Howard F. Kline [00:45:54] And you don't need to go into a lot of detail because that is your secret sauce. But you had indicated to me that you take a C building and turn it into maybe a B building vs. B minus versus what other people are talking about, going in to opportunity zones and trying to turn a C building into an A building. What is it that you generally do to and the significance of it in turning a C building into a B minus and then we'll go talk about the over-investment concept that some people are getting into. Daryl Carter [00:46:46] Well, the one of our challenges with affordability is my is frankly the apartment industry. And part of it is that we look at this kind of what I call amenities arms race. Well, let's do marble countertops. Let's do this. Let's do that. When we do a renovation, we can do an incredible job for under $20,000 a unit, sometimes 15, sometimes even $12,000 a unit. Now, we will have in particular a couple of our investors that will look up at the ceiling and they'll say, my God can you get rid of the old popcorn ceiling? One of the fundamentals of our renovations is we look at everything we do in the context of how much rent will our resident have to pay to remove the popcorn ceiling. That's going to be 40 dollars in rent. And what I always tell our investors, look, everybody today can afford a three-hundred-dollar big screen TV. They're looking at their TV. They're not looking at the ceiling. Let it go. People would rather pay 40 dollars less. And that's the same thing. You know, we're very often we rather than remove and put new cabinets, we resurface them and put new hardware on it, new cabinets, probably ten dollars and read our fix is probably two dollars in rent. Daryl Carter [00:48:12] You go from you know, you go across the renovation spectrum, we can make it very, very nice. New appliances, washers and dryers. You know, a nice wood-like synthetic floor. I mean, we can do things that make it nice, make it safe, all those things that have them be enhancements. But we're not going to put the marble countertops. We're going to put LED lighting to lower the electric bill for our residents. We're going to put in more energy efficient plumbing and things like that. Part of what we're doing as an industry where and the kind of renovations I'm talking about, we don't have to push the rents more than 10 or 15 percent if that. Now, some of the renovations where people are put spending 40 and 50 thousand a unit, you know, they're trying to double the rents. And that's where I think we run into this challenge. Daryl Carter [00:49:11] The other thing is that by keeping the rents lower, there's a wider band of residents. And so, again, we try to optimize occupancy and demand. Of our 70 communities, probably half of them have waiting lists because they're nice, but they're also affordable. And we just don't have enough of those in the industry. Part of the affordability challenge is developers that try to take C apartments and make them A apartments. Daryl Carter [00:49:47] There was an industry forum where it was asked, how much will people pay for a yoga studio and their apartment or a cappuccino maker. I challenged this panel and said the question is not how much will people pay, but how much less would they rather pay if you take it all away? People can find their coffee, their Dunkin Donuts at Starbucks everywhere. And if they want to do yoga, they will find that. As apartment owners, we have to get back to basics and provide quality housing without the frill. Howard F. Kline [00:50:25] You had indicated that you've got, I think, 15 current properties or properties that you had acquired prior to January 1st, January 1st, 2018 that are going to be part of your new opportunity zone fund, correct? Daryl Carter [00:50:43] Well, we have we have five that we have identified that makes sense to do that. We're still evaluating on the other 10. Now, some are fully-improved and we can't, you know, add more. We can't put 100 percent in. You know, there are various reasons why others may not work, but we had five that definitely do work and probably another three that we're still evaluating. Howard F. Kline [00:51:11] There's an issue we have. If someone who already owned property, you are an asset within an opportunity zone prior to the effective date of January 1st, 2018. Then the question is how does that owner participate in the benefits of the opportunity zone program? So why didn't you tell us a little bit of how you're dealing with that with regard to your existing properties? Daryl Carter [00:51:43] Well, one are our properties are owned in partnerships with institutional investors and we have an ownership slice of that. And the threshold of that law is 20 percent. If we own more than 25 percent, then we couldn't participate. But if we own less than that, we can be on essentially both sides of the transaction. Howard F. Kline [00:52:24] So that means that if someone already owns property or if they own property in an opportunity zone, say, for 10 years and they owned 100 percent, they can still participate in the project if they divest themselves of anything more than 20 percent. Daryl Carter [00:52:46] I am not a CPA and lots of people that know the rules about better, but I know ours work because we own less than 20 right of the assets we're contributing and will own less than 20 in the new fund that we're creating. Daryl Carter [00:53:28] Our existing investor base is about 50 percent tax exempt and 50 percent taxable. There are pension funds like New York City retirement as an investor, New York Common Fund. And then we have some foundations, Smithsonian, Ford Foundation. So those would not be likely investors and opportunity zones because the maximum benefits they can't use. We believe that opportunity zone investors will look different than many of our existing investors. Now we have some that may be able to participate, but by and large, our existing investor base are both tax exempt and taxable investors, whereas the opportunity zone investors will be those that have sole companies or companies that have capital gains that redeploy. Howard F. Kline [00:54:49] Well, I think part of the point that you had previously explained to me is that on some of the properties you can deliver the promised returns in which case you can exit that property and then the Opportunity Zone Fund can get involved and there'll be different investors in the Opportunity Zone project. So there are going to be numerous and different ways that people will be able to exit existing properties. When I say existing properties or assets acquired prior to the effective date and then take advantage of the opportunity zone projects. Daryl Carter [00:55:32] Well, and the other thing I think it's important to remember that, while a lot of the focus has been on real estate. There are certainly opportunities zone investment can be made and operating businesses and the like. And in fact, as we look at creating our opportunity zone vehicle, we may actually house it in an Opportunity Zone. So that's one of the other things that we're currently evaluating right now. Howard F. Kline [00:56:00] Absolutely. That's one of the things that I think that investing in businesses located and satisfying the requirements of a business in an opportunity zone that's the hidden pot of gold, I think ultimately, I think that's going to be the greatest advantage of this program is moving businesses into the opportunities zones. Howard F. Kline [00:56:30] I had a discussion yesterday and suggested that they could suggest to an owner of a office building that exists and an opportunity zone is saying, listen, there may be advantages of businesses moving into office space in this building that do not exist outside of the opportunity zone. It seems to me that that's a great way to fill up your existing space and building. I don't hear that a lot from people, but I know that if I was representing an owner of a building and an opportunity zone, if it would be an office building, a retail building, an industrial building, flex space, whatever, and I was looking to fill up that space I've got to tell people how to do it and how they can make this pay off for the future tenant and how the future tenant would even raise money to help their business. Daryl Carter [00:57:44] Absolutely. Yeah. It's a key part of it. And again, we tend, because we're in a real estate world, to be focused on it. But there's a whole world of other companies that should look at it, particularly, you know, tech companies and things, you know, because all of a sudden not having to pay taxes on that business for a period of time is a very important thing. Howard F. Kline [00:58:09] The city of Stockton has partnered with a company in the city of San Francisco where that where they are going to be putting in some infrastructure into the opportunity zone in the city of Stockton. And that's a way to finance the infrastructure project and make it make sense for them. And I'm going. Yeah, people are thinking, I love to see it. Daryl Carter [00:58:43] And that's a great thought. Certainly, Stockton has had many challenges. And I think they are now trying to be creative to bring commerce there. Sacramento is a place where we've made a lot of investments and there is an emerging market there of really people exiting the San Francisco Bay area and moving to places like Sacramento and specifically and also looking at Stockton in Modesto, because it's just simply too expensive to operate in the Bay Area. Daryl Carter [00:59:26] I think the opportunity zone could be transformative. My biggest concern is that there are very large companies who are jumping into this. I haven't seen those companies in places that we've historically invested. Many of those companies don't reflect diversity that is reflected in our employee base which looks like our resident base.
