Entrepreneur-Turned-Tax Lawyer Guides OZ Business Creation

Adam Yormack

The Opportunity Zone Expo Podcast
Entrepreneur-Turned-Tax Lawyer Guides OZ Business Creation


Jack: Welcome back everybody to the OZExpo Podcast. I am your host, Jack Heald, and I'm here today with my guest, Adam Yormack. Adam, I believe the name of the firm is Yormack and Escalante, but I just realized I forgot to check that. You want to you to help me out here?

Adam: I prefer Yormack Escalante, however it is in fact, Escalante Yormack. My partner Frank is a very experienced, a real estate and business transactions attorney. And so key, he took first priority.

Jack: So, you are officially Escalante and Yormack, but for our purposes it's Yormack and Escalante.

Adam: That's right. Yes. Let's go with that.

Jack: Welcome to the show, Adam. It's good to have you here. Our listeners can probably tell we've been chatting before we started recording and are already having a good time. So I always start this way. We want to know about the person that we're talking to. So, Adam, tell us a little bit about who you are, where you came from, and how you got here.

Adam: Yeah, no, thank you. I think foundationally you can define me from the fact, I married my high school sweetheart. We met when we were 16 and started our journey through, we thought she was going to go to law school and I would go into finance and through that journey she's now an executive at Bank of America and I'm now running my own law practice in Miami with the focus on basically complex business transactions in real estate.
And my family moved out of New York when I was just a baby and sort of set up shop in Denver, Colorado. And I grew up in the quiet suburbs of Littleton actually. And in some ways, because we touched on this in our previous conversation before the podcast, I'll tell you my world was somewhat defined by Columbine. I was not at Columbine, but that was the high school that I was the closest to.

I went to a different school, because I was very competitive swimmer. But I have friends at Columbine and I was a freshman when that happened. Had that experience and then from there decided to stay close to home for college and I went to University of Wyoming. Go Pokes! And was a Cowboy there and swimming, you know, stopped doing that as a sport and sort of as a lifestyle.

And decided I wanted to focus on business, and I transitioned back to Colorado. I went to CU Boulder, the Leeds School of Business there. And I thought I wanted to go to Wall Street and be a trader. So I went to Oppenheimer and I got a job as a fund analyst and then a sat on the trading desk for the basically the microcap companies they were trading in and out of New York and in other places.

And from there, the entrepreneurial bug struck me and a group of friends of mine from school reached out to me as sort of like the CFO of this new company, we ended up calling it Bella Health Systems and we took an applied technology from, that was actually used for telling the temperature inside airplane tires and other devices that had been developed by an engineering firm called Phase Four in Boulder, Colorado and American Airlines.

And we repurposed it for dairy cow so you could put a nontoxic chip inside of the animal without using batteries. We used RFID, so fair you know, met magnetics and all this kind of stuff where it would drip out, which is the information and it will tell us the temperature of the animal very accurately, which was hugely beneficial because it you don't have to give it antibiotics as much, you can pull it from the herd and give it a booster shots.

And that helps everybody from the quality of the milk to the quality of the meat and everything in between. The great business we got to, I sold it. So the piece of it, and my wife and I, who we'd been married a couple of years prior, basically said, “what do we do next?” And she said, “Why don't you go to law school? My dad loves it. You should be a lawyer to try it out.” And we did. And it brought us to sight unseen. Never been there. Miami, Florida we got here, fell in love with it. Haven't left.

Jack: Wow. Okay. I gotta tell you as somebody who's spent most of his life in the middle part of the country, Oklahoma and Texas, and then got to the west side of the Rocky Mountains as soon as I could.

Adam: Nice.

Jack: Absolutely. Love it here.

Adam: I just got back from Scottsdale last week, by the way.

Jack: I know you're rolling. If we'd have known each other, we'd have waived. I just spent three months in south Florida on a contract. Okay. Absolutely hated it. I just can't, for the life of me imagine leaving Colorado for Miami. To me, that's just, that's an act of insanity. So…

Adam: I tell people this all the time. I say, I have to work hard enough so that for a good amount of the year I can get out of South Florida to go back to Colorado. And I usually like a summer in Colorado. Difference is that for the business I do and for the trajectory, I wanted for my career, it made more sense to be on the east coast. You know, she's working on it with the bank and, and it's up on east coast time. Most of my clients are either in and out of New York or based here in South Florida. And it just makes , it makes that transition easier. But I have to tell you, I was, I was biking on McDowell, right to the house that my in laws have and I was loving it. I mean, I loved the outdoors. This is the beach that has the mountains. If I can have both, it's amazing, but taxes are too high to live in California. That's ridiculous. Yeah. Good point.

Jack: So, tell us about the law firm of Escalante and particularly as your work touches the Opportunity Zone. That's the thing we really want to talk about.

Adam: Definitely. Tthe, the Opportunity Zone space was something that we started following as a firm. You know, when it started to roll out, it got a little bit of traction, just in inside some circles, probably four or five months after it came out in December, 2017 and the firm is really split basically 50-50, between business and real estate or real estate and business, however you want to put it. And the real estate side of it and sort of the contractual commercial side of the work that we do is, is in and around typically surrounding real estate companies.

So, whether it's their contracts or JV agreements or anything that has to do with the running and operation of their business, that wouldn't be that much different from another type of business. We handle on the business side, on the real estate side, we handle, we handle developments. And, most of our clients are developers or are owners of something and are now owner operators of buildings.

We came together because I had left Solomon & Furshman, and when I'm on my own, and Frank used to be the, I guess his title was, it was, there was one other attorney who also helped run the bank, but he was sort of Chief in House Counsel for a bank that he was with, which was called First Citizens. And he also had the same role or similar to that at a bank down here, called Ocean Bank.

And we met through a mutual introduction who happens to be like a power broker down here whose husband is a lawyer at another large firm Greenberg Traurig. And she said, “You guys would be great together.” So we met, had a couple of lunches and started sort of exchanging ideas and deals for about a year-and-a-half. And then about two years after meeting we decided to merge the firms.

I was working in Coconut Grove. Forthose familiar with Miami and he was closer to South Miami, we merged and we moved to an area closer to the airport, which was more central to everybody in both our groups, which was called Blue Lagoon. And just recently we made us made our second move, which is now to downtown Coral Gables. And we're just off of Miracle Mile in the Benesco building, which we really enjoy Miracle Mile area.

So, you know, a couple of miles from downtown right in the Gables. So it's more of a neighborhood feel, which we liked, but also very business focused and you know, access to everything in the area. And also very close to the airport because I travel a lot for work. I go to New York quite often.

Jack: Let's jump back to Opportunity Zones. What in particular are you focusing on?  You mentioned prior to turn it on the recording that you're definitely interested in early stage businesses.

Adam: Exactly. Well, I have that background in early stage and a lot of the work that I have done in the last seven years as an attorney has been with early stage ventures, growing firms and, and just generally working with my age demographic, which a lot of them are growing their own companies and starting in that venture phase of whatever business their in.

And when the Opportunity Zone criteria came out with the first round of regulations, it didn't seem that beneficial for the QOZ-Bs, which is the Qualified Opportunity Zone Business

Jack: Yeah.

Adam: Based on the gross income criteria. And what I found to be very appealing in this last round of regs was there, there is this opportunity now that exist to carve out safe harbor for businesses that can be based on hours that can be based on services or for services performed by employees or the tangible property and management of the operational functions performed now in the QOZ. And with that, what I'm interested in is, how can we take this expensive overhead? Like, for example, we have a, WeWork that's right next to me. Literally adjacent to this building and the rent is still very high for early stage companies.

mean what I would consider very high, it's all relative of course, but you're still between $30 to $36 maybe even more per square foot to be here in the Gables, which you know, if you're in New York obviously you're like, “Okay, don't make me laugh.” But at the same time there are great, they're there, there are spaces around here that if you're going to build out a business where you were going to have service that will be provided as part of the business or you're creating something, which is something else. I'm interested in the creation again of things and items and materials back here in the United States. How do we incentivize companies to start making the move with the developers into these areas?

You know, build it and they will come is a great concept. And I know that people will, but are a handful of Opportunity Zones that are placed, you know, geographically in a very appealable areas to large demographics and lots more popular, but for the Opportunity Zones that are not so close to all the amenities that everybody wants, or maybe just on that cusp, how do you build something and then have the conversation with the business owners to really want to go out there and create it?

So not from the perspective of the substantial improvement that a developer is going to have to apply in order to meet the criteria to take the benefit of the program, but what will that be for the company that's moving in and what are those conversations look like when you're speaking to a client or a business that may do so well to relocate into an Opportunity Zone.

And so that's really my focus now. And you know, it's only been a couple of weeks. So I really had been unpacking the new regs for the last couple of weeks and I was out of town a little bit and I have a new seven-week-old baby, so I'm not sleeping great. But then unpacking everything and mentally and really having a good look at it and what I've, what I've found to be the most interesting piece at this point.

And other than a lot of the things that were mentioned that gave us guidance on exactly how we're going to be able to deal with the land and what we're going to be doing with working capital and these kinds of things. Um, and specifically, you know, the time to reinvest sales proceeds, which was great and all that kind of stuff.

I appreciate what they're trying to do to make it an incentive for businesses to move there because ultimately that's the idea behind this program, which is also attractive because it can have an altruistic positive effect beyond making money, which everybody wants to do. Why can't we do that and give back and give something positive to this amazing demographic that's sadly being left behind. I think it's in everybody's best interest. So,

Jack: What would you say to a budding entrepreneur? How would you present to him, look, here's, you can set up shop over here, but…?

Adam: Budding’s difficult, so budding, you still need to build a business. You're still trying to figure out sort of more of the basics of your growth. I think when you have a business that's now taking off, that's sort of getting out of that early venture stage and starting to see you know, more of a growth stage of their business and you're starting to say to them, whether the money that you're making now, as you're starting to get more and more income and you're starting to actually have capital gains that you can defer the end of the year. If you're already planning to reinvest those gains in your company, you're going to put that money back to work. Here are the criteria that you can be putting and buying equipment and doing things where your money's going back to work.

If you determine years from now that you either want to sell the business or you want to liquidate or you want to pass it along or family, this is what this would look like. And does that make sense for you and your business model? And it might. And so it opens the door from my perspective as an attorney, at least it opens the doors for those conversations and puts me in front of a lot of interesting business, you know, doers, who are trying to accomplish things, but also keep their costs down for us and save as much as they can for their business. Because entrepreneurs by their nature are certain that they can do with a dollar more than someone else could do with their dollar.

Jack: Right.

Adam: And with that, it's a conversation about what they're trying to do and how they're trying to do it. So for example, if one of my clients has a big call center and we're sort of talking about what the paid for services are, these groups are paying the call center on a subscription basis for the use of the people who are there and it's well over 50%. So the idea of moving that whole operation into an Opportunity Zone makes a lot of sense.

Jack: Okay. So that's where I want to jump in so they can take it, because it's an ongoing business. If it's moved into an OZ, and they use cap gains to fund tthe move or whatever, they still get the step up in basis?

Adam: It's not so much of funding the move. It's a good question because what you're..

Jack: That's where it's fuzzy to me in terms of moving an ongoing business into an Opportunity Zone. How does that work?

Adam: It needs to be trending upwards in the sense, the business seems to be growing because it's not just moving it to an Opportunity Zone and suddenly you're able to say, “Well, it cost me X amount of money to move over and therefore I get to write it all off.” Which part of it could be, but the criteria that's going to be necessary, based on the new regs, one is going to be that at least 50% of the services performed by the employees on an hourly basis are now performed in the Qualified Opportunity Zone. So if you move your business and you're now operating a business and you're starting to reinvest in your tangible property, the desks, the computers, in this case, the other items that would go to run this business. If your employees are using or performing the services 50% in that Opportunity Zone, you're going to get the benefit of the regime on the money that you've now invested.

Jack: Okay.

Adam: On top of that. So another criteria here is at least 50% of the amounts paid for services or for services performed by employees in the Opportunity Zone, not based on hours. So if you have really high-level people there versus not-so-high level people, other places or, or vice versa, certain people are paid different things for the services, just in general. So as long as 50% of that is in an Opportunity Zone you are now affording yourself again the opportunity to take advantage of the regime.

Jack: So, it's hours or money.

Adam: Hours or money. And then the third is at least 50% of the tangible property in management or operational functions are performed in the Opportunity Zone. So it's a 50% test for sort of all three of those different and distinct criteria, which depending on the business and the conversation needs to be structured around every entrepreneur, individually that could fit into one of the criteria. But what you would want them to do is move in and then as they're purchasing more property, as they're spending money on all sorts of things, on these Qualified Opportunity Zone Business trades, right? These are activities or trades in the zone. You can have this benefit.

And so if you meet with me, right, the idea is we talk, we talk to the accountant, we see what your goals are and we can start really having a conversation on, “Well if you, if you spend this money that you're spending here inside your business over here on tangible property management and operational functions and other things, and as long as the employees are spending their hours, the 50% of the services performed at 50%, your gross income for that can qualify you for an Opportunity Zone benefit.”

And I think that's a very attractive conversation to have. And so there's this going to be this hurdle and you're talking to people all the time on Opportunity Zones and it's still not totally clear even to yourself who's well-educated and someone who understands this stuff to begin with, how you have the conversation with the entrepreneur. And the answer is going to be, really to to make sure it's laid out in a way that is very digestible. Because one of the difficulties I'm having is unpacking everything from the new regs, including it with the old regs and then trying to create almost like an infographic to say here are three examples of things you could do that maybe on your company. Exactly, but this is how it works. And then be able to say, in my office, basically put like a deck together and say, here's what you can do for your business based on what you told me and if you did it this way, you can save this and we will charge you this to set all this up for you.

Would that be interesting? Would that interest you? And I think, you know, I can reach out to 25 of my clients and bring that as an option to them. And I think you saw that if you multiply that, and this'll take a while to accumulate because are people spilling to unpack the regs. But if you multiply that by a thousand attorneys across the United States doing that to their clients, do you have the recipe for a very successful program?

Jack: Yeah, Absolutely. Okay. I appreciate that so much of the revolve around the real estate side. And not that there's anything wrong with it, but like you said, it's building these ongoing businesses inside the Opportunity Zones that's really the longer-term goal, not just creating buildings but creating businesses. And I want to hear about that. So, let's take a little bit of a turn here into some of your work and really hear more about who Adam Yormack is. Uh, my research turned up the name Dominican Joe. Tell us about Dominican Joe.

Adam: Yeah. It's so funny. Sending too many. Can. Joe's a good friend of mine. So like I told you previously, I went to the University of Colorado Boulder and you brought this up, a lot of people don't go from Colorado to south Florida. Totally different culture. There's a very different outdoor lifestyle. There's just not a lot of us down here. So some of my close friends are folks that I met through the CU Alumni Chapter. And one of them introduced me to a guy named Joe Rizzo. Actually it’s Salvatore Joseph Rizzo III and Joe, he goes over the general and he fell in love with the Dominican, does business deals all over the world, but really fell in love with Dominican and an area of the Dominican in particular called Los Serranos.

And Los Serranos is a small town on the other side of the island. It is difficult to get to, it used to only be accessible by airplanes, helicopter, boats. If you had a big enough boats to sail around the island or some sort of four-wheel drive on a pretty rough road. And it was really a place for wealthy ex-pats from Europe and from the United States to escape for awhile. And so he was going down there. He raises money, he does all sorts of business deals and he's always looking for capital and smart people.

And so, he would spend time down there because it was a way for him to meet great people but also escape. And he started looking around these cities and really I think what moved him is just like the abject poverty that exists in places like Los Serranos and there's just no way out because those are their infrastructure for education is terrible.
It's not really built into their culture where people are really learning. You know, lifelong learning is just not part of what has made them successful. So they're sort of stuck in this, “OK, I go to work when I'm 12 I dropped out of school.” And that's what you do. You go to work, you work, you know, for your whole life. You have kids when you're young. And that's the perpetual cycle. So he started thinking, “How can we give back instead of just sort of enjoying our time?” He reached out to me as a good buddy of his. And one of the first things I did out of law school was set up his 1023 form, which is the form you file with the IRS and get everything set up for the nonprofit and incorporate the company and bringing the directors and set up all the bylaws and all these other things that needed to be done for the 1023.

And what they're focused on now is building schools. It's a very Catholic island. So the schools are generally gender segregated. And so he's focusing on early stage and middle school age education for young girls. And so he, and we have partnered recently with another project, it's called the Dream Project, which is another nonprofit group. And for awhile we were using most of the money that we raised to give to them because they were really efficient at building schools, maintaining schools.

They already had the teacher infrastructure there. All that good stuff. But recently in the last couple of years, we've now built our own school, we have our own teachers, we have our own criteria. And every year we do a big event called getaway and get where we raise, you know, over $100,000. And we invite people to come to the island to see what we're doing, to enjoy the beauty of the island, but also see the beauty of the people and, and what you can do to help them, you know, help themselves.

And what's so interesting about that is that a guy I went to high school with named Derek Hayes and I hadn't spoken to him for years and years and years. I kind of intermittently follow them on Instagram or Facebook, whatever it is, you know, high school buddy, but not really a close high school buddy. And I see that he's like traveling a little bit to the Dominican, but the Dominican's huge. So when I I got a phone call from him out of the blue and super happy to speak with him. He's super happy to speak with me.

And he tells me that he and his family have moved to Los Serranos and they've set up a fund where they want to set up a foundation where they are now helping educate young men to do basically the same thing to get out of poverty.
And he started looking up other nonprofits in the area. Dominican Joe's one of the biggest, looked it up, saw that I was the director and the attorney for the nonprofit and gave me a call. I have literally two nonprofits in my portfolio and I don't practice nonprofit law. And it just so happens that they found each other on a very small town, in no man's land on the island of the Dominican.

Jack: So, kind of has a feel of the inevitability of destiny too.

Adam: It does, it's such a small world. And I connected them at the getaway, and a couple of weeks ago, his partner, Jay Quinn, and they got together and met with, with Joe Rizzo, Dominican Joe and that whole group. And, I'm really hopeful that they can do something together and sort of build now a school that's educating both and trying to get the goal is really to educate them enough so that they're proficient enough in English that if they want to make the move to the United States, they have that option to go to school. They can always return home, which would be great for the, for the economy there, for the island. And just for everybody there, whether it's, you know, Asian or, or Dominican. But this is on the Dominican side, so it's a very unique place to say the least. But now that the Dominican Joe story.

Jack: Oh, hey, on your LinkedIn, on your LinkedIn profile, a connection said about you Adam is a worthy adversary both in the courtroom and on the basketball court. What did he mean by that?

Adam: That's a buddy of mine that we'll be able to see each other in court occasionally, but I also play pickup basketball. Dom is a big guy. He is definitely taller than me, he's probably 6'6". I'm 6'4". He probably outweighs me. I'm a pretty light six four. I'm like a buck 95 buck 90. He's probably like 215 or something. He's just a big guy. Um, but you know, Don's not that fast I'm a little quicker. So we like to play. We used to play ball, which was great. I don't see him as much anymore because they moved up to Tampa, but he runs his own firm up there and he's a very good guy.

Jack: Okay. I just had to ask because oftentimes people will boast about their prowess on the basketball court and then I find out they hadn't been on a court and forever I would start, I used to play hoop all the time. Then my knees told me it was time to stop. Hey, this is my favorite question to ask my guests. I think you're probably going to like it too. We're going to move into the realm of imagination here. You are king of the world for one day and one day you get to solve one problem and one problem only. What problem are you going to solve?

Adam:   One? So that's a great question. It’s sort of an all-encompassing answer, so it's not a great answer. Okay. So the environmental problem that human beings have sort of imposed on the planet seems to very, very devastating.
And so if I were king of the world, I would be focused on providing the world with, whether it's like new materials or technologies so that it's not necessarily to continue, I guess just expanding to where we can't expand anymore. I read an article while I was in Scottsdale because, I couldn't believe how much Scottsdale’s grown in the seven years I've been visiting just since my in-laws bought a second home there. The article is talking about how the largest metropolis, I think outside of a couple of the major cities is soon to be the Phoenix/ Tucson mega metropolis.
And I'm like, wait a second, those are, those are a hundred miles apart. How can that be? And I started looking at the map and they've both crept like 35 miles towards each other and there's not that many more miles to go before they actually become just one giant city. I think that is the reality sort of all over the planet and so if I were king for the day, I think I would like to see that reversed. It'd be nice to keep as many species around for my children’s children to see and my children's children's children's children as possible.

Jack: Good answer. I appreciate that. Well, I can see by the old clock on the wall that we've just about come up against your hard stop. I want to ask you if you got any last words for us you want to leave us with.

Adam: I hope that the education that anybody's getting from listening to this is something you know, valuable though we didn't get into the nitty gritty nuances of it. I think what the takeaway should be is, I mean not to be cliché, but it's an opportunity in an Opportunity Zone and when the government gets this find something and you know, pulls into 10 different divisions of the government and you have this many smart people wanting to do something in the space, I think it's worth paying attention to early and trying to understand it. You know, right out of the gate. Because I think this will be something that down the road a lot of people are going to get involved with and it's kind of almost too little too late.

But it certainly won't be the first mover advantage that a lot of folks I think are going to see in the first couple in the first year. And so spread the word. Call me if you have questions.

Jack: Yeah well, how do folks get ahold of you if they want to talk with you?

Adam: I love emails. The easiest way to schedule something on my calendar is just to send me an email. Tell me a little bit about yourself and what it is that you're interested in learning about, what part of the regime interest you most and what you're trying to do with that, whether it's development or bringing in business or develop something and then put certain types of businesses into your product, meaning your, you know, your asset in real estate asset. Um, would love to, to know more.

So an email to me with some of that background. So I can frame the conversation is perfect and they can reach me at adam@eylawers.com. And that's the best way to reach out.

Jack:  Very good. Well and I would remind our listeners as always that this information that Adam is share with us will also be available on the website, so you don't have to try to remember it. Well Adam, I have appreciated the time. It's been fun to talk with you. I really enjoy this. For Adam Yormack I am did I say that right? Yeah.

Adam: Close. Very close. You know, who knows how to properly pronounce it, but we in the family pronounce it Yormack. Yours and Mine.

Jack: Gotcha

Adam: Then like a Mack truck.

Jack: So, I should probably should have resolved that before we started. For Adam Yormack, I am Jack Heald for the OZExpo Podcasts. Thanks for living, for listening. Don't forget to subscribe and we will talk to you next time.

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