Transcript:
This podcast was transcribed through a third-party application. Please disregard any misrepresentations.
Intro:
Welcome to Civic Warriors, brought to you by Withum. On this podcast, we bring the conversation to you, sharing, engaging stories that motivate and build consensus in the nonprofit community. This podcast is about the innovators, the leaders on the frontline of adversity, guiding lights in the nonprofit industry affecting change. And through their stories, we can all join forces to become civic warriors.
Brad Caruso:
Hey, warriors. Welcome to today’s episode of Civic Warriors, brought to you by Withum. I’m your host, Brad Caruso, leader of Withum’s not-for-profit practice. Our guest today is Bob Hutchins. Bob’s a retired partner from Withum in our not-for-profit and real estate practices, and is now taking his entrepreneurship and leadership skills to a new area. He started Ellavoz Impact Capital to help build sustainable communities that bring home ownership to working families by using impact investing as a model. So welcome to the show, Bob. Happy to have you.
Bob Hutchins:
Thank you, Brad. It’s great to be here.
Brad Caruso:
So Bob, maybe we could start, uh, maybe give us a, a short history on how you founded Ellavoz and, you know, what drove you to the space you’re in right now.
Bob Hutchins:
Sure, I’d be glad to. One of the things that we’re big on is place-based social value creation. We think if you can just change a block, you can change a neighborhood. If you can change a neighborhood, you can change a community. We are shared values impact investors, shared values as a concept driven by research from Professor Michael Porter of Harvard. Uh, he’s done this for a decade or so, and simply it means that capital should flow to where society needs it the most. And investors should get a risk adjusted return on their investment for solving societal problems. And that’s basically what we’re doing. When the tax cut and jobs act of 2017 came out, uh, it was just about the time I was, uh, exiting Withum, uh, on retirement and working on a business plan for the creation of just such a asset class. When that came out, I thought, bingo, this is great. I can use this as a tax incentive. It will improve my ability to bring in capital, which will increase the amount of capital I can invest in distressed communities. So it was the, the asset class became really a tax cut and jobs act focused opportunity zone asset class, uh, in the beginning. And that’s how we started out.
Brad Caruso:
So clearly you’re, you’re, you’re implementing, uh, a model. You know, I, I, I would say that it’s starting to become a more common model as, uh, investors are starting to really be concerned. You know, they still are concerned about profit, but they have less of a concern sometimes in certain cases, especially today’s generations, less a concern over the dollar profit margin they make, but also, what impact is this investment gonna have on the end user of the investment itself? And, and in this case, as you mentioned, you’re trying to solve, uh, a large scale societal issue, which a very, very complex issue. I think everybody in the world can agree that when, when you’re looking at changing the lives, uh, and the livelihoods of individuals, there are several things that must come into place. You probably need a home of some sort or a home that you can afford. You probably need a job or, or access to a job in the market you live or virtually. Uh, and, and you need some kind of community connection to, to help you, uh, in, in those endeavors. And so, uh, maybe, maybe talk a little bit about, if you can, you know, what, what is the societal issue that you mentioned before that your impact investing is helping to address and helping to provide a benefit towards the end user of this?
Bob Hutchins:
We focus on United Nations, uh, sustainable development goal number 11, which is sustainable communities. We think we can change neighborhoods by building affordable, quality, dignified housing. And the way we do that is we partner with not-for-profit housing organizations throughout the country. Right now, we’re very active in Florida because Florida is very receptive to building workforce and affordability housing. In fact, the private sector, the public sector there in the not-for-profit sector have come together very well. And so, I’ll give you an example. Out in Tampa, St. Pete and Orlando, we partnered with a land trust, and we’ll be doing this in Jacksonville also. Uh, we partnered with a land trust with a very simple model. You have a lot of vacant lots in distress communities that nobody wants to build houses in or invest in. If you can show us blocks that have at least four vacant lots, we’ll go in and clean ’em up.
Bob Hutchins:
We’ll build a house on them. We’ll sell the house at a very affordable price. We’ll even give the, the purchaser the down payment if we have to, and we can still make a profit that is rather attractive to our investors. Why can we do that? Well, first off, the city is not making us buy the land. So what happens is the land, the land cost comes out of the purchase price of the house. The not-for-profit land trust charges $20 a month to the homeowner. So that’s not a lot of money, but it’s a world of difference to the homeowner’s taxation. The homeowner pays real estate taxes on the improvements, which are of course good for the city, and the block begins to take a different shape. Now, why do we say four lots? It has to be four lots on each block. The reason for that is that there’s a number of studies out there that say if 20% of the homes on a block are owner-occupied, that crime goes down by almost three quarters.
Bob Hutchins:
So it doesn’t pay for us to build one house. It’s not gonna change the, the neighborhood. So in Tampa, we’ve got a quite a few blocks where we built four or five houses on one block. They’re almost identical. We changed the outside a little bit for aesthetic purposes. But when you go inside, the layout’s the same. It’s three bedrooms, two baths, but it’s brand new energy efficient aqui, uh, uh, appliances. It’s brand new and it changes the life of four people who otherwise could never afford to buy a house no less a brand new house. So here’s a, here’s a, here’s a a a situation where we now have added quality dignified housing in a, into a, a highly distressed neighborhood. We have made that neighborhood safer. We have generated generational wealth to minority Americans, and we’ve triggered Renaissance of sorts to that block because within a year, the landlords are trying to fix it up a little bit.
Bob Hutchins:
People are looking at the houses for purchase houses that otherwise wouldn’t be sold or getting sold and remodeled. So we’ve changed that block. We’re trying to change one block at a time. We’re trying to, um, you know, there’s a, a, a huge huge gap between home ownership and the African American community and not, if we could change that gap, the next generation would be able to transfer wealth to their children, to their grandchildren. So what is a, what does a home ownership do? It gives you a sense of place. This is where I live. This is where I came from, not, this is what I’m renting until I get thrown out. It gives you permanency, security, safety gives you a better place to learn. You can and educate. It changes the neighborhood. So just by doing these small things, we’re changing neighborhoods one at a time.
Bob Hutchins:
Uh, we’ll be doing the same thing in Jacksonville. Uh, uh, we’ve had great talks with them. They’re excited to get it done. Uh, one of our first homeowners down in, in, in Tampa, and excuse me, in St. Petersburg, it was, uh, was a sheriff’s deputy single, uh, mom, African American, uh, making $46,000 a year. Never thought she’d own a home, no less a new home. Now she owns a new home, her and her family, and if there is any neighbor you want in a community, it’s a police officer. So we are doing, um, uh, first responder veterans preference wherever we go. Uh, we, uh, we are working on a project in, um, in, um, Jacksonville, which will be veterans preference, as you know, uh, the veterans after 20 years of fighting a war, uh, we have a lot of veterans who are suffering, a lot of, of veterans who are, uh, having a difficult time.
Bob Hutchins:
And we think that, uh, they deserve a, a, a special consideration in housing ownership. So we’re working with our not-for-profit partners and our, uh, local municipal officials to create a, um, a a single family residential, uh, community that’s a veterans preference for, um, for the, the city of Jacksonville. Um, so that’s one of the ways we’re working together on some of those. Uh, you’d be surprised. Uh, there’s a great, you mentioned before the young people, generation Z, even millennials, and are really now thinking about capital as a tool to fix societal problems. Um, my generation, I’m a boomer, I don’t think we really saw that in the beginning. And even the idol, idealistic younger, uh, Bob Hutchins and everybody else, um, we thought that just, you know, chanting and singing would get things done. But in the end, entrepreneurship, capitalism can make a big difference in our society.
Bob Hutchins:
Investing doesn’t have to be a sum zero kind of thing. It doesn’t need, you don’t need to allocate all your money to a hedge fund who either loses a lot of money or wins a lot of money from another hedge fund. You can put that money into impact investing and, and, and have both the, the investor and the investee win. And so we’re trying to convince our, we have a, an angel network, uh, of, of, of very high net worth families who are interested in impact investing. And so, uh, we’re educating more and more people who are joining our network that we can make a, a tremendous difference, uh, in our society by just allocating a small portion, 5% of your assets into impact investing can change, can change the entire country. Um, and, and that’s what shared values in investing is about.
Brad Caruso:
Yeah, it’s phenomenal. The impact that this has is, is tangible. It’s, it’s very identifiable and, and it’s a lot of things that you hear talked about on the, in, in the media every day. And it’s, you know, this is one, this is a mechanism to help address some of those issues. Maybe tell me a little more about the, uh, Impact Angel Network, um, that, that’s an interesting idea and concept. How, how did that get started and <Sure.> Where’s that going?
Bob Hutchins:
So I’ve been a, uh, entrepreneur all my life. I’ve started a number of companies, whether it be bioinformatics, medical technology, real estate, hospitality, as well as some, a number of not-for-profits. And I also had a lot of very high, ultra high net worth families that I, I was a tax advisor too, uh, sat on the board of, uh, public and private companies. So I had, uh, a network of these, uh, families that I approached with my idea, and I got, uh, a few of ’em to be instantly involved and said, yeah, we’d love to do something like that. And I said, well, I’m gonna invest this and will you invest with me? And so we started this angel group and we’re doing some really cool stuff. For instance, we have a partnership with New Jersey Institute of Technology where we fund a $15,000 grant for their entrepreneurship lab.
Bob Hutchins:
And in addition to, um, granting them 15,000 to their, the, the winning, it’s like a shark tank, uh, uh, kind of, uh, competition in, in addition to granting them a gift of five, $15,000 to the entrepreneur that wins that we also will, um, give the six top entrepreneurial ideas, uh, entrepreneurs and their companies an opportunity to pitch it in front of our angel network. And, uh, the angels can decide if they want to invest in these companies, which ones or none at all, whatever they’d like to do, or all of them. And we call it boomers funding Zoomers, um, <laugh>.
Brad Caruso:
I like that. Yeah.
Bob Hutchins:
I thought that myself, by the way. Brad <laugh>.
Brad Caruso:
Yeah. Yeah. Listen, tomorrow’s tagline is we’re gonna start hearing the word Zoomers.
Bob Hutchins:
<laugh>.
Brad Caruso:
I know where it had started. <laugh>.
Bob Hutchins:
Yeah. Yeah, that’s it. <laugh>. And so we’re doing that and we’re, we’re constantly adding, uh, to our, um, Wllavoz Impact Angel network. We’ll be having a a this year now that the pandemic is not over, but it’s down to a, you know, a flu type of situation, I guess you’d call it. We’ll be doing some, um, in-person events. We have done a few, uh, zoom calls and, but this year we’re be, we’re gonna be really active on that side because of our partnership with New Jersey Institute of Technology. And, um, that’s kind of fun. That’s, that’s actually kind of fun. That part of the whole thing. Um, uh, little sexier than building houses and crisis neighborhoods. Uh, and, but it’s, um, it’s, it’s, it’s, it’s a way to get comradery, comradery and community in impact investing and take it to the next stage because we are interested in investing in companies, not necessarily opportunities on companies that have innovative, sustainable working models for impact clean tech we like, and those kinds of things.
Bob Hutchins:
Um, so, but our, our, our basic start was in the, in is was leveraging all of the tax incentives for affordable housing and home ownership and, um, through, uh, using opportunity funds. And, uh, uh, and, and, and, and that was our core business at this as we started out. Also economic development incentives. We’ve been involved in, in projects that took new market tax credits, historical tax credits. Uh, we partnered with some very large, uh, not-for-profits, uh, to help them in their capital stack. They, we made a small investment with them. So we’ve invested a number of things. One of the things we do is we represent the investors. We don’t represent, we’re not developers. We’re not looking to build a portfolio on other people’s money. We’re, we represent the investor. We’re an issuer of an asset class, very low cost, very transparent. That’s the only way you can make this work.
Bob Hutchins:
And so we’re a little different, and we actually do the due diligence on these deals. So we act as a, i, I guess we could call it a private equity intermediary. You are, you know, Brad, you’re a very wealthy man, uh, very astute and very impact investing, uh, savvy or, or interested. You say, Ellavoz, help me out here. I have 5 million and I’d like to do impact investing. And we do the hard work. And you, and we’ll, we’ll ask you, Brad, what, what, what makes you, what do you think about society? What’s you, what is it you want to fix? And maybe we can fix it. And you say, well, you know, I, I really wanna do something for veterans. I think that we need to improve housing for the veterans. Okay. Cuz this is a true story, by the way. It’s not Brad, it’s another client, but I can use your name, um, and I’m gonna give you 5 million dollars.
Bob Hutchins:
And so we’re out there creating a model that not only provides housing and a and a path to home ownership, but we’re, we’re including a, um, a veterans resource center on the property funded by the same investors, private foundation, uh, annual gifting to bring veterans friendly, not-for-profits, to use that for either counseling, social job creation, entrepreneurship, or whatever it is. So we call these amenities in some ways. You know, we don’t have pools and, and gyms and, and, and perhaps golf courses in our communities, but we do have amenities that are really important to our, our residents. And so that’s the model we’re using. No one else is doing it. Um, there’s a couple of things we’re doing, uh, which are, uh, are unique too. I can talk to you a little bit about too, if you’re interested.
Brad Caruso:
Yeah, without a doubt. I think it’s important to, um, I, I like that you’re going into detail on, you know, more detail on impact investing. Like, like what are some of the examples, uh, that you’re you know, you’re sharing some of these examples. What are some of those examples of impact investing? And you’re, you’re doing a great job of kind of providing that guidance to the audience here on, um, just, just some things to think about. Um, you know, as an on the investor side too, if you’re, you know, and, and I’ll make one point of clarity, I don’t have 5 million.
Bob Hutchins:
<laugh>.
Brad Caruso:
Um, but, but you know, if you’re looking to invest your capital in a right way, I mean, you know, you thinking about the, the, the end user of those dollars or the, or the, the, the result of those dollars, you know, you, you can have a significant impact. And, you know, people make impact in different ways. Some people donate it to their charity of choice. Some people make a private foundation and, and grant out that money to different places. Some people do the work directly start their own charity and operate themselves. Uh, some people go with this model, uh, which is, which is certainly another model where you’re providing funding and having an impact. So, um, I, I think it’s great for our audience to kind of hear these different ideas. Um, and one thing I wanna, I want to tap on a little bit here, uh, to, to get a little more detail on, cuz it’s highly relevant to the audience here, is you mentioned that you partner with nonprofits on a variety of different fronts and, and governmental agencies, right? You just mentioned, uh, working with N G I T and working with their students. You were, you mentioned working with, with townships, uh, for the, the property, uh, not development, but where the properties are gonna go. Uh, and and you mentioned working with, you know, partnering with nonprofits who probably ultimately will, uh, be involved. Um, how, how do you find the, the nonprofits you partner with and how do the nonprofits find you to partner with? How, how does that process work if it’s not proprietary <laugh>?
Bob Hutchins:
Yeah, no, I, I, as you know, cuz you, you, you’re, you spend every day of your life in the not-for-profit world. Um, our, our, our asset class and our model really works with a very, a smaller subset of innovative, more entrepreneurial, social entrepreneurial nonprofits, those that are developing real estate, building houses, etc. Um, most, most not-for-profits provide services. And there’s a lot of way to fund services. They’re not adequately funded, but you get funding, right? So as you know, typical nonprofit and I run two nonprofits. We do fundraising and we have some grants that come in, or in one case in our Ocean Housing Alliance, we have a small rental income that, that, that is paid from the federal government. That rental payment only makes about half of what it costs to take care of this. So, you know, you have golf outings, casino nights, uh, you, you yet on your knees and you plead for money, you know how it works well in the housing side though, to build housing.
Bob Hutchins:
It, it, there’s, they don’t give you that kind of money. There’s, so, you know, community development block grants might get a little bit, so you, you need to, to find, uh, historic tax credits. You can get some money on that, which is non-dilutive. You can get new market tax credits if you’re creating so many jobs. These all require very intricate, uh, bank involved, uh, financing, which is expensive. Um, the opportunity zone, uh, uh, incentive really is not that hard. And it, and it, it, it provides a tax excluded gain at the end of the 10 year period that the investment is hold. Um, just to kind of give your listeners a, a, a primer, a basic primer, on opportunity zone investing is that in order to invest in an opportunity zone census track, which is traditionally one of the lower income census tracks in, in, in, in, in, in different communities, um, you need to invest through an opportunity fund.
Bob Hutchins:
We are opportunity fund managers, uh, and we manage all of these, these, uh, investments, uh, through our Ellavoz brand shared Values Opportunity fund. If somebody has a capital gain, and I’ll use an example, I sold stock in a company for 2 million. I paid a million dollars, I have a $1 million capital gain. I decided that I would in reinvest that capital gain into an opportunity fund. I can keep the, the original million dollars. I don’t have to invest that. So in some ways it’s better than the tax-free exchanges under Section 10 31. As you know, in the section 10 31 exchange, you gotta reinvest the whole $2 million plus maybe, uh, in opportunity funds. You only have to invest the capital gain. So I invest that million dollars into an opportunity fund. Then someone like myself, who’s the manager of the fund, allocates that investment to different opportunity zone census track investments with, uh, our related in, in some cases, uh, related, uh, asset managers.
Bob Hutchins:
Now the benefit of the opportunity fund is that you put in that million dollars, you defer paying tax on that until after you file your 2026 return. Uh, there is some proposed bipartisan legislation which would extend that for at least two years. Um, I’m a member of the, uh, opportunities on working group, national group of professionals and fund managers. Um, we’ve been working on this with Congress, uh, especially Senator Tim Scott’s office, our New Jersey Senator Corey Booker’s on, on board too. But there’s so much going on in Washington right now that it’s sort of been sitting on the shelf, but it is bipartisan and, and, and we think it’ll get extended out another two years, which would be wonderful cuz it would add more benefit to it. But in any case, so we defer the payment of the, or the inclusion of that income until we file our 2026 return.
Bob Hutchins:
Of course that gives us more money to re you know, to, to invest for that period of time. In this case, now it’s about three, three and a half years. If, if we then at the end of 10 hold the investment in the fund for 10 years, when we sell our investment in the fund, it’s completely 100% excluded from taxation. Now that includes New Jersey, cuz New Jersey, uh, is a conforming state with the federal government. So between the almost 24% and let’s say another 11% in the state, um, you have a 35% tax exclusion, uh, of that gain. So the difference between investing in an opportunity fund and not investing in an opportunity fund is about 50% in cash flow. So there’s a tremendous tax benefit. So when we’re dealing with high net worth more sophisticated, uh, families, they are very, very savvy to these benefits and see impact investing through opportunity funds as a very viable asset class.
Brad Caruso:
So Bob, as far as opportunity zones are concerned, who, who defines where, like where is an opportunity zone h how is that determined? Is that an IRS regulation or is that a, uh, mandate as far as where these zone where you can make these investments?
Bob Hutchins:
The original law, uh, designated governors each state to anoint areas that had area medium incomes that were in the lower 60 to 80% of area medium income in need of redevelopment. So in some cases they were a little political. Each state had, uh, the, um, ability to, uh, recommend certain, um, census tracks to treasury. In the end, treasury decided, which, you know, how many to pick, so on and so forth. They were using, one of the problems was they were using 2010 census information in 2018. Some of this, some of the tracks had been developed in the private sector before that. And, and, and some of this, the data was a little stale, but this was, uh, uh, really a governor’s choice to pick, uh, or select or recommend, I should say, what census tracks in his, in his or her state. They wanted, uh, designated by treasury.
Brad Caruso:
Got it. So if you looked at like New Jersey, what, what jurisdictions would they designate? Opportunity Zones?
Bob Hutchins:
Well, we’re invested in Newark and there’s some very good development in Newark within Opportunity Zones. You see a lot of opportunity zones around hospitals. Mm-hmm. <affirmative> interesting urban centers, schools, universities. Um, there’s opportunity zones in Long Branch, a lot in Long Branch, Asbury Park, west side of Redbank, um, and some of the poorer neighborhoods in south south, uh, Jersey. Uh, there’s a, uh, actually you can go onto the HUD website and they have opportunity zone mapping tool. So you can, uh, you know, put in an address or a block and lot and or a census track and it’ll tell you information and whether or not it’s an opportunity zone census tract.
Brad Caruso:
Got it. Okay. Great. Yeah, thank you for sharing that, that’s relevant and understanding it a little further too. Um, so I guess my, my last question here, um, yeah, maybe can you share, uh, an additional story on impact, maybe some other things that you’re doing where we’re going from here?
Bob Hutchins:
Sure. I, I think the most exciting thing on impact I could share with you is, is actually not our opportunity zone investment fund, but a new, uh, fund impact fund that we are partnering with national not-for-profit housing and home ownership organizations to bid on non-performing loan set aside pools by being set up by government service enterprises like hud, Fannie Mae. These are first lien mortgages, which are in default and, um, are, are need to be sold. Now the Biden administration increase the set aside pool from 10% to 50%. Uh, that gave a lot more product or availability for acquisition. We partner, we are partnering along with our asset manager to, uh, uh, bring general partner capital into the, uh, syndicate that’s doing the acquisitions. They’re primarily, it’s, it’s, they’re, they’re controlled by not-for-profit national housing organizations, but we provide all of the, uh, back office talent as investment managers and as well as asset managers.
Bob Hutchins:
And we are acquiring these pools that are restricted to being put back into the affordability housing. For example, um, in our last pool, uh, we bought 99 assets. Uh, Goldman Sachs was our credit provider. Our partners were not-for-profits that you would know on a national basis. And what we’re doing is we’re cleaning up title and in some cases, uh, we either flip the property over to a not-for-profit that gets free labor, free lumber, et cetera, finishes off and then sells it to a family or where we have to, we keep it, we do the renovation ourselves and we sell it to a family in the AM area, medium income not to exceed a hundred percent. So we, we, we, we put a restriction, we don’t, if you buy one of our houses, you’re not allowed to rent it out. You have to live in it for at least five years.
Bob Hutchins:
Uh, we put restrictions on the homeowners and we we’re gonna make some, this is real impact now because what we’re doing is we’re providing the asset class to buy a, uh, uh, a significant number of assets nationally that can be returned or turned into affordable housing. These are all single family residential homes. Most of ’em are in, uh, neighborhoods that would qualify for under a hundred percent of ami, maybe 60 to 80. And by preventing them from, uh, going out into the open market, we keep ’em affordable. We just have to live within the boundaries of our not-for-profit partners, but we’re helping them to, um, to, to turn more and more affordable home ownership nationally. So we have a, uh, we have a big fundraising going on for this. Um, we’ve done two already this in last year, and we’re hoping to do double the amount, maybe triple the amount this year. So that’s pretty exciting. No one else has ever done this before in this space.
Brad Caruso:
Super exciting. Yeah, this is, this is great stuff. And, uh, you know, Bob, I I appreciate your time just sharing this information with us and, you know, you’ve, you’ve lived in the public accounting world over here at with them, you know, you’re the CEO of Ellavoz and continuing to make an impact in the world. I really wanna say thank you for joining us in Civic Warriors and definitely appreciate you sharing these stories with us.
Bob Hutchins:
Well, I appreciate it, Brad.
Brad Caruso:
Absolutely. And Warriors, thank you for listening. Remember, innovation is necessary to solve real issues. And it is so important to continually think about who the end user is, to think about how to have that real impact, which is on that personal level, on that individual level, cuz that’s what really drives and changes people’s lives. And, uh, through Bob’s work, through other’s work, it’s really having a significant impact on the world. And so we appreciate that and hope to keep these conversations up because next time we talk to Bob, I’m sure there’s gonna be another big thing that’s happening and his partnerships in the nonprofit world are definitely game changing in our industry. Make sure to subscribe and meet us right back here for another episode of Civic Warriors in the future.
