Opportunity Zone Investing on the Las Vegas Strip, with Bill Shopoff

Why might an investor consider an Opportunity Zone hotel investment on the Las Vegas Strip?

Bill Shopoff is president and CEO of Shopoff Realty Investments, a national, multi-disciplinary real estate investment firm founded in 1992.

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

Episode Highlights

  • In light of current market conditions and future tax rate uncertainty, why investors should consider Opportunity Zone investing as a way to diversify into hard assets.
  • How Shopoff is able to have gaming in their property and still remain in compliance as a Qualified Opportunity Fund.
  • The bull case for Las Vegas, tourism, conferences, and hospitality in general, post-COVID.
  • VIP perks for early investors in the Las Vegas Dream Hotel Opportunity Zone deal.
  • How rumors of a potential increase in the capital gains tax rate is already impacting the Opportunity Zones marketplace.
  • Why a higher capital gains tax rate improves the Opportunity Zone investing incentive.
Bill Shopoff on the Opportunity Zones Podcast

Featured on This Episode

Industry Spotlight: Shopoff Realty Investments

Shopoff Realty Investments

Headquartered in Orange County, California, Shopoff Realty Investments is a national, multi-disciplinary real estate investment firm focused on generating appreciation through the repositioning of commercial income-producing properties and the entitlement of land assets. Their Opportunity Zone offering invests in a Dream Hotel property development on the southernmost end of the Las Vegas Strip.

Learn More About Shopoff:

About the Opportunity Zones Podcast

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

Show Transcript

Jimmy: Welcome to the Opportunity Zones Podcast. I’m your host Jimmy Atkinson, coming to you once again from the ADISA Conference in Scottsdale, Arizona, and joining me on Today’s episode is Bill Shopoff, President and CEO of Shopoff Realty Investments. Bill, thanks for joining the show.

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Bill: Happy to join you, Jimmy. Appreciate the opportunity.

Jimmy: Absolutely. We just met each other a couple of hours ago. We got to talking. You’ve got some opportunity zone deals in the works. We decided let’s get you on the show. We get to talk a little bit about it. So to start us off I actually wanna get like a 30,000-foot view of your take on the opportunity zone marketplace in general and why do you think an investor should consider opportunity zones, particularly in this market environment?

Bill: Well, I think any time there’s a highly-structured tax incentive program if you’ve got an otherwise good investment it makes sense to at least consider putting a QOZ-type wrapper on it. Today particularly when we’re talking about higher tax rate potentially coming out of Congress and the President. I’m not a tax professional but I think that typically higher rates are gonna make tax incentive programs more intriguing and more interesting to the typical investor out there. So I think today is kind of a very interesting opportunity for us.

Jimmy: And I think particularly in regards to what we’re seeing currently in the stock market with the stock market running up the way it has been over the past…well I guess since it bottomed out at the beginning of March of last year. Prices at the stock market are certainly pretty high at this point. Any consideration or any thoughts to diversifying a portfolio that’s been mostly invested in stocks? Opportunity Zones offer a way into real estate investing for a lot of investors from what I see. What’s your take on that?

Bill: Well, I think there’s an interesting opportunity today. We’ve got a pretty big run-up in the stock market. I’ve got a number of friends and clients who are sitting on extremely low-basis stock. We’ve talked to some folks who are employees at some of…like, a Tesla where they’ve got incredibly low basis. So selling that stock is not attractive if they can’t protect the gain, but if you can do that in a way and convert that what I’ll call soft asset of a stock into a hard asset of real estate I think you get that opportunity to defer some taxes obviously, not pay taxes on your future gains.

But I think the value of getting into a hard asset today when inflation is being more discussed everyday given the amount of government spending we’ve had real estate has classically been a great place to be in an inflationary economy, so there may be some value to taking a portion of your portfolio, taking some chips off the table, and reinvesting in a quality op zone deal.

Jimmy: Yeah. Bill, that makes perfect sense I think. So let’s shift gears now. I wanna hear more about your Qualified Opportunity Zone deal that you’re working on. You’re working on the Shopoff DLV QOZ Fund. What can you tell us about that?

Bill: Well, we’ve had an opportunity to acquire a site in Las Vegas pre-COVID. We’ve been working on the entitlement of that site and we launched our Shopoff DLV QOZ. It’s a giant acronym apparently. Somebody in my firm is very popular, very happy with that. We’re building a Dream-branded hotel in Las Vegas on the Las Vegas Strip. So that was one of the things that really appealed to me. This is a project that we would do regardless of whether we were in an OZ, but the fact that we can layer on the OZ benefits onto a high quality asset like a boutique hotel in Las Vegas. We’re walking distance to the Raiders Stadium. We’re within a mile or two of T-Mobile and all the other entertainment venues in Las Vegas. That seemed to be a really unique opportunity.

Jimmy: Yeah, so it’s located pretty nicely on the Las Vegas Strip. It’s at the very southern end I believe right next to the airport. Is that right?

Bill: It is literally right next to the airport, and for those people that have been to the ‘ Welcome to Las Vegas’ sign, which is literally millions of people every year go stick their their Instagram moment. When they take that Instagram shot the Dream Hotel will be in the background. So we think it’s a pretty prime location and we’re really excited about that opportunity.

Jimmy: Yeah, it sounds like a great location. I’m surprised that there are any opportunity zones at all on the Las Vegas Strip. Certainly in Las Vegas that makes sense, some parts of Las Vegas, but I wouldn’t have guessed there would be an opportunity zone on the Strip.

Bill: We were pretty shocked by that when the land was brought to us initially, and then we had to solve other issues too. I mean, we’re…it’s Las Vegas. You have gaming, and most people are gonna say, “Well, how are they gonna do gaming in an op zone?” Because you can’t do sin businesses, but we figured out a structured way to do a condominium structure and qualify and we actually have a legal opinion from our attorney on the structure that we’ve come up to stay within the confines of the op zone law but still be able to have the benefit of having gaming in our property.

Jimmy: Oh, that’s very interesting. So you do still have gaming…

Bill: We do.

Jimmy: …at the front of the property. Interesting. Alright, very good. And why this deal? Why do you like it in general? You mentioned that you would have done it anyway, that it’s a good deal. The opportunity zone incentive layered on top didn’t make this a good deal from a bad deal. It was already a good deal. Talk to us about the deal itself a little more.

Bill: Well, I think you’d have to look at where do you think Las Vegas is headed? I’ve been a long-term believer of Las Vegas, so when the pandemic hit I didn’t freak out. I won’t say I didn’t freak out at all but I didn’t completely lose it. I looked at and I said, “Las Vegas is gonna come back. Conference business will come back.”

And in fact in March Las Vegas had its biggest gaming month they’d had in eight years, so it’s a pretty good indication people are coming back. They’ve got conferences coming back. The CES announced they’re gonna come back for a live conference with over a 100,000 people in January. So Vegas is back. We’ll have the newest property in Las Vegas, something that’s new and shiny that people are gonna wanna participate in.

And on top of everything else we provided some other benefits. So we created the DLV Founders Club and so people that invest in our op zone deal also get perks at the hotel. So if you do an apartment deal, like, you may never go see your apartment, but you would invest in…

Jimmy: Why would you want to? Yeah.

Bill: If you’re in an apartment deal in Kansas City in an op zone, like, you’re probably never going to see that building. You’re gonna benefit from it, but you’re likely to wanna come to your hotel in Las Vegas and get VIP treatment. So we just added a little layer of perks on there for our investors, and it’s been way more popular than I thought it would be. But imagine you invest some money. You get picked up in a limo every time. You may be able to go to your suite if you’re…

Jimmy: Get treated like a VIP. Right?

Bill: You are always a VIP, and not just at Dream Las Vegas. You’ll be a VIP at Dream worldwide. So it’s a little extra perk for coming into our deal.

Jimmy: Good. And tell us a little bit more about the hotel specifically. It’s a boutique hotel. It’s a large hotel, but it’s not large for Vegas. What’s the size roughly?

Bill: So it’s 525 keys, which is large by many city standards, but Las Vegas is the place of mega resorts of 3 and 4 and 5000-room hotels. Well I don’t think everybody loves that environment. There’s a guest experience that’s different at our property that people will be able to come and they’ll have some of the things that they get in Las Vegas. We’ll have the DJ pool. We’ll have those things but it’ll be at smaller, more intimate scale where people can really experience Las Vegas, maybe where they’re not getting lost quite in the big morass of things.

I mean, look. If you’re in one of the other properties it might take you 20 minutes to walk from one end to the other and that’s time you could be spending time at the pool.

Jimmy: I’ve had that experience before in some of the larger hotels there.

Bill: I too have and sometimes I wish I changed shoes before I started that walk.

Jimmy: I’ve had that same experience myself. I’m sure a lot of our listeners are nodding their heads in agreement now too. Those hotels can get enormous in Vegas, so it’s interesting to hear your concept for a much smaller hotel, large hotel, but very manageable by Las Vegas standards. What about just the general trend of hospitality in general. Hospitality has taken a huge hit over the last year. What are you forecasting or why do you like hospitality in a post-COVID environment? What do you see happening?

Bill: Look. Hospitality clearly got hit probably harder than any other of the food groups in real estate, but I think because of that there’s interesting opportunities because, first of all, it’s going to be challenging to bring new product to the marketplace. You have to look at hospitality across the waterfront. Select service business hotels, they were the first to come back because people starting to travel and even if it was families traveling people were using those.

Probably the one that’s gonna have the hardest time in my mind is that downtown business traveler hotel, that luxury property, where that travel has cut back, but the conference business. People wanna go to places like Las Vegas. Whether it’s for a conference or whether it’s for that bachelor or bachelorette party they’re going to Las Vegas. And we’ve seen an enormous group of people that just get in their car from Southern California but it’s also…it’s actually today…if you check it’s the most Googled search place for the first place I’m gonna travel post-COVID, Las Vegas.

Jimmy: Well good for you guys.

Bill: It’s good for us.

Jimmy: Well-positioned it sounds like. I wanna talk with you about the potential capital gains tax rate increase that’s been floated by the Biden administration over the last several weeks here, and I’ve spoken with a lot of my guests recently about this but I’m always curious to get everyone’s different take is a little bit different. Biden is discussing the possibility of a capital gains tax rate increase to the high 30s, maybe the low 40s, a pretty sizable increase, nearly doubling the current rate of 23.8% for long-term gains. What’s your take on how that will affect the opportunities on the marketplace and how do you think investors will react?

Bill: I think it’s caused a little bit of disruption here while it’s being discussed because you’ve got people concerned that they could just pay their tax rather than go into the op zone deal and then they’re gonna get stuck paying it at a potentially higher rate in 2026. So there’s been some disruption to the marketplace, but our accounting firm has done an analysis and our belief, their belief, is that it’s still advantageous to defer paying at 20 and paying later at 40 you still come out ahead.

So although I think it’s caused some pause in some of our folks on making that investment decision I think that really will…ultimately as they look at the math for themselves I think they’re gonna come to the conclusion that they should probably move forward with the decision if it was a good decision before this. The other thing is once the new rate, whatever it is, whether it’s 28, 38, 40, it’s actually gonna make it more interesting to do an op zone deal because in effect you’re investing an interest-free loan from the IRS, from the federal government. So today at a 20% rate, 23.8%, whatever you wanna call it, but the government’s loaning you 20 to 23.8 today interest-free and that’s giving you a bump in your value, and by our math…

Jimmy: It’s more money that you’re able to put to work in your investment.

Bill: And by our math…and it’s about the same. Virtually everybody’s…the rate’s gonna be about 200 to about 250 basis points that it’s increasing your yield over your pre-tax yield. So that increase is gonna get better because if today I’m borrowing 20% tax-free, or interest-free, and now I’m borrowing 40% well the incentive to do this is even better, although I’m not a believer that the rate is going to go to 40. I’m gonna handicap something in between the two, but I don’t get paid for that very well because that’s just by looking into my crystal ball or using my Ouija board, but we’ll know sometime this year, and it feels like we’re gonna know in June or July because I think they’re gonna have to get this done sooner rather than later before it starts to become too much of a midterm election conversation.

Jimmy: Yeah. The people gotta know what the rate’s gonna be. To your point, it’d be helpful for them if they get that sorted out before the midterms start rolling around. Absolutely. Well we’re at the ADISA Conference as I mentioned at the top of the episode, Bill, and I just wanna get your take on what brings you here to the ADISA Conference? Why are you coming around here?

Bill: Well, number one because I haven’t been out in a year, so the ability to get together and see our broker, dealer, advisor and RIA clients to get to see them in person face to face, because most of the people who are here I have not physically seen in 15,16 months.

Jimmy: Yeah, that’s a good point. For almost everybody here this is, like, the first major in-person conference that we’ve had since the beginning of 2020.

Bill: Yes. So I’d gone to a couple of broker-dealer firms conferences in January, February. I went to Hawaii twice early last year to find out that I should have just stayed, but I think that’s one of them. We’ve got this product and other products. We just wanna make sure that we get our message out to people, and generally my view is people are sick of Zoom. I think Zoom’s got a…and I’m not I’m picking on Zoom, but video conferencing.

Jimmy: Sick of virtual life, right?

Bill: I think that it has a place and I think it’ll take a share of my life going forward, but as I shared in a meeting this morning, if my competitors believe they can do their business all on virtual I’m gonna win business over them because I think you’ve gotta go out and touch people and you’ve gotta go understand what’s the buzz and how do we make something happen. It’s those behind the scenes things. I was on a call listening to Jaime Dimon last week on an interview and he said, “Look. It’s those brainstorming sessions that happen at the end of the day over a glass of wine with your business associates and your customers.”

Jimmy: And that doesn’t happen on a Zoom call.

Bill: It doesn’t happen. We’ve tried it. We’ve done virtual happy hours where we’ve actually shipped alcohol to people. It’s better than nothing.

Jimmy: It’s not the same thing, yeah.

Bill: But it’s not the same, but the good news is nobody has to drive home.

Jimmy: That’s a good point, but yeah. There is something to be said about looking someone in the eye and pressing flesh, shaking hands. There’s a lot to it there I think. It’s good to be back in person.

Bill: Well, I think the interaction of this I think is better because I can see your body language at a better level while we’re sitting in the same place than when I’ve seen you on my iPad. So I think it just works better for many of us. I’m not saying that I’m not gonna use Zoom tomorrow because I use it and I’m gonna use it in places that I think are very good for my business, and take advantage over what used to be a conference call because now I can see people, but I still gonna get in the car and go see people.

Jimmy: Yeah it’s a great tool still. We don’t mean to bash Zoom too much, but I think it’s great for getting…

Bill: No, no. I wish I’d bought their stock last year.

Jimmy: Of course. People are getting Zoom fatigue and some…

Bill: Then I could have sold it and put my money into an OZ.

Jimmy: Yeah. Could’ve generated a capital gain, Bill, absolutely. But yeah, there’s some things that Zoom can’t replace, and I think it’s had to replace some in-person stuff over the past year but hopefully that’s starting to melt away as we get back to real living as I like to call it out in the real world, meeting people in person. It’s been fantastic past couple days here for me at least and I hope it’s been the same for you too, Bill.

Bill: So far it’s been excellent and really look forward to it and thanks for the opportunity, Jimmy.

Jimmy: Good. Well before we go, Bill, can you tell our listeners where they can go to learn more about you and Shop?

Bill: You can go to our website at www.shopoff, S-H-O-P-O-F-F, .com, and from there you’ll be able to find a link to our investment services or our phone number which is actually 844-4-SHOPOFF.

Jimmy: 844-4-SHOPOFF and shopoff.com. That’s fantastic. So for all of our listeners out there today I will as always have show notes for today’s episode on the Opportunity Zone’s database website. You can find those show notes at opportunitydb.com/podcast and there you’ll find links to all of the resources that Bill and I discussed on today’s show and I’ll be sure to link to shopoff.com and I’ll list the phone number there as well. Bill, again, thanks for joining me today. It’s been a pleasure.

Bill: Thank you. Take care.