Bret Kugelmass
So we are here today with Al Puchala, the Chief Executive Officer of CapZone Impact Investments, and my personal mentor on all things opportunity zones. Welcome to the show.

Al Puchala
Thank you, Bret. I'm privileged to be here. Thank you for including me.

Bret Kugelmass
Yeah, no, it's super exciting to talk to you. Last time we chatted awesome conversation, couldn't wait to get you on the show. So why don't we start off though, with learning a little bit about you and your background and how you got into the finance world to begin with?

Al Puchala
No, thank you. I've basically been in finance for almost 40 years. I started on Wall Street after college, I did a lot of corporate finance, worked in mergers and acquisitions, mostly in telecom tech media, but I always had an interest in public private partnerships. So my work in the 90s included going to Russia with my boss, Michael Blumenthal, who was at Lazard, who I worked for, to help set up the US Russia fund and help the former Soviets learn about capitalism, representing the US Treasury, did a lot of work over my career on what makes a good public private partnership work from rural America to restructurings, and including in the energy world, so a lot of my interests have been new asset classes. I worked in the late 80s on the first real estate securitizations, figured out what residuals were worth and just loved the academic area. So the opportunity zones for me right down the fairway, new asset class interesting and potentially very useful to help advance good social policy.

Bret Kugelmass
Amazing intro, very succinct. But I am going to bring you back into the past for a minute to tell us a story. Tell us a story just about something that happened when you're over there in Russia, and what was it like?

Al Puchala
It was the wild wild East. So I was, you know, one of the experts in public private partnerships, there weren't many on Wall Street at the time in the early 90s. And the Berlin Wall fell, the US Congress allocated $400 million to help the Russians now really learn about capitalism, and it was gonna be a grant. And instead, to their credit, they made it a front of ownership. So they sent Michael Blumenthal, the former trade rep, and he asked me to join him. We spent a few days in Moscow and working with the senior officials, both in the military and the government and creating the US Russia fund, it was really a new way to think about how ownership helps, you know, advance market movements, and it was very successful.

Bret Kugelmass
Were you worried, though, about just like, general stability of their economy at the time? I mean, they were just, it must have been just such a shock, you know, being at the heart of the Soviet Union, and then, you know, experiencing just this like, radical departure from, you know, the communist economic setup, was it? I mean, were they already aware of some of these, like other new, like, market setups, or, or was this just a total learning experience from them, like from from the first get go,

Al Puchala
They were aware, I was active internationally at Lazard especially in Eastern Europe and Poland and Hungary. So when the Russians wanted to fund also, there were models out there, but the, you know, the Russian people are very industrious, and they came to it, and there's a lot of work to do. So we were very proud to really create a platform that was a, you know, Russian US cooperation, which we need more of today, actually.

Bret Kugelmass
Yeah, it's, it's a theme that keeps coming back over time. It's funny, I'm rewatching the West Wing now. And I'm just seeing these themes come back over and over again, and every five years, the same set of geopolitical themes all over again.

Al Puchala
Hopefully, we'll learn from our mistakes someday. So that was a great experience and really, you know, finding, especially how market forces can create public and private collaboration. You know, we use tax in this country. You know, we tax people and then we we spend through federal credit programs and grants. But there are better ways to also put into the mix, which is how can you create a public private partnership to let the private sector participate, but also have the government advance good policy? And that's one of the reasons whether it's tax incentives or exclusions or grants, I'm very interested in finding ways to effectively help people, you know, advanced with government support,

Bret Kugelmass
Can you break that out a little bit when you say public private partnership? I mean, you gave me the categories there, but for our audience, maybe just explain a little bit more of like, what that means, what's the intent? And, you know, like, like, What even is the partnership?

Al Puchala
Sure. And you know, what I'll do. I picked up Bill Gates, his recent book, you know, How to Avoid a Climate Disaster a few weeks ago, I read it, it was a very good read. But I just want to quote a sentence if I could help that idea. So, you know, Bill Gates is talking about how we need to address, of course, the climate crisis, you know, bring in the private sectors. And basically, he says, look, the, the timeframes for climate investment are long, and the risks are high. So the public sector should be using its financial strength to lengthen the investment horizon, reflecting the fact that returns may not come for years, it'll be tricky to mix public and private money on such a large scale, but it's essential. We need our best minds and finance working on this problem. So the way you frame it is, like we as a country have a lot of challenges we overcome, right, as Warren Buffett says, never bet against America. So that's I'm on that list. But that we have these two lanes, right? The public lane and the private lane, different rules, different considerations, different obligations? And how do you bring those together to create one plus one equals more than two. And that's really what a public private partnership is. So when you think about how we use tax, we either tax people, right, income tax, capital gains tax, and the government then says, Here are the priorities for the country could be, as we read in the New York Times this week, the infrastructure bill that the administration is advancing, right, incorporating the priority or COVID relief, and the government then writes checks, or gives grants or gives regulatory relief to say these people should have this money to then you know, to respond. The other way we do it is to say, if it's for public purpose, you can take it off your taxable income. So if it's a muni bond, to build a bridge that we really need to help the city come together, you private sector, take the credit risk, you private sector put the money, but the investors or in that case, the lenders don't have to pay interest tax on their interest. So that's another way those are the two ways we do it.

Bret Kugelmass
Okay, yeah. So sorry, please go ahead, paraphrase that. So by changing tax policy, that is like almost a type of government subsidy or government contribution to the private sector, and that is the partnership in that specific specific strategy.

Al Puchala
Correct, I, I always say that's the three letter word, it all starts with tax. And actually, if you read, I forgot the name of the book, but there's a book that basically said tax policy predated money in Europe, you know, the feudal lords would pick up, you know, sheep and bushels of corn. And, and then they didn't want to pick that up. So they pick up money, but basic tax policy is really driving what as a country we want to do our country is based on tax policy. Right? And,

Bret Kugelmass
And can I ask a question, this, this might sound really dumb, but why is it done through tax relief, and not through just giving someone like that, that same dollar value, just like straight up

Al Puchala
The reason we use taxes, we let the private sector party, the person, the corporation, you know, the trust, make decisions that are efficient in the market. And we believe that as a capitalist country, and I think that's, that's a great approach. Now, when you do something the government wants you to invest in a solar panel, right, where you help people in a poor neighborhood get food, we then want that to happen. So we encourage and incentivize that private party to do that. And that's how the government is basically the other way, rather than taking your money into tax, and then spending it on a program, it lets the private party allocate that capital. And that's just the way it happens. And we do that for two major sources of, of groups. One is lenders, right? We say, hey, lender, you can, you know, basically do something and then people who like a muni bond don't have to pay tax on that interest, right. We encourage that to happen if it's for the public purpose. We also do it for charitable giving. If you give money to the poor or to the homeless, you can take it off through your 501c3, you know, letter, so we've done it for lenders for debts. We've done it for charitable giving for grants, we've not done it for equity in large scale. We've done it for very narrow programs, a solar you know tax credit, a light tech housing credit, what the zones are for the first time in american history is a blanket equity subsidy for letting the private sector party allocate capital that's why it's such a transformational approach

Bret Kugelmass
And that's that's the third strategy that you're referring to the types of public private purchase and when you say zone you mean opportunity zone

Al Puchala
I mean opportunity zone and and it's an interesting way that the law was passed but what happened was across the aisle you know Republicans and Democrats, liberals and conservatives said how do we solve poverty using location based subsidies it's a different approach it was used by Maggie Thatcher in England, Jack Kemp tried it here but never really took off in in the us until now and the reason being we we are very specific on how we allocate incentives for equity you know we give people again the lifetime housing credits the solar tax credits and it's hard to let the equity investor have a blanket program because it's just something we haven't done as a country this is the first time we've done it

Bret Kugelmass
And when did it start and what was the first instance

Al Puchala
Well this is the opportunity zones so the opportunity zones are saying you don't have to go to the government for a certificate and approval you basically have to do it right the money really has to help the low income community but if you do it right you don't pay tax on your capital gains on your forward gain on what you create an even on your old gain that you use to fund the deal it's a such a transformational new idea and it's it's it's really i think going to be underpinning this administration's agenda on climate on traditional transportation and also on racial and gender equality across the board

Bret Kugelmass
But when did this come about was there a law passed how did how did this get structured is this in the last 10 years last five years when did the opportunity zone thing happen?

Al Puchala
Sure so i think it was 2015 Jared Bernstein is currently the President's adviser on the Council of Economic Advisers is very prominent economist and a great thought leader he worked across the aisle with conservative economists and wrote an article and said here's how it would work if we were able to put in place the program look you know people who have capital gains and don't use it to put into low income communities maybe we'll give them a tax break but it's really got to go into the community it really has to help the people in a way that these these communities have not achieved their share of capital that became an academic article written in the press in 2015 it was put into the tax bill in December 2017

Bret Kugelmass
So it was just an idea someone wrote, it was a good idea and then two years later became national law?

Al Puchala
It goes into the December tax cut bill in in December 2017 and it's the law of the land two weeks later in January 2018 and that's why there was no you know major congressional testimony or draft regulations it was just a 15 page law in the tax bill

Bret Kugelmass
And the idea here just just to paraphrase is that what you want to help is poverty and poverty happens to be geographically clustered and the way money is spent sometimes you know and kind of like moves around also happens to do with that geography like like i work in an area and then i spend money in that area and so the idea is by incentivizing economic growth on a on a geographic basis you can lift a community out of poverty that's like the main problem that is being tried to solve, is that right?

Al Puchala
That's correct but my father was a social worker in the south side of Chicago in the 60s and that's his point is that even if you help one family or one individual or even one block you're still an oasis right in something that doesn't work and the reason you know that the Upper East Side of Manhattan is very popular is because other people have invested over the years right I mean there's a network effect to capital so you have to almost have a catalyst event to allow that community to share so so I think it's again an unbelievably powerful approach but really unprecedented in American history

Bret Kugelmass
So when you say equity investments like what do you mean what counts as an equity investment in one of these geographies

Al Puchala
Sure so this is again a very particular particularly strong aspect of the law it's any ownership security if you will so it could be common stock could be preferred stock it could be I think other flavors but it has to be an ownership stake so this is not for lenders directly although we'll find out lenders also now benefit from the law they're getting CRA credit the Federal Reserve offered them that last year in a rule but what you really have is any investment of ownership either common or preferred stock let's just use those two approaches that is funded by gains that are capital gains and properly invested by being invested we'll get three tax breaks will basically not pay tax for a while on what you owed, and getting that first game will not pay as much tax as you would have paid if you hold it for five to seven years. And by the $100 going into the zone, the new gain, the 100 becoming $300, no tax you on the new $200. Again, by being held 10 years. So this is a way to say, if you really invest for the long term in these communities, in any sector, it could be a water facility, it could be multifamily, it could be an early stage innovation district, it could be a house, that investment, if properly monitored, will will give the owner a benefit from tax. And that's a very powerful thing.

Bret Kugelmass
So you're saying it could be like, like a business like if I were to open up a laundromat, would that count as something?

Al Puchala
It would. But here's the thing, Bret, that's very interesting, because I'm, yeah, I'm just very focused on how this law rolled out. So when this 15 page law was passed, and became the law of the land in January 2018, the law just said by investing the equity in a zone, one of these basically 9000 census tracts represents over 10% of America by geography, any investment gets the tax breaks. So this covers about 35 million people. So they need to

Bret Kugelmass
Take two steps back, say that one more time, just how broad this is, how many locations and how big an area,

Al Puchala
Every governor and the five territories like Puerto Rico and Guam picked the low income communities they thought really deserved this break. So every governor decided on their recommendation to the Treasury, what should count, and therefore, this footprint is unique to the Governor's decision of who should get the tax break by geography. So that was number one, that was part of the law. Number two, any investment now into that geography gets the tax rate. But well, how do I prove them in the zone. So for two years, during the draft regulations through 2018, through 2019, the IRS to their credit, I think, did a phenomenal job. And they had conferences, and they listened to different, you know, experts. And they basically gave draft regulations to say, real estate really works because we can see the real estate, you know, the assets in the zone, and the user, the beneficiary of the capital, the tenant is in the zone. So we're good, we're good, because we know that money is really going to sound, so kind of incorrectly, that's, that's too powerful word but, but basically, the market believed this was a real estate program, because it kind of was that's the only guidance the IRS was giving, you know, in large part because they didn't really have yet a sense. Well, what makes an operating business in the zone? Can you have one worker there, incorporating the zone? Have your other 100 workers in Switzerland? Probably not. Right. So there's and there's a lot in between. So what happened really over that two years, the IRS, you know, part of the Treasury was working out how do sectors outside of real estate, prove they're in the zone? What are the safe harbors? What are the ways you really pay people or do leases. So what happened in January 2020, just a year ago, the final rules, 544 pages of tax regulations, gave you all the guidance, it worked. It was a phenomenal set. I mean, I read them over holidays, I said, Oh my gosh, this now works for solar for data centers for operating companies for laundry mats. But then the pandemic hit the first quarter. So until really just now, people are finally saying, Wow, this powerful approach is allows me to, you know, to basically benefit from the tax break, but also really get the money in this really help those communities.

Bret Kugelmass
So this is just so fresh. So new, I mean, just the fact that are we what are we about to just see like a flood of investment into these regions now that people are finally like aware of this? And the final rules are set out?

Al Puchala
Yes and no. So so that the Yes, part is there's already $15 billion in funds. It's a very technical approach, but an investor think of the zone regime has three rows, the top row is the investor and that investor, he or she has to do certain things to get the right kind of gain in the right kind of time into a fund your funds someone else's fun. Multi investor funds, single investor fund doesn't matter but a fund and we can talk about how that works. Once you put your $100 in, you're good, then the fund basically now has some time to put it into a business in the in the zone and at the bottom rows is the business. So there's already 15 billion from investors into funds that's already proven and disclosed to the experts. Some people think as high as 75 billion, but that's already moved today under draft regs and only the pandemic when I believe is much, much more will come 10s if not hundreds of billions of dollars of equity that then drives you know, capital stacks that have debt and brands. That amplify it. So, right now, I think already a lot of money has moved, but I think it can be transformational in that it can support now, any type of investment if you're having a data center, and you want to have it off balance sheet finance, you could not do it through zone equity.

Bret Kugelmass
Yeah. Like why wouldn't everyone just take advantage of this? Like, if you like, let's say that you're part of like, you know, let's say, I don't know, your any given manufacturing facility, and you know, maybe your buildings, you've been around for 40 years. So it's kind of rundown anyway, and you're going to do some new investments in it, and you see an opportunity zone 20 miles away, why not just build it there and help? Why not team up with a bunch of other manufacturing companies who are thinking the same thing and build like a whole industrial park there. And then you'll get all the benefits of, you know, in collaboration with other industry and the tax benefits.

Al Puchala
It's exactly right, Bret, and that's why I think you're going to be seeing over the next few months. And even definitely the next few years, a lot of that Secretary Buttigieg, his first press release, I think, on announcing $889 million of DOT grants. This is last month said if you're in a zone, you get priority. And Governor Lamont in Connecticut just a few weeks ago, was signing along to four data centers. If you come to Connecticut, with a data center, you get an accommodation on size, if you're in a zone. So already you have, you know, sitting, you know, administration, secretaries, governors, and I'm just giving two examples. But to your point, Senator, Tim Scott should get a lot of credit for this, he was one of the sponsors with Senator Cory Booker, of the law three and a half, four years ago, he created an Agricultural Innovation Center in South Carolina, it was announced for $300 million, and exactly that it's a canvas for sustainable agriculture for distribution. And, and again, it's going to be a model for how a very low income community, a rural area of South Carolina has now attracted over $300 million to do exactly what you just said,

Bret Kugelmass
Amazing. I mean, I mean, it's just a great amount. I mean, I love the idea of like these innovation clusters. I mean, I spent most of my career in Silicon Valley, and I saw just, you know, the network effects and just being around other people in the technology, space and sharing of ideas and different companies partnering, working together, and just how well that works, I can see this, you know, each you know, opportunity zone and being like a mini cluster of, of innovation for whatever the surrounding industry is,

Al Puchala
It is but here. Now, here's the no, or my yes or no. So here's the no. Here's the reason that wouldn't become as large as an asset classes, it could, it doesn't fit into an asset management box, you know, asset managers, by and large, and I've been one before, really work on creating a fund that has limited partners, right, give you a commitment who pay you management fees to go find good deals to be disciplined on making sure you're investing. And that's a great model. And it's helped America and I believe in it. But this is not that. Because the timeframes are compressed, the IRS is very clear, they don't want money sitting around in funds, they want to help those communities, which I think it's correct. So once you have a game, you only have 180 days to put it in a fund. And the fund only has six months to put into a deal. So you already have to start finding the deals, you're almost matching good deals, and then you have to run it for 10 years. So so the end, you have to build new things, you can't just buy something, you have to either build something new or improve something so it doesn't really fit into the normal model.

Bret Kugelmass
To me, that just sounds like it sounds like the rules are set up. The rules are set up for what we want to put that capital work, but it just seems like there's a market inefficiency in terms of finding deals. And that to me sounds like an opportunity.

Al Puchala
It does. And I would I would take your finding deals, and I would amplify it to making deals. What what what happens is for the investor, the corporate investor, the family office, the corporation, they're all fine to use this rule the individual is that the business has to be and stay compliant for a decade, 10 years, it's a long term investment. Who's gonna do that? Who's gonna sign up for that? Say, Yes, I'm in a zone, yes, I'll comply. So we find you have to go make your deals happen. You have to work with the community, what's going to be welcomed here? You know, we don't want to go and gentrify communities and have something that even if it's a good investment, it doesn't help those those citizens so so there's a lot of work and that's why I think we have CapZone do this and others do it is to work with the communities and say what should be built here? What what's the what's the missing piece is that is a clinic. We financed a US Veterans Affairs clinic in Minnesota last year, and we're very proud of the administration's best practices report for the White House report last year. But it said, you know, veterans need health care, especially during the pandemic, the the other clinic had just been torn down. We raced to help build that as a zone deal and now it's helping the veterans in Albert Lea Minnesota get access to health care. So this law can be used to really help areas that really haven't received their fair share or need something as the catalyst anchor institution could be a university building an innovation center couldn't be a data center. But we're really working with anchor institutions that if you're a large, you know, utility, you may want to put your next facility in a zone, and therefore you create that campus around you.

Bret Kugelmass
And now I see why you mentioned data centers, because essentially, due to the long term nature, this works well for infrastructure, because infrastructure is a long term asset. And then not every infrastructure, you can just put everywhere, because a lot of infrastructure is very site specific. But data centers are one of those ones, where as long as you can get power to it, you can pretty much you know, put it anywhere, right?

Al Puchala
We believe that's exactly true, Bret and the reason data centers are so interesting is that, number one, we need a lot of them, right. I mean, the whole move to telehealth, tele education work at home is all going to need computing power 5g. So the data centers to the next decade, the major growth driver in our economy, we call it digital infrastructure, because 5g and other supporting infrastructures there, but around that data center, which may not be a huge job creator, but but some jobs needs a lot of supporting infrastructure, right and needs the clean power, it needs the water used for cooling in may need residential housing for the workers to be closer. So So yes, there's a whole ecosystem you can build, and then why not put the innovation district there, you know, close to, you know, the, the, the engineers and the scientists, you know, close to computing power. So you started to get these network effects and we believe, by, you know, the balkanization of our markets to be very narrow by sector or geography. This is bringing things together I was, I was reading Einstein's biography recently, and the whole move to the unified field theory, you know, where electromagnetism and gravity someday it will be a single field. Well, this is bringing together all finance, project finance and corporate finance and muni finance and asset finance, back together so that would be the analogy to your world of physics.

Bret Kugelmass
Yeah, wow. Tell me more about some of the types of projects that you think would be appropriate here. So we talked about data centers, we talked about clinics, are there other ones that people can kind of keep in the back of their head as they're going off and looking for opportunities?

Al Puchala
I think renewable energy is perfect for this, I think zones should, should and will, in my expectation be part of the climate response, this administration has solar, wind, storage, geothermal, they all work well, right. Those are all geographic facilities that then help that community or the general environment, you know, kind of address climate change. The reason it wasn't part of that first effort of the law, like real estate was, it was unclear whether the user of the facility, even though the facilities in the zone would be enough to get the tax break, when if you know, the, the solar panels are in the zone, but the off taker is out of the zone. And therefore the money didn't really target renewable energy because of that issue. And others to it now works, because the final rules, cleansed everything, there's so many safe harbors, and the experts now are very agreed that it works for for solar, it works for wind, and therefore, it also works for many small things. Usually, to put a lot of money to work, you needed a big nuclear plant or you know, a big utility scale facility. Now you can do rezi, you know, you can do community solar, you can do CNI, commercial industrial, because the same tax regime is repeated 9000 times. So I can do now 100 $1 million dollar deals, all with the same documents versus $100 million deal. So it lets a lot of community share. So I think that clean energy, renewable energy, this, this is a tool that those industries should be looking for now we can talk about some of the considerations and some of the challenges, frankly, to make it work. But but that's kind of technical. I don't know if you'd like to go into

Bret Kugelmass
Yeah, I want to go as deep as you're willing to go. Yeah. What are some of the challenges?

Al Puchala
Well, I, you know, I worked a lot on clean energy, renewable energy efforts over the last 10 years at the State Green Bank level with the DOE in Washington. And the way we've subsidized and properly subsidized the sector is either through direct loans, like the DOE through the loan program office, which I think is the best office of the federal government in terms of monitoring credit, and is clearly the best in my experience. But we either do it through direct grants and loans, or through tax equity. It's a specific type of incentive. And it basically brings tax breaks to those investors. And there's somewhat of a cumbersome process to set up the documents and the approach to make sure that other investors not the sponsor are getting the tax breaks. And that's how we basically tax equities that have a very large multibillion dollar sector where if you're an investor, you can do solar and get the tax breaks. To help that happen, what happens now with opportunity zones is you can just write your own check. If it's in a zone, you don't need to go through a specific program like tax equity. So this is a way to basically amplify now, what the government properly did under the prior regime, the only laws they had was tax equity with the incentive, and now you can layer in opportunities on equity. And we've been working on that with our advisors on how to make that cap stack all come together. So it's very exciting that the financial plumbing is in place now, to allow a very, very large rollout of another subsidy to help renewable energy roll out very quickly, because it's all about timing, you know, we don't have a lot of time to build this infrastructure.

Bret Kugelmass
Yeah. Now, tell me how can these, these tax benefits as part of the opportunity zones, How can these be rolled up into an instrument of some sort? Like, let's say that I'm a company with, you know, a big tax bill, but like, the guy who's building, you know, the energy projects doesn't have a big tax bill, is there a way that those two can get together to get the capital from the big company into the project, so the so they can benefit from it, and then the developer can benefit from from the cash moving into it?

Al Puchala
That's true, Bret, it's a very flexible approach in the IRS basic gave guidance to that effect, which is they want a lot of flavors of opportunity zone, investment occur. So so it all starts with a gain, right? It's so interesting, the accounts are in charge of first base, because if you don't have a gain, it's not a direct participant in the program. So if you could be a taxpayer without a gain can't play directly, you can be a non taxpayer a public pension plan and foundation, you don't pay directly. So it starts with a taxable investor. But any taxable investor, even foreigners with US tax obligations, can participate, corporations, family offices, the estimate, there's $6 trillion of of embedded and unrealized capital gains. So this is so the addressable market for capital 6 trillion bigger than the standard meaning bond market today's only 4 trillion,

Bret Kugelmass
When you when you say unrealized capital gains, you mean that the the corporation is essentially kind of already made the money. So they know that they've got it, but they just haven't taken it out of the investment yet. So they haven't realized what's going to give them that tax liability is that what you're saying?

Al Puchala
That's correct. So if you're a large corporation, you have a balance sheet, right? You own things, you could own a factory, you could own a distribution network, you can own real estate. If you sell it, and you get more than what you paid for it or depreciate it down, you owe capital gain. So until you sell it, you don't know that gain. So many corporations, many families, you know, over generations, many individuals high net worth are sitting on unrealized capital gains assets that if they sold, they would owe tax in that year. So that by design was the program's targets, let's release that that's sitting on the sidelines. That's private capital, not helping our distressed communities. And that's why these these economists who created this program, I think were so brilliant. Now, how do you get that corporation or high net worth individual to sell his or her stock worth? Or stamp collection? Any asset is good? Well, where are you going to put it? And do you get a tax break, so you have to create the deal flow to encourage the investor to trigger that's what's going on right now. And we see a lot of creative approaches where corporations are saying, Hmm, I bought that factory for $100 million, it's worth a billion. If I sold it, I owe $900 million in tax on that. But if I use this program, I could sell the billion dollar factory, take all billion dollars invest it in my core business in a zone, you know, go to one of these zones, not pay tax for a while on that gain, pay a little less. But if the billion becomes 3 billion in my core business, no taxable income on another $2 billion, you do say so you can own your own path using your own gain. But the corporation could also say I don't have any. So I'd like to still build that factory in the zone to help those people. And by the way, zones are the S in ESG. It's the social piece, you know, most of the ESG has been E, you know, the solar, the wind, the geothermal, hard to scale S. So this is the scale of S. But how do I then, you know, get someone's money to help build that factory for me, I'll be a tenant, I'll write a lease. And now all sudden, the family office, the insurance company, the high net worth individuals, so the I've got 2 billion, and I'd like to not pay tax, I'll build that for you with a lease so that the deals are coming together now saying, I want to be a user of that capital. I want to be a provider of that capital, who's gonna put it all together and that's what we and others are working on. Okay, so it's gonna ask you I was like, so how do you do this, this matchmaking between the people sitting on all these unrealized capital gains and then the people who want to create, or create an asset in the opportunity zone? No great, great question. And what we decided early on when we built CapZone, we were one of the first funds in the country in March 2018, the regs hadn't even come out, we read the law and said, You know, this market needs a solution. And our solution starts with knowledge and data. We tell people before you either write a check or accept a check from a zone investor, what should get built? What's the right structure? What's the right, you know, asset that should be built in that zone. So we have within CapZone something called CapZone Analytics. It's one of our businesses, we're a fund in Connecticut, but we set up one of our businesses to provide that service. So the first thing we do is help people think through, oh, I'm a Fortune 100 Corporation, or I'm an individual and a lot in between, what should I do? I have gains, but I also need capital, maybe I'm on both sides of the trade. So number one is about knowledge and data. Number two, is to make sure the entire ecosystem around the investor understands what's happening. This is not going to happen without that investors, accountant, lawyer, wealth manager, corporate treasurer understand, right? Because remember, they're not asking the IRS for approval, they're doing something with, they don't, frankly, even have to disclose, but that's going to change, I believe, you know, to some degree on disclosure in a good way. But right now they just do it. And in 10 years, you show up at the IRS, and if you didn't well, then you don't pay tax. And if you made a mistake, you'll probably pay tax on a penalty. So there's a huge premium on getting it right. So we want everyone to get it right, whether it's with us, or

Bret Kugelmass
To me that sounds a little bit risky. Is there any way that you can go to the IRS, as you do it and say, Hey, I just want you to look over what I'm doing right now, just to make sure that this is all squared away for me to take advantage of, of this structure. And that way, 10 years from now, like I don't get a big surprise bill,

Al Puchala
That is a very valid consideration. And and again, I want to hats off to the IRS over the last three years, they spent so much time and effort giving guidance at conferences, that it's very senior officials or speakers on panels, the 544 pages, I would encourage everyone to read the tax regs. I'm joking, but they're about 25 examples. If you do this, you're good. And very clear. And permutations. I've never seen such great guidance. And number three, you're right. A company could ask for a letter from the IRS. They could ask for a letter from their lawyers or counsel that the entire system is starting now to digest how to get this done.

Bret Kugelmass
And but do you see hesitance from potential investors just because it is so new? I mean, I know that you're like you're helping inform that that's part of what you do. But have you ever seen a clear match that could have happened, but at the end of the day, the investor was just like, you know what, this is still too new. I don't want to do it. I'm scared that this is going to lead to me having tax troubles down the road. So just I'm just gonna hold off until it becomes more

Al Puchala
How many times can I say yes? No, I know. And look and I, look, I've been a financial investment banker, fund manager for 40 years. Yes. I mean, this is new stuff. This is unprecedented in American history. This approach. Because I was invited to Governor Hickenlooper, now Senator Hickenlooper is first, the first time conference in the country in July of 2018 in Denver, he opened it up and I was able to attend. A few 100 people came, and it was public. So I'll kind of paraphrase what he said at the end, he said, like he spent the day here, investors and developers and public officials. This is a new approach. I've never seen this before. We picked our zones in Colorado, we're very proud of them, we want you to invest in them. But you don't need me, you can just do it, I may not even know you're doing it, and you're gonna get a tax break. So I want to be your partner, I want to help you do this. But this is different. The public sector normally gives the credit or gives the approval or the and you still have to pass all the zoning and other stuff, but you don't have to really incorporate the zone approach with either the public sectors, shareholders, stakeholders or others. We did think that's a good partnership to have. But you're right, this has a lot of, you know, kind of first impression. So all that being said the counterforce to that and this is human nature. Humans and corporations don't like to pay tax, they don't have to. So what you're seeing is, the system's not ready for this. People who owe tax are, so with education with more models coming out, and we're seeing I think you'll be pleasantly surprised this year. If we have this discussion later in the year. There is some very interesting stuff coming and I think people who are very sophisticated for instance, it was disclosed a few months ago, the three space entrepreneurs Bezos, Branson, and Musk, with the space launch facilities in the south, all using zone, zone equity.

Bret Kugelmass
Fascinating, literally where the launch pads are going. That's good. That's inside opportunity zones? No way.

Al Puchala
Yeah, it was disclosed in an SEC filing I understand and an article I can send you but that's what's going on, you know, the, the, the money is moving to these zones and and we want them to really help those communities. So we're trying to have everyone tap them appropriately, and they need knowledge. First, they need trust to make sure it's happening because many communities have been burned. And we think this public private partnership approach is correct. It's kind of at the deal level with those disciplines, or the business plans for the cap stacks, but also is the umbrella from the government saying we believe in this, and this is why it's such a powerful tool.

Bret Kugelmass
Amazing. Okay, a couple more questions for you to help with the risk that maybe some investors might see. Or some companies might see, is there anything almost like an insurance policy, are there insurance policies against taxes, like where like another company, a third party auditor can come in and say, yes, don't worry, like you did everything right. And we'll even back you, you to prove that it's

Al Puchala
That's where the, that's where the markets are going. So when, and I'm a former mergers and acquisitions banker, and you know, so my deals were very complex and very large, you get opinions, right, you get a legal opinion, you get an accounting opinion. So no and we were working with, with many very established accounting and law firms, all the zone teams are being built. So this will be industrial strength, I believe, in the next few months, it already is, and we are very excited.

Bret Kugelmass
It's amazing timing, especially with COVID coming to an end, you know, right around the corner. I mean, for the first time, people are gonna be going outside, people are gonna be building new things, building new businesses, like getting ready for people. I mean, I just see like, Oh, you know, I love going to like some areas that, you know, they turn like an old industrial park into like a bunch of breweries or something like that, I could imagine a bunch of those popping up, you know, just find a part of town that zones a little bit more industrial and, and bring your business there, people are ready to go out, people are ready to spend money.

Al Puchala
Right? That's exactly, not just the letter best and spirit of the law is many of these places have been overlooked. You know, money has gone to some of the capital centers in this country. And this is a way now to democratize access to capital. And what's nice about the rules, again, not to get too technical, but it's encouraging new construction, new new money to hire people and get things built, you can still buy something, you can buy something from George who lives in, in, you know, Europe, you haven't helped zone yet by giving George a check. But now you own it. The second way, you can also get the incentives to improve that property. You have to double the money in it. So there's even a way to buy something and improve it. But it's a little trickier, right? You got to make sure it happens, or else you don't get any tax break. But the heart of the program is to build new things to help people get new clinics and schools and data centers. So we think this is gonna just be a rollout of not just capital, but the human and intellectual capital that goes with it. That's what's really missing. And we try to tie that all together.

Bret Kugelmass
Yeah, it reminds me I don't know if you know the name, Marc Andreessen. But he wrote this article maybe about a year ago, where he's like, America needs to get back in the habit of building things. And I couldn't agree more. And it just seems like that sentiment paired up with this structure. Yeah, like, that's, that's the revolution we need, especially because it's already interject some, I don't know, if you call this like political commentary, but like, we've never been more polarized than ever, we need our country to start thinking about like ourselves as more of a community again, like one joint community, you know, as our country built, and what better way to do that by building stuff?

Al Puchala
How can you disagree with that? Right? I mean, you know, we all have different views. It's a spirited discussion, we're having this country in general. But the one thing I find is when you say, look, this community has been poor for decades, maybe centuries, you know, let's give it a chance. Right? Let's try to see if we can be a catalyst, let's bring a facility there. That's where the federal government can actually play a role. They can be that first money in now that you know, trillions will be leaving Washington for a home, but if that money wants to be doubled, tripled, quadrupled with private money, the zones are the perfect way to do that. So you get the E S and G right, you get the E from focused on sustainable infrastructure, you get the S by these low income communities. And the G especially with this new impact law that Senators Scott, Tim Scott and Booker are not proposing for that measurable impact. What were the Jobs was the economic economic activity coming, you're gonna have the G now on governance. So this is really ESG at scale. That's what zones are.

Bret Kugelmass
You seem to know a lot about politics, a lot about the law, a lot about finance. Where does this come from your personal interests in this space and your ability to dive so deep into these very complex topics? Do you have to have a sense of kind of like what where you got this drive from

Al Puchala
It comes from your parents right and then your friends and we grew up and i i'm very fortunate and many people weren't to grow up in a family that really cared about more than than just your own material interests and and i believe that bringing in people who aren't just in finance into this regime is important i was brought in i love finance i was trained by some very fabulous professors in my career Professor Emma Jordan at Georgetown Law School was my mentor she was a she is a finance expert and helped me think through when i was working on collateralized mortgage obligations at Shearson Lehman in 87 she said how can this be applied to help the third world debt crisis and i wrote a paper that ended up being the first academic piece on non real estate securitizations in the Columbia Business Law Review in 1989 so i've always believed good ideas shouldn't stay just within finance they should help people and this is just a great way to have that happen across sectors across geography so we really want to be generous in our ideas and our introductions and make sure everyone can benefit from this law

Bret Kugelmass
Al, couldn't end on a better note than that thank you so much for taking the time really appreciate it

Al Puchala
Thank you Bret take good care