Bohemian Rhapsody: Learning to Turn Weakness Into Strength

Released at the end of last year, Bohemian Rhapsody, the story of Freddie Mercury and the band Queen, is already the highest grossing music biopic movie in history. And while Mercury was an amazing singer, it’s his strong business acumen that I most often remember. The man’s mind focused on solving problems, capitalizing on opportunities, and standing out from the pack – a mindset that would have no doubt served him well if he’d ever gone into the multifamily industry!

Mercury was an expert when it came to developing Queen’s unique brand and identity. Born Farrokh Bulsara, he renamed himself Freddy Mercury, and later designed the band’s iconic eye-catching logo, all to draw interest for the fledgling group when it was young. He also encouraged the band to explore several diverse musical styles in their early albums – such as the eight-minute canon-included “The Prophet’s Song”, or the operatic masterpiece “Bohemian Rhapsody” – to help gain musical acceptance in a time when rock music was just becoming widely appreciated.

Another area the band excelled in was scaling. While the group had some early problems getting a record company to sign them, they quickly scaled their group with local concerts and new albums. They continued this rapid scaling by performing at larger and larger venues, capped by the Live Aid performance at Wembley.

Queen also knew how to build a unique brand that gave them notoriety. At a time where rock had just become regularly accepted, the band pushed the envelope, adding several diverse musical styles into an album, as well as experimenting with stereo sounds.

Take, for instance, the A Night at the Opera album. The album featured a track that had an eight-minute run time, complete with a canon in the middle. Another track on the album had a harp and vocals dubbed over each other. Of course, “Bohemian Rhapsody” was also on this album, complete with its operatic tones and additional vocal overlays.

The band also developed strategic partnerships with other major artists along the way, including Monserrat Caballe, David Bowie, and even Michael Jackson, and performed with these musical masters to further Queen’s notoriety and fan base.

Mercury found success by taking a practical business approach to Queen; he differentiated the band in the marketplace, taking advantage of the opportunities he was presented, and he leveraged his network to elevate everyone involved. This stand-out approach has proven paramount for many business leaders in the past, and is exactly the mindset that can help your multifamily management organization shine.

Great businesses promote the differences that exist in people or opportunities and take advantage of them. Famed keynote speaker David Rendel notes that these differences are often the key to providing sources of potential, advantage, effectiveness and joy. Even Sally Shaywitz, a neuroscientist studying dyslexia at Yale, notes that those who turn their talents into disadvantages “are overrepresented in the top ranks of [business] people, who are unusually insightful, who bring a new perspective, who think out of the box.”

Look at Richard Branson. Born dyslexic, he was branded lazy and unintelligent in school. Being an individual that always turns challenges into strengths, he adapted his management style in a manner that would work with his dyslexia, rather than against it, and it’s proven successful for him ever since.

Challenges can present themselves in a variety of outlets, like Branson’s dyslexia or Queen’s uphill battle. To identify where your biggest challenges may be, and how to overcome them as a leader in your business, consider these questions:

    1. Do details make you distraught?If you’re challenged by details, you likely don’t have a preference for ‘structural’ thinking. Focus on laying out your business’s plan five steps further than you think you need. At each step, always ask yourself “at this stage in the game, what is every contingency that someone would need to know?”
    2. Do you usually consider the consequences? If you don’t always think about the ramifications your decisions have on others, you may not have a natural inclination for ‘social’ thinking. To combat this, focus on gaining consensus for an idea from your employees, customers, or shareholders before pushing it through. Along the way, be sure to ask each audience “how will this impact you?”
    3. Are you more focused on the minute? If you conquer the day-to-day, but don’t naturally think about the big picture, you probably are not a ‘conceptual’ thinker. To get your mind into macro-mode, have regular brainstorms, focusing on how one idea connects to another. As you do it, think about what the ramifications of each idea at one, two and five years down the road.
    4. Are you the silent, contemplative type? If you’re naturally quiet, you’ll need to set time aside to express yourself to your team. Conveying your thoughts and emotions to others is a critical aspect of moving your business forward. As you conduct these expressive moments, always ensure you don’t talk over those you lead.
    5. Do you generally prefer consistency? If you like things focused and straightforward, you need to adopt a mindset that’s accepting of the opposite. Change is constantly happening, and being prepared for it is key in our industry. Being open toward switching plans is how you’ll combat that. As you work to readily welcome change, be sure to offer your constituents real, valuable rationale as to why something should shift.

We all have unique qualities that come naturally; things we do well that make us exceptional. Great leadership is about recognizing the things we don’t always do quite as well, and working to capitalize and improve on those things. When looking to set your goals for 2019, remember to stretch those goals further than you know you can reach, and always continue to strive to achieve them.

Don’t let your perceived weaknesses hold you back. Start looking at them as strengths, and take advantage of them to help your business grow in the New Year!

We are the champions, my friends.

Opportunity Zones

Opportunity Zones

It has been more than a year since Qualified Opportunity Zone legislation became law, though not all the details have been released.

Developers and property owners in many major markets are taking advantage of a new law that presents an incredible potential for profitability: the ability to develop projects where the appreciation in property value could be tax-free.

Opportunity Zones || NexGen Management, Clarksville, TN A new report from Real Capital Analytics shows that on average, land prices in census tracts designated as opportunity zones are not significantly lower than outside of them. Since the Tax Cuts and Jobs Act was passed, transaction volume for land purchases have grown in every quarter, with Q3 seeing a year-over-year increase of more than 50 percent. Deal volume outside of opportunity zones have remained stagnant over the same period, according to RCA.

The Opportunity Zone program, established in The Tax Cuts and Jobs Act of 2017, is a tax incentive designed to encourage long-term private investment in low-income communities. Opportunity Zones are in census tracts must either have poverty rates of at least 20 percent or median family incomes of no more than 80 percent of statewide or metropolitan area family income.

In California alone, there are 3,516 census tracts in 54 counties that qualify under one or both of the criteria. California’s Governor designated 879 tracts, and the U.S. Department of the Treasury certified all 879 of them.

At a recent conference I spoke to about Opportunity Zones, the group was shocked at the number of great areas that are prime for development within designated areas. Tracts that are not totally in distress but prime for development have been certified as Opportunity Zones, giving developers a big incentive to invest in redevelopment.

Among these incentives is their eligibility for four tax benefits under the new law:

  • Temporary deferral of taxes on capital gains. Investors can place existing assets with accumulated capital gains into Opportunity Funds. Those capital gains will not be taxed until the end of 2026, or on the date when the asset is disposed.
  • Basis step-up of capital gains invested. Capital gains placed in Opportunity Funds for specific, predetermined lengths of time deliver lucrative predefined increases to the investors’ basis; 10 percent for investments of at least five years, and 15 percent for investments of at least seven years.
  • Return of Basis in Initial Transaction. Unlike a Section 1031-Tax Free Exchange, when investing in an Opportunity Zone property, one can take out the basis of the original property. For example, suppose an investor sells a property for $15 million and the investor’s basis in the property was $5 million. The investor can take the $5 million and use it for anything and only needs to invest the gain or $10 million in this example, into the new property.
  • Permanent exclusion of taxable income on new gains. For investments held in an Opportunity Fund for at least ten years, investors pay no taxes on capital gains produced through their investment. In other words, after ten years, the taxpayer’s basis is equal to the fair market value of the fund investment as of the date it is sold or exchanged.

Potential for Tax-Free Treatment of Future Real Estate Appreciation

If an investment of existing capital gains is held for 10 or more years in an Opportunity Fund and eligible Opportunity Fund investments, at disposition or sale of the Opportunity Fund interest, the appreciation on the initial investment would not be subject to taxation.

A developer must improve the property substantially to benefit. One just can’t buy a property in the zone to benefit.
The Internal Revenue Code defines “substantial improvement” as follows – during any 30-month period beginning after acquisition date, additions to basis exceed an amount equal to the adjusted basis of such property at the beginning of such 30-month period in the hands of the QO Fund, so long as "during substantially all of the QO Fund's holding period of the property, substantially all of the use of such property was in a Qualified Opportunity Zone."

For example, if a multifamily developer would invest $20 million in an Opportunity Fund that invests in eligible qualified Opportunity Zone property (i.e. new apartments in the zone and other commercial properties) and the investment appreciates to $35 million over a 10-year investment horizon, the $15 million of capital gain would be tax-free to the investor at disposition or sale of the interest in the Opportunity Fund.

This tax-advantaged treatment of long-term investments in qualified Opportunity Zones provides significant planning opportunities for real estate, project finance, and infrastructure projects.

Investors will benefit most in Opportunity Zone financing when the underlying assets, real property or business investments are subject to rapid 10-year appreciation. Because of this, utilization of Opportunity Zone financing with structured leveraged may result in substantial tax-advantaged appreciation vis-à-vis traditional real estate investment models.

If you are interested in Opportunity Zone investment in your state, email me to find out which tracts have been designated and are available. You will be surprised how many there are!