Episode #1: An Introduction to Monarch Private Capital
Monarch Perspectives
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Steve LeClere
Welcome to Monarch Perspectives. I’m Steve LeClere, partner at Monarch Private Capital, focused on affordable housing.
Rick Chukas:
And I’m Rick Chuka, also a partner at Monarch leading our historic division. In this podcast series, we’ll talk with industry experts about important topics for tax equity investors, developers and owners. From affordable housing to renewable energy. We’ll explore trends and opportunities in federal and state tax credit programs. We hope to provide you with valuable insights to navigate the world of tax equity and impact investing.
Steve LeClere:
Welcome to our first episode of Monarch Perspectives. I’m Steve LeClere, and today we’re talking with Monarch Private Capital co-founders, Robin Delmer and George Strobel who will share more about the company’s background and their industry insights. Gentlemen, thanks for being on.
George Strobel:
Thanks Steve.
Robin Delmer:
Thank You, Steve.
Steve LeClere:
All right, Robin, let’s start with you. For listeners who aren’t familiar with Monarch, can you give us a little background on the firm?
Robin Delmer:
Sure, Steve. I was an affordable housing developer in Georgia primarily, but I also did some work in Florida in the early two thousands and late nineties. In 2000, the state of Georgia passed a affordable housing tax credit. That was a state incentive at that point in time. Nobody really knew what to do with it, so I went to Goldman Sachs with an idea that they would try to sell ’em to their high net worth clients, and they basically said it’s way too little for us. But we met this guy, George Strobel, who was wandering around here trying to find these kind of tax credits for some of his clients. And just like Reese’s peanut butter cup where the peanut butter meets the chocolate, George and I met and we ended up starting the company on a handshake, and all we did was essentially monetize Georgia State tax credits for high net worth individuals. And that’s how we got started.
Steve LeClere:
Great. So before we get into more of the company’s background, maybe we should break away for a minute and explain at a high level what tax credit programs are. George, can you give us a quick background on the programs, why they started, what problems they were intended to solve?
George Strobel:
Sure. Tax credit programs at their most basic level are simply a public private partnership whereby a specific government will provide incentives for an investor to invest in a specific economic activity. In particular, governments perceive that the private sector doesn’t focus on certain areas as much as the government would like, for example, renewable energy, certainly affordable housing, and also at times historic renovations, brownfield sites and a number of other things. It could be even directing capital towards investing in companies in certain economic parts of the country or areas of the country that aren’t adequately developing. So the government will want to incentivize more private capital being directed towards these types of activities. And the way they direct this capital is to create a tax credit, which an incentive provided to a particular company, the incentive being a tax credit is effectively an offset against the federal tax or in certain instances a state tax if it’s from a state government.
So those are what tax credits generally are. You see ’em in three broad categories that we’ve already discussed, low-income housing, renewable energy, historic renovation. There are also others in a variety of other fields, but those are the largest three groupings. And the developers then receive these credits, which they can use to reduce their tax liabilities. And often what happens is they have so many of these credits that they can’t use ’em directly themselves, in which case they reach out to companies such as ours to ask them for help in finding other taxpayers that are willing and can use those types of credits. And that’s where we come in to locate those specific taxpayers to help invest in these projects.
Steve LeClere:
And how is that tax equity used at the project level?
George Strobel:
In most instances, the commitment for investors to invest in these projects is used by the developers to obtain credit to build the particular projects or to get permanent financing on a project. In some instances, the financing itself is used to actually build a particular project, but in either case, the commitment by different investors to invest in these projects is essential for a project moving forward. Without that commitment, the developers are unable to move forward on their particular projects and the projects would simply not occur.
Steve LeClere:
Great. Thanks for that background, Robin. Back to the history of the business. What prompted the firm’s growth beyond Georgia to now having nearly 800 projects in over 40 states?
Robin Delmer:
Well, George and I initially started our business. We were just focused on the state of Georgia and affordable housing, and we were both kind of continued on doing other businesses. And back then Monarch was kind of a side gig from Ian George in 2009 when the world melted down, we realized that our business was somewhat recession proof, and we were able to look at it and say, this is probably something we should pay more attention to. So George and I at that point in time, started looking around nearby states and saw that South Carolina had multiple types of tax credits, including abandoned building tax credit, a textile mill tax credit, and a historic tax credit. So we started our focus there, and then we looked at North Carolina and saw they had a renewable energy tax credit as well as a historic tax credit. So we started doing business in those states, and as time went on, we found other states that had incentives including taxes, Virginia, Hawaii.
So now we’re I think operating in somewhere around 28 states that have state incentives. And then the next progression really in our business was we said every time we start a new state tax credit, we’ve got to go out and market this locally. However, if we started going towards institutions rather than high net worth folks, a lot of institutions pay taxes in multiple states. So the natural progression in the mid 2014 15 timeframe was we started trying to encourage institutional investors to buy the product so they could buy in multiple states. Insurance companies ideally are a good candidate for that kind of market. And as we were dealing with institutions, we realized that there was a lot more federal tax credit liability than there were state tax credit liability. So we expanded. We started talking about in about 2015 and 16, we started doing historic tax credit, federal practice, and that expanded later to energy. And we do a little bit of low-income housing tax credit as well. So that kind of finalizes our product lines as we have them today.
Steve LeClere:
George and Robin, the firm has obviously grown tremendously since its founding. To what do you attribute that success or what do you believe to be Monarch’s greatest strengths?
George Strobel:
I’ll start this one off, Robin. Anyway. I think the strength of Monarch and its success is directly attributable to the strength of the people we have working at this firm. We have a number of outstanding people working in this firm that have outstanding technical backgrounds from a business perspective or from a tax perspective. And we’re able to bring the insights and the expertise of our people together in any particular situation to develop a solution that is excellent for both investors as well as developers. And so we’re able to use our business experience and savvy to create solutions in scenarios where many companies otherwise would not find one. And I think that’s our success is our ability to come into almost any situation involving business incentives in the form of tax credits, and we’re able to figure out how to mesh that with particular developer requirements and as well as investor needs. That’s always amazed me how we’ve been able to bring success no matter what the type of tax credit.
Robin Delmer:
Yeah. I would also add that a very important part of what I love about our company is that what we’re doing is pretty much we’re trying to exercise the will of our society and as implemented through the tax code when a state or federal government once incentivize a behavior. It’s generally something that the society in general believes is good for the populace and for the citizens of the country. Things like affordable housing, I think everybody would agree that we need more of it, and trying to become energy independent from oil and gas is very important to the future of our children, our outlook. So the social part of our business I think is another reason why we’ve been very successful in that folks can invest in this and feel good about what their money’s going to serve.
Steve LeClere:
So while the firm has experienced success and tremendous growth, there have to have been some challenges along the way. Anything in particular stand out?
George Strobel:
Well, we have challenges, Steve, at every turn. Obviously the financial crisis of 2007 through nine was a significant challenge because a lot of businesses shut down along the same lines, COVID was a very similar challenge because you had all of a sudden you had a pretty widespread economic shutdown. Those kinds of challenges are always difficult. A big challenge for us in any one year is simply just business uncertainty. So we see that in terms of forecasts of economic recession, we see that in forecasts of significant tax law, changes that change the tax position of particular investors, whether it’s individuals or corporations, but change in business uncertainty are significant challenges for really any business. And we’re no different. And it seems like every year is a new challenge.
Robin Delmer:
The problems of any business usually sit around what is also the success, which is people that work for you and you’ve got to always try to figure out how you balance productivity and fun as well as human resource issues. They come up from time to time.
Steve LeClere:
George, you mentioned several challenges, the financial crisis, the pandemic of 2020. How has Monarch been able to adapt to those types of challenges and general market changes over the years?
George Strobel:
Steve, we’ve been able to deal with these business crises through two different means. One is, as Robin mentioned earlier, we’re a very diversified company. We offer many different types of credits, and if one particular credit is no longer available or no longer has a market for a particular reason, our firm’s been able to withstand that by relying on some of the other types of credits and industries that we’ve been able to work with because of this diversified base. We’re a very resilient firm, but also our people are very creative, and we’ve been able to come up with creative solutions to allow us to make our credits more attractive for a particular investor. So, we’ve been able to withstand it these types of business downturns through the diversity of our group as well as the creativity of the people working with us.
Steve LeClere:
Robin, we’ve talked about the diversification into various tax equity programs. Can you speak about some projects that you found particularly impactful, that you were excited that Monarch was a part of across the three industries?
Robin Delmer:
Let me start by saying, I think by far the most interesting thing we do as far as what our end product is, is our historic redevelopment. Taking a building that has some kind of history in a community that has fallen into disrepair and revitalizing, it’s just an amazing thing to watch happen and see how it transforms everything around it. One of my favorite projects is here in Atlanta. It’s the Claremont Hotel, which was an abandoned CD hotel that was having all sorts of crime issues. It was redeveloped, I think six years ago, like 2016 or 17, and has got a rooftop bar now. It’s got a club in the basement. It’s got a World-class restaurant, and it’s got high-end housing. So it was really the first thing in a neighborhood that’s completely gone, undergone a rejuvenation, which is the Potts area. And recently, Jamestown has developed the old Sears building into the Pott city market.
So the whole area is transformed and really I think the Claremont was the first thing that began that. In a similar vein in Spartanburg, South Carolina, Drayton Mills was an old abandoned, very large bill property that had sat dormant since the nineties, and we took it and turned it into a vibrant community. It went from being one of the highest crime areas to one of the highest rent areas in a matter of two years. We created not just apartments there, we created a whole office space and a community that has restaurants as well as a brew hub and entertainment facilities and shops, and it’s started a very vibrant community. It’s got a lake in the middle of it, and they do outdoor events all the time as an amazing transformation from something that was alighted area. Talk about renewable. We do a whole lot of solar.
We did the Horse Ridge, Texas wind turbines, created over 6,000 jobs, electrifies, 3 million homes, and it’s our first wind project. We also did our first geothermal project in Nevada that apparently you have to build these close to fault lines, so that was pretty exciting. We hope that it doesn’t fall into the earth at some point in time, but I guess if that happens, we had bigger problems. We also did a Logan’s Port Indiana where we maintained a be and butterfly habitat and a solar project. So those are three pretty interesting renewable energy projects. Lastly, we talk about affordable housing, which is where I came from and where my passion has been in the past and what drove team where I’m today very excited about. Freedom’s path in Augusta, which is home for veterans, created more than 600 jobs, $40 million of income has been generated from that project. We also did Badger State Loss in Sheboygan, Wisconsin, create affordable housing for over 900 jobs and 50 million incomes generated. We apparently are going to be kings of ship wagon as well as fond Lac because we have the nicest hotel in Fond LAC that we did as a historic renovation.
Steve LeClere:
Thanks, Robin, for sharing some insights on projects that we’ve been a part of. George, turning back to the broader industry, what trends or policies are you seeing that are going to shape the industry over the next several years?
George Strobel:
So we see tremendous growth in the industry for three main reasons. All of these forces have been created within the last 12 months, really for the most part within the last six months. But we’ll start off with the new Inflation Reduction Act, which is referred to IRA. It has created massive new incentives for renewable energy for all sorts of new technologies related to the renewable energy industry, whether it’s construction of ships to solar panel construction to actual batteries for renewable energy or all energy really. And these new incentives will dramatically increase the number of opportunities that investors have to invest in tax credits. Also, it’s drawn a significant amount of attention to the industry because the whole focus of the bill was through incentivizing private activity in the renewable energy space through the use of tax credits. So it’s drawn a lot of focus to the opportunities that taxpayers have, primarily corporate taxpayers to take advantage of these opportunities.
So that is creating a lot of interest. And also they have created a new type of credit which can be transferred at the federal level, which is fairly unique and has not occurred really previously. So that is something that is attractive to some people that haven’t previously entertained the idea of investing in renewable energy tax credits. Another significant force, which really applies to everything that we invest in is what I’ll refer to as ESG, the fact that our firm really shifted its focus starting back in 2019 to branding or at least emphasizing the fact that everything that Monarch invests in is AESG enabling investment. We’re either furthering affordable housing for the country, we’re either providing renewable energy, clean energy opportunities for the country, or we’re rejuvenating neighborhoods through historic renovations. And so all of these general areas score points from an investor’s perspective, from an ESG perspective in terms of we’re doing good for the world, which as Robin said earlier, is one of the things that really makes our business a lot of fun is that we’re doing good things.
We’re saving people money and at the same time doing good things for the country. But the ESG attributes of our investments are very significant, and many companies, many boardrooms are now becoming very focused on what they can do with respect to ESG. And the neat thing about our ESG investments is while they create the social good that people want to achieve, they are also not creating any of the negatives that other people are worried about. They are profitable for the company. We’re not telling people not to invest in anything they might otherwise invest in. We’re just merely saying these are good investment opportunities, which further goals of not only the people in this country, but of the world, the last driver or driving force that I would say that’s going to significantly cause growth in our industry and in particular our firm, is that the accounting rules have been simplified for many years now. There’s been a reluctance to invest in some of these activities because the accounting rules have been unnecessarily complex starting in January. Those rules were greatly simplified and it’s made it easier for corporate taxpayers to say, yes, I want to go ahead and do these types of investments. So those three forces, the IRA, the expansion of ESG focused investing or commitment by corporations and then the simplified accounting rules will make investment in this area grow, I would say on a 40 to 50% increase path for the next two or three years.
Steve LeClere:
So you’ve mentioned some changes at the federal level with the IRA and the changes to the accounting rules. Are we seeing anything at the state level that will have an impact on our industry?
George Strobel:
Well, the answer is yes. What you’re seeing is everybody recognizes that affordable housing is an issue in every state, and you’re seeing a number of states. We’ve had four or five states adopt tax credit programs in the last two years, and these programs are being adopted by both Republican and Democratic governors as it’s an issue that both parties recognize needs to be addressed. Likewise, I think you’ll see the start of some state level renewable energy programs kick off again, and that should continue around the country as states realize that we need more incentives to accelerate the pace of renewable energy growth. And so you’re going to see that likewise, states will recognize needs in terms of rejuvenating older communities to redirect investment back into these older communities. And as opportunities present themselves, states will jump on the ball and try to spur growth in their particular states.
Steve LeClere:
Great. Thanks, George. So we’ve talked a lot about where Monarch has been and current trends impacting the industry. Robin, what goals does Monarch have as we go forward, or where is Monarch headed
Robin Delmer:
On a go forward basis? I think the recent passing of the Inflation Reduction Act, as George mentioned earlier, is going to provide all sorts of opportunities for Monarch. What’s right at my sites at the moment is the fact that within the Inflation reduction Act, there’s the greenhouse gas bill that is a grant fund of 20 billion in order to try to provide renewable energy in affordable housing communities. And we’re sort of right smack in the middle of both of those types of projects. And so one of the things we’ll be looking at very closely is whether or not we can create an energy company that can provide renewable energy for our affordable housing projects and sort of the married two sides of our businesses. We’re also always looking for opportunities to invest in projects or developers that produce projects that generate tax credits for our syndication business. So we’re always on the lookout for affordable housing projects or historic redevelopment projects that we can invest directly in with the developer side by side and secure the tax credits as well as be a member and co-developer of projects that generate these benefits.
Steve LeClere:
George, do you have anything to add in terms of where Monarch’s set or our goals for the future?
George Strobel:
I would agree with everything Robin said there. What I also think is that we’re going to see tremendous growth in new technologies that we have previously not had an opportunity to work with. An example would be carbon sequestration. I see that being as a massive new opportunity. There’s obviously opportunities related to natural gas generation through cleaning up otherwise toxic messes and converting ’em into usable energy. There will be credits for that type of activity. We’re anxiously awaiting technological breakthroughs that would provide renewable energy applications to heavy industry in highly energy intensive industries, which have not here before been created. So those are all areas of expansion that just seem really exciting for our firm anyway, in the near future. I don’t think it’s going to take more than one or two years for breakthroughs in all these areas to hit the marketplace where we are then able to invest. But from our perspective, the possibilities that have been created through the IRA are very exciting and are going to lead to significant growth. Once more, we’re going to be, our growth of our company has been last couple of years more like a hockey stick, and it’s going to continue with that path in the next two or three years for sure.
Steve LeClere:
Well, Robin George, thank you for joining me today and sharing a bit more about Monarch and what we do and where we’ve been and where we’re headed.
Robin Delmer:
Thank you, Steve. Enjoyed it. Always a pleasure to talk to you.
George Strobel:
Alright, appreciate it Steve.
Steve LeClere:
Thanks for joining us on this episode of Monarch Perspectives. We hope you’ll follow and subscribe so you never miss an episode.
Rick Chukas:
Be sure to rate and review us wherever you get your podcast. To learn more about Monarch Private Capital, please visit monarch private.com.