quite exciting. And I live in [inaudible] , I'm in Connecticut and sure , as opposed to my time in Utah, are there quite a few more? Um, uh, okay . People that focus in this area and , uh , it's been , it's been , it's been nice. We're in a, in a, in a good area and not only for the networking, but in Utah it was a little little odd , uh , to have a fund attorney. We had us and , and , uh , a couple of fund administrators and we would , uh , get together as a fairly large fund administrator in Salt Lake City. But in terms of a hedge funds, private equity, it's been great to move out here and have people that understand what I'm doing. Yeah, absolutely. Now, Moscow, where you back and forth to New York or were you actually living in Moscow for a while ? Yeah, so, so I, I've spent some time off and on in Moscow. Um, I , I w would , they can Gump . I was there for, for about three months , um, stationed in Moscow. And , uh , previous to that I actually , uh, [inaudible] studied a bit. Uh, I , I speak Russian fluently. Um, stemming from my, my background, I right. Grew up Mormon and [inaudible] on it . Mormon mission that too . Moscow and I spoke the, spoke the language and, Oh, so you spent two years in Moscow on a mission. Yeah , yeah . Easy transition at the time. Akin Gump was setting up there, the very first investment funds group in a and Russia. And I did that with the, a friend of mine , uh , who was , uh , a partner at Akin Gump and , and we remain close. Okay . To this day, but chose the wrong time to launch that. Oh yeah. 2008 is that 2008? Yes. It all came down and 2008 so

Jack Heald:

yeah, that was a difficult time to be in that business. I remember it vividly.

John Lore:

A lot of it , a lot of attorneys there that , uh, that I , uh , have been friends with over the years. Um, and we were quite active in, in Russia and that , uh , settle down quite a bit on the, on the private equity side.

Jack Heald:

Did they keep you pretty busy in that time in Moscow doing that particular type of private [inaudible]

John Lore:

yeah, a lot of that. And that was it. That was a really good time for me to kind of catch the breadth of, of the practice. Um , we were at the time doing , uh , oh, a lot of work with the London office. I spent a bit of time there, but yes, there were a number of, of funds that were, were getting started. That was the reason for the move. Uh , uh , because of that and we were, yeah . At the same time, meeting with clients and, and growing the practice and then working on existing clients, it can go up as fairly well known in , um , [inaudible] Russia. Robert Strauss was the first , um , uh , uh, ambassador , um, to , uh , but Soviet [inaudible] Russia. Um , and so yeah, there were quite a few relationships and , and we , we had a , we had a, yeah, there were plenty busy until we weren't [inaudible] and happened quite suddenly.

Jack Heald:

All of a sudden it was all over. I guess. What doesn't kill you, makes you stronger, doesn't it? Um , if folks specifically want your expertise, what's the best way to go about contacting John Lore and the Capital Fund Law Group?

John Lore:

Sure. You can , um, reach out , um, via, via email or , uh , take a look at our, our website Capital Fund, law.com. And my email is j [email protected] ,

Jack Heald:

and that's spelled l o. R. E listeners. Well, John, I appreciate you taking time with us today to give us some insight into an extremely narrowly focused segment of our opportunities on market. I can't imagine there are too many law firms that highly focused in this area and I think we're going to probably drive some folks in your direction. Uh , do you have any last words for us?

John Lore:

Well, thank you and okay . Yeah . Um, well, I , I, yeah, I appreciate you having me on. And I would say in general, there's a lot, there's a lot to be to be learned and , um, I think for the right, okay , for the right , uh, manager with the right background , uh, I think there's quite a bit of , of potential for growth. Uh, but yep . Quite a few potential obstacles and we'll, we'll have to see how all this works out.

Jack Heald:

We will indeed. Well, I appreciate your time today, John. We're going to call it a day for John Laura of Capital Fund Law Group. I'm jack healed. This is the Ozo Expo podcast. Thanks for tuning in. Be Sure to press that subscribe button so that you're notified when we publish a new podcast that happens almost every week and we will talk to you next time.