In this webinar, Bill Shopoff discusses Shopoff Realty’s DLV QOF, a $200 million OZ fund that will provide the equity for construction of the new $545 million Dream Las Vegas hotel on the southern end Las Vegas Strip.
- An overview of Shopoff Realty, including their track record of more than 1,000 full cycle assets.
- Shopoff’s value creation process, culminating with the capture of event-driven capitalization.
- Project location and renderings for the Dream Las Vegas, located near McCarran International Airport on the Las Vegas Strip.
- Incentive units and other unique benefits for investors in the DLV QOF.
- Timeline for the Dream Las Vegas, including the fund’s plans for refinancing and distributions.
- The outlook for the Las Vegas hotel and tourism industry in the wake of COVID-19.
- How this fund stays QOZ compliant while investing a Las Vegas casino.
- The impact of the Dream Las Vegas on the local economy, including the creation of thousands of local jobs.
- Q&A with webinar attendees.
Featured On This Webinar
- Bill Shopoff on LinkedIn
- Shopoff DLV QOZ
- Allegiant Stadium
- T-Mobile Arena
- Welcome to Fabulous Las Vegas Sign
- Pitch Deck [PDF Download]
Industry Spotlight: Shopoff Realty
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
Jimmy: And let me bring our next presenter on stage here. It is Bill Shopoff with Shopoff Realty Investments. And Bill has a really…I think it’s an incredible deal. It’s a hotel on the southern end of the Las Vegas Strip. It’s a dream hotel, a $200 million Opportunity Zone fund that will provide the equity for construction of a brand-new $545 million Dream hotel right on the Las Vegas Strip adjacent to McCarran airport. Bill, did I get that right and how are you doing? Good to see you.
Bill: I’m doing great. How are you doing, Jimmy?
Bill: Thanks, Jimmy. I’m Bill Shopoff. I’m president and CEO of Shopoff Realty Investments and I’m here to talk today about our Las Vegas Dream hotel QOZ fund and I’m gonna pass through a couple of slides here. Obviously we have great disclosure slides and our risk factors, which we can discuss when people get our PPM.
I want to give a little bit of a background on who I am, Jimmy. We’re a firm and we talk about we’re focused on determination, vision, and integrity. The company’s 29 years old and we have been partnering with selected institutions and investors looking for unique assets and trying to understand what unrealized value can find and potentially creating appreciation along the way. We talked about I founded the firm with some partners in 1992. I’ve since taken sole ownership back in 2004. I bought the last of my partners out. Proud to say that I’m actually still friends with my partners. We started as friends and ended as friends. And our focus is value add and opportunistic real estate. And we do a whole array of things, both land, commercial real estate, developments and actually distressed debt opportunities when that takes place.
Twenty-nine-year track record. I’ve actually done 1,025 full cycle assets. That is, we bought, you know, executed a business plan and sold those assets. But generally with the exception of some of our stuff that’s longer term, we’re generally into that kind of acquire, solve a problem and sell that asset. But we do have a number of assets that we’ve held long term both within the funds and the business and, you know, myself individually. But you can see on the lower right that we’re relatively short-term holders in most of our assets but obviously here in the OZ business we’ll be holding for the 10-year period.
I talk a little bit about this is that we do bring in an institutional coinvest so although we’re raising $200 million or about $175 million through our OZ, we have some institutional relationships that’ll come in both family offices and in institutions. They’ll come in side by side with this raise and take a substantial portion of it. So we’re not expecting to raise, you know, every penny of it through direct channels.
So I think we can skip that.
It’s a little bit of our value creation process, you know, buy it right. In this case, actually what we did is enter into a long-term ground lease with an affiliate. And the reason that we chose to do that is because we create… First of all, I’m on both sides of it and I can do a ground lease but I can’t do a sale to an affiliate so that the underlying land owner group took care of getting the entitlements, got that all cleared up or getting that we’ll get that finalized here next month. But we’ll enter into a 99-year ground lease. What that does is allows us for every dollar that we’re putting into the project is going to be available to be either depreciated or amortized. So we think that’s very favorable for the investors.
So here we can get into a little bit of the project. A hundred and eighty-six million dollar QOZ raise. We’ve got some renderings that we’ll share with you. And I’m not sure how much I need to cover about it but, you know, the fund will provide obviously all the opportunities to defer and reduce taxes from the QOZ benefits. I don’t need to rehash those because many people are on here because they already know what they are. But obviously you’ll defer some taxes, you won’t pay any taxes. But one that I think, you know, a lot of people are probably focusing on now, but were originally is the ability to basically convert our depreciation and make that basically evaporate through the no recapture under the QOZ rules. We think that’s very exciting.
You know, I don’t need to talk a lot about to sell Las Vegas. It’s a pretty dynamic market. It’s in full recovery. In the post-COVID mode right now you can see the Allegiant Stadium sited about eight-tenths of a mile from our site. We abut the McCarran Airport so our clients that come on their private aviation will literally be able drop around to the south and come up the Strip and we’re the first hotel that they would come in to. We are actually also talking to McCarran about a secured access gate where people could come in the back way adjacent to the Harley-Davidson dealership. And then you can see up the Strip you’ve got, you know, Mandalay, the Luxor, T-Mobile Arena, and then the balance of the hotels up the Strip.
So here’s a summary of our OZ. We’re a 506(c). We’ll have as much as 90% can come in and our family office coinvestments will come in on their own QOFs. Our minimum is $250,000. I heard the last speaker talk about it. You know, we’re open as well to talk about it. We’re averaging above that number today, pretty substantially above it, but we have taken a couple of investors below that on a case by case basis.
So obviously QOZ-eligible capital. Both short and long term capital gains. I think a lot of people are focused on, you know, only doing long term capital gains, particularly with the volatility and the big rise in the stock market there may be some people wanting to take some short-term gains and taking advantage of it. We anticipate distributions will begin in the first half of 2024 as we get the building up and opened. And then we would start those distributions through the period from the opening in 2024 on into when people are anticipating making that payment that they’ve got to make to pay their deferred taxes.
We’re anticipating that between cash flow distributions and refinance distributions, we think that we will have somewhere between 80% and 120% of their initial investment back to them. So, you know, fairly good cash flows once we get up and running. We likely will do an initial cash refinance to take out the construction debt but then we’ll do a cash out refinance kind of in that 2026 time period.
The structure of the investment is a 7% preferred annual non-compounding. And then after that, it’s a 7%… We go to a 75% sharing until we get to a 15% annual IRR and then it’s a 60-40 sharing. So it’s fairly straightforward. Project timeline on this is we’ll have the entitlements here in early September. We will expect groundbreaking in Q1. Spend the next couple of years, it’s about a 24-26 month construction timeline. And then we’ll open in late Q1, early Q2.
It’s like why would you invest in this? Well, first of all, I think it’s an unprecedented offering in the Las Vegas market. It’s an extremely dynamic marketplace. There’s no other OZE in Las Vegas of this caliber. We’ve got Dream Hotels as our brand. There’s a very limited chance that another development of this type will be coming online in the near future. Dream Hotels is one of the premiere, if not the premiere, lifestyle management company and they’re the contracted operator and manager of the project.
And a little word-play there but we have a dream team of real estate experts. Myself, my team at Shopoff Realty, a 29-year track record, as I mentioned. My partner in this venture is Contour Real Estate, which is a third generation Las Vegas real estate firm. We have a world-renowned general contractor in McCarthy. They just built the Allegiant Stadium and they built that for, I think, within 1% of budget on a $1.8 billion project. And then I was able to add in the last year a renowned industry veteran with the construction and hospitality development expertise, Bill Smith, and he joined as my senior vice president of design and construction. He’s a licensed architect but, you know, I could talk about his resume as being extremely robust but just down the street he built CityCenter for MGM, which was the largest privately-financed construction project in the history of the world at $9 billion and Bill brought that project in on time. DLR Group is our architectural firm.
Location, location, location. We’re eight-tenths of a mile to Allegiant Stadium. It’s home of the Raiders and an estimated 200 other entertainment events for the year. We’re 1.7 miles up to T-Mobile Arena for the Los Angeles Golden Knights. If you’re not following hockey, you come there, that’s one of the hottest tickets in town. It’s less than 2 miles to CityCenter, about 2.5 miles to Caesar’s and really right across the street from the Mandalay. We talked about the potential for private aviation access.
We do have an economic… We have a special incentive. We’re providing bonus units for the… We’re just about through the first $10 million of this raise but the bonus units in the first 10, $10 million will get a 10% bonus units and then this next $15 million will get 8% bonus units. And we can walk through that in greater detail, but that’s giving you about 50-100 basis points in additional IRR over the life of the deal.
We’re not going to spend a lot of time on this either, Jimmy, but we created the DLV Founders Club. So for people that invest in the dream, in our DLV QOZ at various levels, they’re going to get benefits and be treated like a VIP. Everything up to our top tier investors are going to get to actually design a suite and have it named after themselves. But it’s things like access to the pool, private label spirits and a number of other features.
This is our sources and uses, and I’m sorry this is formatting a little bit odd on my iPad. I apologize about that, but we’ve got about $345 million of debt, $186 million of equity in the project and, you know, that’ll go into, like I said, all into costs that will be depreciable or amortizable. So that really helps boost our after-tax yield on this project.
This is, you know, just showing kind of what’s going on. Obviously we’re seeing what’s happening with the world starting to be immunized and improving the COVID world. And this was a forecast done by CBRE Hotels recently, did it late last year showing where they expect that the hotel market across the United States is gonna get back. You see 2024 when our project will open is back above the rev par in ADRs of pre-COVID experience.
This is another slide showing that in by 2022 you can see gaming revenues back very close to where they were pre-COVID and the same thing, by the time we get open, we see a recovery of Las Vegas. And this is the same deal showing visitor volume. In fact, in 2023 we’re back at levels that visitor volume at and above where they would be pre-COVID experience and kind of robustly growing into us adding hotel traffic.
And then, you know, you had The Sands hotel selling their Las Vegas properties because they’re going to focus on their Asia-Pacific marketplace but you’ve got… Apollo was the buyer of that and I shared this quote. “This investment underscores our conviction in the strong recovery for Las Vegas as the vaccines usher in a reopening of leisure and travel in the United States and across the world.” Apollo’s a pretty smart group. They’re investing $6.25 billion into the Las Vegas hotel and gaming market.
One of the things I wanted to cover, and I’ll see a comeback with the CES coming back in January to a live conference. One of the things people ask about is, you know, that we will have a gaming component and we work through a process with our lawyers and accountants to do a condominium regime structure so that we can manage to run that within the QOZ process and stay QOZ compliant and we’ve actually got an opinion letter on that.
This is the group of folks that are going to be involved in driving this, Jimmy and myself, Brian Rupp, who’s been with me for 15 years, Bill Smith, my partner with Contour, Jay Stein. I’m actually getting ready to go have lunch with Jay. The Dream Hotel group and David Cooperberg and Michael Lindenbaum assisting him. Talked about Bill Smith, $18 billion-worth of construction.
So I’m going to talk about the project a little bit. A 5.25 acres. The project’s actually grown a little bit from what Jimmy talked about. Our documents talked about a 475-room hotel or 450, I think, is actually where we were. But we actually were able to do something that’s very unique. Bill Smith came in and reduced our cost and increased our room count and we’re now at a 525 room count and we’ve actually got our cost down to about $480 million. So things are moving in the right direction and we’ll be ready to break ground first quarter of next year.
We talked about McCarthy and DLR. McCarthy’s had considerable experience. They just completed the Circa Hotel in Las Vegas. They’ve been involved with MGM and a number of the operators around town.
So here’s just some renderings. We’re right by the “Welcome to Las Vegas” sign so when our people are doing their Instagram and Facebook slides, shots, they’ll be having our Dream property in the background.
Here’s another rendering showing that, you know, the site and really coming together. We’ve been working on that. Here’s our interior, our Cloud Bar, and this will be our lobby bar. We think this is gonna be a great place to gather and, you know, kind of in between the lobby and the gaming.
And again, Jimmy, I can close here with, you know, it’s a 506(c), $250,000 minimum, and you can use any type of QOZ capital. We’ll also take non-QOZ. We have a few people that are doing that but that’s certainly rare. And we expect to cashflow and have refinance proceeds that’ll be roughly 80-120% of initial capital invested. 75% after the 7 pref and a 15% annual IRR after the… up to the 15% IRR and then we go to a 60-40 structure.
There’s a good shot of our pool area. So that’s really coming together and I think will be a great revenue generator for us as the pool’s where the DJs are in Las Vegas.
Jimmy: That’s a good looking property you have there, Bill. I wanted to see if we could stop there and get to a few questions that we have. First question from me, actually kind of just a reflection on what this deal is. I mean, when I first read about Opportunity Zone and I started learning more about them I never would have thought I’d see a hotel and casino in Las Vegas be an Opportunity Zone property. I would imagine that this type of property might come under some criticism. I guess two questions for you. One, how are you able to avoid the question of this being a sin business that, you know, you do have some gaming in your casino? And two, you know, what type of impact is this actually generating? You know, when I think of Opportunity Zone properties, I don’t necessarily think of Las Vegas Strip. But maybe you could talk about some of the jobs that your building is generating.
Bill: Yeah. Let me talk about the sin business first. So what we did is we structured that the investment is structured into a two-part investment, a condominium structure and what we do is we will own the condominium unit that the casino is operating in but we aren’t in the casino business. We’ll actually be deriving rent from them. So that’s how we get our workaround on that is we’re not in the sin business. But, you know, we put a firewall between us and them and we spent considerable time with our law firm, Seyfarth Shaw and Baker Tilly and we managed to make both of those work and both groups are happy and we actually have an opinion letter on that. So that’s how we manage that.
I think on the, you know, look, there are certain places where I had to scratch my head and say, “Well, I’m a little surprised that that ended up in an Opportunity Zone.” And this census tract kind of comes up the south end of the Strip. Certainly needs some development, probably more further south than where we are, you know, in other types. But clearly there’s a spot along this area of the Strip that hasn’t been developed yet. So I think it does serve that purpose and we will have thousands of construction jobs and then thousands of permanent jobs. So I think from that standpoint it will have that impact on the community.
You know, does Las Vegas need another hotel? Well, we believe it does and we believe it needs a boutique hotel. And, you know, in any other market, 525-room hotel would not be a boutique. It’d be a major hotel. But in Las Vegas, it’s on the small side. You’ve got the Aria at 4,000 rooms. So this is a place where we think that people are going to come to experience Las Vegas at a more personal level of scale and size. And it’ll be a heavy food and beverage-driven hotel. Dream, that’s their specialty, and so we’ll have, you know, 40-45% of our revenues will be F&B related and we think we’ve got that figured out and we’re very excited about this offering and we’re very excited about our relationship with Dream and as well as our general contractor in McCarthy. So we think we’ve really got the bases covered, Jimmy. But, you know, it’s a thrilling opportunity for us.
Jimmy: Good answer there. Time for one or two more questions before I have to cut you loose, Bill. Katherine asked, she said she’s an individual investor, would like to potentially invest with you guys. Can she invest directly or does she need to go through a broker?
Bill: People can come directly to Shopoff. I’m gonna make this simple. You can email me. My email, I should have a slide with that but I don’t think I did. But my email is [email protected] and I’ll introduce people to our investor relations group.
Jimmy: Okay, good. And I just posted that email address in the chat if you’d like to reach out to Bill directly. Pat wants to know how much have you raised for the fund so far?
Bill: We’re just under $10 million. You know, we started the raise late last year but we’ve kind of had it on pause until we got further down on our approvals and now we’ve got things resolved. We had an issue candidly with the FAA and McCarran Airport and we worked through that and we’ve now gotten our conditional approvals from FAA for the project. There was some security concerns. We actually hired the top tier securities analyst or consultant in the country to work with the Airport Authority and we got through all of their anxieties and concerns and we’ll have a project that will be, you know, congruent with what their needs are as well as ours.
Jimmy: One more question. I’ve got to cut you loose in one minute here, Bill. We’re actually already a little bit over but one more minute here. How many construction partners do you have and how do you choose them and finally, how do you incorporate your fees into the fund?
Bill: So construction, we chose a different way to do this and we’re building this under a designed build contract with McCarthy. So all of the subcontractors and all the consultants all fall under McCarthy. And the reason we did that is because in a project as complex as this, we wanted a single point of contact because you end up with these finger-pointing sometimes in a complex project between the architect and the GC, one saying it’s the other person’s problem. And we said, “Well, we want to make it the GC who’s responsible and we want the building to be built on time and on budget.” That’s the reason.
And what was the second part of that question, Jimmy?
Jimmy: I think I may have cleared it out already. I’m sorry. Let’s see. Oh, how do you incorporate their fees into the fund?
Bill: So, you know, the GC’s fees is included in all in our construction. And then, you know, we have a construction management fee, you know, that’s part of our fees. And I apologize that I don’t know what that is off the top of my head. It’s a market rate fee though. It’s congruent with other people and I actually think it’s worth the lower end of that scale for what we see our competitors doing.
Jimmy: Very good. And just one point of clarification on your fundraising period, the date listed there said “12/31/214.” I think the 4 may be a misplaced footnote marker. Would you confirm what the date is?
Bill: Yeah, it’s the end of this year and we can extend it, yeah, the end of this year and we can extend it, yeah, the end of this year. It’s 12/31/2021. Sorry. I made the mistake of trying to run this out of PowerPoint instead of converting it to a PDF and my iPad did not cooperate today.
Jimmy: Fantastic. I think it worked out well enough anyway. So again, we didn’t get to all of the questions, Bill, sorry. But if you have more questions for Bill, I have to cut him loose now but you can email him, [email protected] It’s in the chat and get him there and, Bill, I’m gonna have to kick you off the stage because I’ve got the next presenter coming up but thank you for joining us today. I appreciate it.
Bill: Thanks. Thanks, Jimmy.
Jimmy: Fantastic. Fantastic opportunity there with Bill Shopoff.