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    The OZ Fund With A $1,000 Minimum, with Don Harmer

    How can non-accredited investors with smaller capital gains participate in Opportunity Zone investing?

    Don Harmer is the president and CEO of the GRASS QOZF. GRASS is focused on Lyon County, Nevada and owns multiple QOZBs in the aviation and software industries. The fund accepts investments of as little as $1,000 and allows for participation by non-accredited investors.

    Click the play button above to listen to my conversation with Don.

    Episode Highlights

    • An overview of the GRASS QOZF, including the fund’s investments in Nevada aviation and software businesses.
    • How GRASS pursued a Reg A+ filing route that allows the fund to accept non-accredited investors with as little as $1,000.
    • How a “hybrid” structure that incorporates Qualified Small Business Stock (QSBS) framework to potentially shorten the holding period required to realize tax advantages and expand the sources of capital than can be invested.
    • A deep dive into the securities laws that typically restrict Qualified Opportunity Funds (QOFs) to accredited investors, and how Reg A+ offers an alternative structure.
    • The requirements to become a QSBS under Section 1202, as well as the benefits available to investors.
    • A review of the GRASS pipeline and investment strategy, including a focus on high tech hangars.
    • How the Tahoe-Reno Industrial Center (TRIC) is stimulating the Lyon County economy.
    • The unique liquidity options for funds like GRASS, including tokenized security trading, as fundraising progresses and capital is deployed.

    Featured on This Episode

    Industry Spotlight: GRASS QOZF

    GRASS is a Qualified Opportunity Zone Fund focused on applying cutting-edge technology to complex compliance processes. Based in Lyon County, Nevada, the fund invests in businesses in the aviation and software industries. GRASS launched a Regulation A+ offering aiming to raise $50 million, with an investment minimum of just $1,000 that is open to both accredited and non-accredited investors.

    Learn More About GRASS:

    About the Opportunity Zones Podcast

    Hosted by OpportunityDb.com founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

    Show Transcript

    Jimmy: Welcome to the “Opportunity Zones Podcast.” I’m your host, Jimmy Atkinson. If you’re a smaller investor, you may have noticed that a big problem with most Opportunity Zone Funds is that they typically have high minimums, oftentimes, as large as $50,000, $100,000, $250,000 in some cases, or even more than that sometimes. The GRASS fund on the other hand is a relatively new Reg A+ offering, and not being governed by the accredited investor requirement has a low minimum of just $1,000. Joining me today to discuss this and more is Don Harmer, President and CEO of GRASS. He joins us today from Carson City, Nevada. Don, welcome to the podcast.

    Don: Oh, thank you, Jimmy.

    Jimmy: Thanks for coming on. Your fund is very unique in many ways, Don. The Reg A+ structure being one of several ways that makes your fund unique. And I wanna drill down into all of the unique aspects of your Opportunity Zone Fund offering in a minute. But before we do that, can we back up a little bit and give our listeners the general 30,000-foot overview of GRASS? Who are you guys and what do you do exactly?

    Don: Well, GRASS is a Qualified Opportunity Zone Fund, and we’re located in the several different Opportunity Zone areas in Lyon County, Nevada. Directly beneath GRASS is our qualified business, RAGSS. And RAGSS has several subsidiary companies under it. SAMSARG, the aviation company, which focuses on government DoD contracts and general aviation. And we also have Sierra Software Systems, which is our software development company. And we’re developing a regulatory software package for government contractors to be able to stay in compliance with the regulations mandated by the government to be able to do these different government contracts.

    Jimmy: Are these all different acronyms? By the way, I mentioned you’re the CEO and President of GRASS. And then you mentioned RAGSS underneath you, and also SAMSARG. What are those businesses exactly? Can you tell us what the acronyms are?

    Don: Well, there’s not really per se acronyms. We just were trying to pick names for our companies that people would remember. SAMSARG has no acronym to it. GRASS is, we did create an acronym for it, because when we’re going through the Reg A qualification process, it was just recommended that we had something for it. So what we did was we came up with the acronym Growth, Resources, Assets, Safety, and Stability. And that was just kind of a brainstorming-type session that we came up with something that really didn’t stand for anything in the beginning. And then RAGSS is just a take-off on that to a Resources, Asset, Growth, Safety, and Stability. And then SAMSARG is just a catchy name.

    Jimmy: It is.

    Don: We want it to be something that somebody would remember when they heard it, and it’s been working out fairly well.

    Jimmy: Good. And let’s drill down into your deal pipeline and the different businesses you invest in a little bit later. But I wanna get back to why you guys are unique. So tell me in your own words, Don, why are you guys unique? What makes your Opportunity Zone Fund offering unique?

    Don: Well, I think we’re doing something different. I haven’t seen any other funds out there that’s done the same thing that we’ve done. We’ve done a Reg A+, so we could open ourselves up to the retail investor, man on the street investor with the $1,000 minimum investment because we didn’t wanna strictly focus on the accredited investor, broker-dealer network, so to say, because there’s plenty of opportunities out there for that demograph. So we wanted to be able to have a multitude of investors and make these tax-advantaged investments available to a group of people that it hasn’t really been available to before. I think everybody’s familiar with the Jobs and Tax Act and Internal Revenue Code 1400Z. And what created the Qualified Opportunity Zone Fund in the very beginning, because part of the 1400Z is to be able to take advantage of the tax benefits in the investments is we have to invest in a qualified fund. And the 1400Z focuses on people reinvesting their money, their gains, to get their tax benefits that way. And what we’ve done is we’ve hybrided our investment by declaring our stock as qualified small business stock under Internal Revenue Code 1202, which gives the ordinary investor reason or ability to invest in a tax-advantaged investment with non-gain money. Just fresh money investment, original money investment. And if they hold their investment for five years in a day, they can take out to 10 times their investment plus their investment tax-free up to $10 million. So it’s a pretty unique situation, we think, only because we haven’t been able to find anybody else that’s doing that. I know there’s at least one if not two other qualified funds out there that they’re doing Reg A+, but I don’t know if they’re offering it the same way we are.

    Jimmy: All right. So let’s talk a little bit more about the securities law for a moment here. I’ve had one episode in particular with Clem Turner, many months ago. And I’ll link to it on the show notes page for today’s episode that we spent a significant amount of time talking all about different securities laws, and different ways that funds can be offered. The most common way that a Qualified Opportunity Zone Fund is offered is under Regulation D. And that’s typically under Rule 506(b), or 506(c). In both of those types of offerings, you are required to be an accredited investor in order to invest in the fund, which means you have to have a certain level of income or a certain level of net worth. And typically, those funds have very high minimums, as I mentioned in the intro, oftentimes, $50,000 or even much higher than that. Your fund is unique, as we’ve mentioned. It’s one of only maybe, you know, two or three other funds out there that it is offered under Reg A+, which is part of the Crowdfunding Act, I believe. Could you tell us a little bit more about the history of Reg A+ and what some of the pros and cons are?

    Don: Yeah, I’m pretty sure Reg A+ was the…started out as part of the crowdfunding thing. And it was gaining so much traction that the regulators decided to allow some higher entry levels, because crowdfunding in the past was very low amounts. You set your own maximums, I think, you know, your own minimums to be able to raise the money before you had to give it back, that type of thing. And then you always had to make a promise to your investors that you would give them some sort of a perk to go along with it. And I think it became so popular. I’m not 100% sure who designed the Reg A+. But when there’s a Tier 1 and Tier 2, and the Reg A+ is just the acronym or substitute name for Reg A Tier 2, which has a maximum now of $70 million. So you’ve got a 12-month plus one extension period to raise your maximum. And the one thing that we really liked about the Reg A+ is it allows us…we created our own investment platform. We did not join on another pre-existing platform that a lot of Reg A+ companies do where they’re advertised with other Reg A+ investment opportunities and that type of thing. We created and marketed our own platform. And I think the marketability for us was one of the huge decision-making triggers that helped us get into, instead of doing 506(d), go ahead and do the Reg A+ because it just opened it up to a much larger demograph of people that could invest. And then with the $1,000, minimum, I really haven’t seen anybody with that low of a minimum, but we’ve done that intentionally because we wanna make this offering available to a lot wider audience than just the accredited investor audience.

    Jimmy: Yeah, and I think it makes perfect sense. If you’re an accredited investor, and you’ve got a significant amount of capital gain, you have a lot of different funds that you can choose from, literally hundreds of funds that you can choose from, I believe. But if you’re an unaccredited investor, your options are very limited. And if you’re an unaccredited investor who doesn’t have a significant gain, maybe you only have a few 1000 bucks of gain, your options are even more limited. So I think your fund represents a very good option to look into further if you are one of those types of investors who has a much smaller gain, and who is unaccredited.

    Don: Yeah, I agree with you 100%. But, you know, and then hybriding the 1202 on top of that just opens us up to a much larger investor crowd because you don’t need to strictly invest to gain money. That’s one of the incentives, one of the advantages, but investing in us under IRC 1202 has huge advantages because you don’t have to strictly invest gains. You can invest fresh money or new money investment or whatever you wanna call it. And it has its own perk too, and the holding period is less. There’s a maximum on what you can take out tax-free, but the holding period is five years and a day, and you’re limited to 10 times your investment plus your investment with a maximum of 10 million tax-free. So the holding period is 50% of the 1400 period. And I think that suits the smaller investor better than the larger investor looking to defer their gains tax and then mitigate their tax liability after their holding period.

    Jimmy: Right. No, I think that’s a really good option, also. We’ve mentioned qualified small business stock, section 1202 in the Internal Revenue Code I think a couple of times on this podcast in the past, but I don’t know that I’ve ever really done a deep dive into it. Could you tell us a little bit more about that? I know you kind of gave us the quick one-on-one crash course there over the last 30 seconds, but can you tell us a little bit more about what are the requirements to become a QSBS under Section 1202? And why did you guys choose to do it? And how exactly is your fund structured such that it can take advantage of that? Is it the fund is issuing stock under Section 1202? Or do you have an underlying QOZB that is able to issue that stock? Tell us as much as you can about them. I’m curious to know more.

    Don: Well, it is the fund stock that we’ve defined as the qualified small business stock. It’s a self-declaration type thing and you memorialize it in your articles, in your bylaws, and resolutions, and advertise it that way. But 1202 has been around for a long, long time. And the benefits, depending on whoever’s in office, the benefits change too. It’s gone from 35% to 65% to 75%. Under the Obama administration, I think when we had our little hiccup in 2008, Obama made it 100% tax-free because it’s always been a way that the government could try to incentivize investment, and keep money in the pipeline instead of on the sidelines. And I don’t know if it was 100% part of the 2017 Jobs and Tax Act, but the Trump administration cemented the 1202 benefit at 100% tax-free gains, and it’s actually been recorded in the Federal Register, and is not a moving target anymore, it is actually 100%. So you just structure your shares as a qualified small business stock, and there’s parameters that you have to live within. It has to be original issue, is one of the mandates. And then once the company hits 50 million plus in aggregated assets and/or investment, the 1202 goes away. But everybody that gets in the door before that is still 1202. So you take that and lay it on top of the 1400. I think it’s a great investment opportunity for every aspect of investor, small investor to accredited investor.

    Jimmy: And correct me if I’m wrong, I’m not a 1202 expert. I believe that Section 1202 can’t be applied to real estate. It has to be a particular type of business asset. Is that right?

    Don: Yeah, that’s correct. There’s certain things that they take into consideration, and they have different schedules. There’s certain businesses that aren’t allowed. And even in 1400, there are certain businesses that aren’t allowed to take advantage of those tax incentives. Gambling is one of them, horse racing is one of them. Car racing is not, but horse racing is. And they’ve got a whole delineated schedule, what’s restricted and what’s not.

    Jimmy: Casinos, I think, liquor stores, golf courses, there’s a few other sin businesses along those lines. And that explains why many qualified opportunity funds don’t offer as qualified small business stock under Section 1202, because the vast majority of them have a significant, if not exclusive, real estate component to it. So, that’s another thing that really sets your fund offering apart for sure. So, shifting gears a little bit now, Don, I wanna ask you, what types of projects specifically are in your pipeline? And where are you investing? Tell us a little bit more about your Opportunity Zone investment strategy.

    Don: Our major investment right now is in SAMSARG. We’re building a very large, high-tech hangar to be able to conduct Department of Defense contract business in Silver Springs, Nevada, which is in the heart of the Lyon County, Nevada opportunities. Supplemental too, we’re in tandem with that. We’re probably gonna be breaking ground on our first general aviation hangar here very shortly, because I think we have our letter of intent in pocket to be able to break ground on that, but we’re just at the bottom of the hill of the Tahoe Regional Industrial Center, TRIC, I think. And I think you’ve seen that. I think everybody’s heard of it. That’s where the Googles, and the Teslas, and the Amazons, and all the big distribution chains and that type of thing are building very, very large warehouse and distribution center type thing. It’s where the blockchain guys are trying to develop the blockchain smart community. And we’re just at the bottom of the hill from that. And the people that are involved in the management of TRIC, companies that have a footprint up there are flying in and out of the Silver Springs Airport. And there’s really no hangar facilities or anything like that to accommodate. It is a very rural area, very underdeveloped airport and area. And there’s just a huge call for the general aviation hangars also if we’re gonna try to take advantage of.

    Jimmy: Yeah, so it sounds like a good opportunity and a center that’s gonna experience a lot of growth over the next few years. You mentioned TRIC, and I think you’re referring to the Tahoe-Reno Industrial Center, which is gonna be home to the Tesla Gigafactory among many other production facilities.

    Don: Which it is, yeah. Tesla, Panasonic, yeah, they’re there. I don’t know if they’re 100% ramped up yet, but they’re there. They’re a huge footprint. Google is a huge footprint. Apple’s not too far away from there, it’s across Interstate 80 from TRIC. But yeah, there’s a lot of big-name companies up there.

    Jimmy: Right. And who have been your typical investors so far? Have you started accepting capital? Who are your investors? And what do they like about your strategy?

    Don: Well, it’s interesting. We thought the $1,000 guys would be predominantly our initial guys in the door, but we’ve been fairly lucky on that and with the 10s, the 25s, and the 50s, and they’re all across the spectrum. We’ve got some portfolio management investors, I think, because investors is a corporation instead of as an individual. We’ve got individuals investing, we’ve had a partnership. But yeah, we’ve got some fairly good traction so far. We just got approved to start taking investments on June 15th. So we’re really happy and excited with the attention that we’re getting.

    Jimmy: What type of feedback have you gotten from your investors so far? What do they like about you? Why are they writing you these checks?

    Don: Well, most of them are because of the low entry point, number one, and then I would say a larger majority than that are 1202 because they’re not reinvesting gain money. We have quite a few investors who are reinvesting gain money. But I think we’ve got a larger percentage who are investing for the 1202 tax advantage.

    Jimmy: Got it. Yeah, that’s interesting. And you guys are 1202, of course, and a lot of your investors are coming in because of that. But, of course, this is the “Opportunity Zones Podcast,” but you are structured as a Qualified Opportunity Fund. What appealed to you about Opportunity Zones? And why did you ultimately decide to structure as both?

    Don: Our business model was to take advantage of the Opportunity Zone, not necessarily the fund. The fund was primary, but it was still a little bit secondary thought process when we decided to go into the Opportunity Zone, and make the commitment to build the first hangar out there in Silver Spring. And then we just started getting traction. And the more interest we got, the more interested we’d become in the fund component of it. And we’ve gotten a lot of traction, and a lot of momentum, and are breaking ground out there and getting the concrete poured for the first hangar has led to some different opportunities, and a lot of different eyes on it, and that type of thing. And that’s when the opportunity for us to take over our own airspace came up, and we just jumped on it as quick as we could because it’s only a 15-minute drive from the Silver Springs Airport. And it’s still in the Lyon County Opportunity Zone that we’re focusing most of our efforts on. So it seemed like a natural decision to make, and be more in control of our destiny because we are the property owners, we are the controlling interest in the airfield. And I think without a landlord and some of the things that…not restrictions but some of the challenges you have with that, we just thought it was a huge opportunity to be able to expand a little bit quicker than we may have been able to.

    Jimmy: That makes sense. So at the end of the day, whether your investors take advantage of the Opportunity Zone tax incentive under Section 1400Z, or if they take advantage of the qualified small business stock incentive under Section 1202, and just to recap, that’s if you hold the stock for five years, you can avoid 100% of the gain on that stock up to what was it, $10 million?

    Don: Ten million.

    Jimmy: Ten million, right. And you still get that deferral on the front end as a QOF investment if you are coming in as an Opportunity Zone capital gain investor. At the end of the day, though, just to get back to my point, at the end of the day, this comes down to needing to have an exit of some sort, or sale of the stock at some point, in order to take advantage of the gain exclusion. What is your exit strategy?

    Don: Well, that still has yet to be determined. We’ve got a couple of different ways we can go when we get to the end of our Reg A+ or if we close our Reg A+ because we’ve hit our target. We can discuss doing an S-1 registration and becoming a publicly traded company, or I think our other opportunity or other decision to be made is do we do that or do we do an over-the-counter and become a securitized token? Because token securities or securitized digitized token securities are a huge thing now. And they’re just coming into the forefront, and there’s more and more companies getting approved to be able to do that. But it gives a company liquidity and will give the shareholders an exit strategy to be able to sell their shares through the broker-dealer network, and on the token security platform. I think our broker-dealer and our stock transfer agent are all getting ready to offer the tokenized securities trading if they haven’t already. And I think that’s something that we’re gonna take a serious look at, because the value of our stock at that time is performance and balance sheet support instead of trader-volume support whips on our stock value or something because of the way it’s trading. So, but yeah, we have several different things we’re gonna be looking at. Right now we’re focused on the Reg A+ because we have a 12-month window, and I think we get one extension period, and we’ll just have to see where we go from there.

    Jimmy: Excellent. Yeah, you definitely have some options down the road which will provide some liquidity to your investors no matter which path you choose. What have been some of the biggest challenges that you’ve faced in getting your fund off the ground, given that it is so unique? Not only is it a Reg A+, which is somewhat unique, but it’s also taking advantage of Section 1202, as we’ve mentioned, and it’s always just challenging raising capital, anyway. What would have been some of the biggest challenges that you’ve faced so far?

    Don: The biggest challenges we’ve faced is logistics and time. And that’s always a challenge with the startups, and initially raising capital is the clock. But other than that, it is what it is because we’re on a regulated environment. So you’re at the mercy of the regulators. You do whatever you can to get everything submitted in a timely manner, and then you’re at the mercy of their schedule. So I think the biggest challenges to date have been time and logistics more than anything. I think we’re doing a great job. Our team’s doing a great job of getting our message out there. We’ve got some fantastic marketing and PR people. And we’re getting a lot of eyes on what they’re doing. We’re getting a lot of hits on our website. And we’re getting a lot of press too, which is unique, I think, because I don’t see a whole bunch of really high profile funds out there. And even when you start googling them and stuff like that, I think we’re at the front of the pack as far as name recognition and being able to find us if you’re looking for us or even if you’re not.

    Jimmy: And I’m gonna ask you to look into your crystal ball here now, Don. What do you see in the future, both in terms of the OZ marketplace, generally, and your fund in particular?

    Done: Well, I think the Opportunity Zones, they have to be around to at least the end of everybody’s 10-year holding period after December of 2026. Because that’s your deferment date when you have to pay your gains tax if you come in, and then the clock starts ticking from there. But, I see a long, long term viability for our business model only because of the space that we’ve decided to operate in. And like I say, real estate’s a very small component of what we’re doing. The larger part of what we’re doing is job creation. And even if we were to build out all the hangars that we could build out, we’re still gonna be continuously upgrading, and updating, and getting new contracts, and keeping people jobs in the pipeline, and that type of thing. I don’t really see us building out like a multifamily project or something like that, and then selling out or something. I think we’re in this for the long, long term. And hopefully, maybe more than one generation. Who knows?

    Jimmy: That’s the great hope, right? I hope this thing gets extended and we can do this for a long time to come still. Well, Don, it’s been a pleasure speaking with you today and learning more about you guys. Where can our listeners go to learn more about you and GRASS?

    Don: QOZFUSA.com is our website. And even if they Google GRASS QOZF, they’re gonna get to us. And then if you do the GRASS QOZF you’ll see all the press we’ve been getting and who’s been picking us up on their storylines and stuff. So, but yeah, the QOZFUSA.com is our main platform.

    Jimmy: Terrific. QOZFUSA.com is that URL there. We did a write-up of you guys. I think it was last week on OpportunityDb.com. So I’ll be sure to link to that also. For our listeners out there, I will as always have show notes available for today’s episode on the Opportunity Zones database website. You can find those show notes at opportunitydb.com/podcast. And there you’ll find links to all of the resources that Don and I discussed on today’s show. I’ll be sure to link to qozfusa.com and the write-up that we did on the GRASS Fund last week. Don, it’s been a pleasure. Thanks for joining me today.

    Don: Well, Jimmy, thank you for having me. And hopefully you’ll follow our progress and maybe we’ll talk again soon.

    Jimmy: That’s it for our show today. A huge thank you to you, our listeners. If you liked this episode, please rate and review us on iTunes. The “Opportunity Zones Podcast” is produced by the Opportunity Database. Visit opportunitydb.com to learn more about Opportunity Zones and Opportunity Zone Fund investing. You can learn how to subscribe to this podcast, and read more about today’s guest in the show notes by visiting opportunitydb.com/podcast, and we’ll be back soon with another episode.

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