The Opportunity Zones Podcast is now on YouTube!
In this webinar, Lawrence Jatsek discusses three different OZ funds that CRE Development Capital has in the works, including funds focusing on the Cleveland and Phoenix markets.
Interested In Learning More About This Opportunity?
You can visit the Official OpportunityDb Partner Page for the CRE Opportunity Zone Fund to:
- View beautiful high-resolution images.
- Learn key details about fund and related projects.
- Request more information from the fund sponsor.
- An overview of CRE Development Capital and process, including the firm’s focus on multifamily, mixed use, and industrial deals.
- A ride through an Opportunity Zone in Cleveland, Ohio and an illustration for the potential for improvement in these areas.
- Discussion of the incremental tax advantages available for investments in Ohio Opportunity Zones.
- Overview of The Charleston Process in Las Vegas, including a flyover of the development site.
- Demographic and economic tailwinds that make the Las Vegas market attractive now.
- Overview of The Blue, a 25-story mixed use development in Phoenix that will include 233 hotels and 160 branded luxury condos.
- A flyover of downtown Phoenix, including the development site for The Blue.
- CRE’s partnership with the Arizona OIC, a non-profit community- based organization that has been meeting the needs of economically disadvantaged individuals throughout the community.
- Q&A with webinar attendees.
Featured On This Webinar
- Lawrence Jatsek on LinkedIn
- CRE Development Capital
- Ohio Opportunity Zone Tax Credit Program
- Arizona OIC
Industry Spotlight: CRE Development Capital
CRE Development Capital a real estate development and investment firm focused on mixed use, multi-family, industrial, and storage unit development opportunities in the U.S., including opportunity zones. CRE’s most recent acquisition is a luxury hospitality and high-end residential tower in downtown Phoenix, Arizona.
Learn More About CRE
Jimmy: Lawrence, There you are. Hello, sir.
Lawrence: Hey, Jimmy, how are you?
Jimmy: I’m doing great. We’re wrapping up day two of OZ Pitch Day. Thanks for running the anchor leg of this marathon relay.
Lawrence: Okay. Hello, everybody, how are you? My name is Lawrence Jatsek. I’m one of the managing partners here at CRE Development Capital, 30 years experience in building and developing and financing real estate with a proprietary due diligence process that’s implemented to accurately source and identify best-in-class deals on behalf of our investors. We’re an investment and development firm focused on multifamily, mixed-use, storage, industrial, and hospitality development opportunities in the U.S. and abroad, including opportunity zones. We aggregate capital via our family of funds to deploy into strategically located, deeply vetted commercial real estate development projects throughout the U.S. and potentially abroad. Why invest with us? Over 30 years of experience, I’ve mentioned it before, by each of our team members, our advisors and development partners including but not limited to real estate and project financing, real estate development and construction, capital relationships, partner relationships, project, and investments sourcing. We do the due diligence on behalf of our investors.
A little bit about our team, Mr. Alexander, 22 years as a senior VP at a wholesale banking institution with over $180 billion in assets under management. He spent a lot of time as an investment banker and financial advisor for professional sports teams, states, and local governments. He specialized in the financing of stadiums, sports facilities, and large transportation infrastructure, structured and managed issuances of over $10 billion in debt securities, and he has been the lead financial advisor or lead banker on 13 stadium and arena projects, including Tennessee Titans, Oakland Coliseum, Camden Yards and the new Boston Garden, as well as what is the Phoenix Sun Arena, which is now named Footprint Center. He has served as a lead financial advisor to the Bay Area Rapid Transit District, which is known as BART, on their SFO extension project as well as other general infrastructure and housing projects. I myself have been in real estate investment development for over 30 years as well. I’ve been the CEO of a general contracting development company, which included general contracting of complex projects and ground-up development, predominantly in the San Francisco Bay area. I’ve had substantial involvement in hundreds of millions of dollars worth of real estate assets involving high-rise, commercial and residential construction projects.
Just a quick view of some of the projects that we and our partners have been involved in, as you can see, there’s a lot of multifamily, live/work loft units, high-rise, stadiums, football stadiums, baseball stadiums, mid-rise, multifamily. A lot of experience in all aspects of the commercial real estate industry. Here’s a couple of our funds that we have active right now, we have our CRE Equity Fund, our U.S. Opportunities Fund, our Phoenix Opportunity Zone Fund, and our Midwest Tax Advantage also known as our Cleveland Opportunity Zone Fund. I’m sure you guys have, for the last few days, have spent a lot of time learning about these opportunity zones and why they were developed real quick. In case you haven’t, it’s 8,700 designated qualified opportunity zones. The designation at this point is final and no process to designate additional zones but we’ll see what happens as the program evolves. Qualified opportunity zones funds provide taxpayers with three main tax incentives, temporary deferral of recognized gains when eligible funds are invested in the fund, step-up in basis for investments held in the OZ funds. A post-acquisition gain receives permanent exclusion on the investment in the OZ fund.
And taxpayers must hold the OZ fund investment for at least 10 years. The 10-year holding period starts when the taxpayer first puts gain dollars into the OZ fund for equity. The exclusion applies to appreciation up through December 31st, 2047. Only gained from sale of investment in an OZ fund that was originally attributed to the investment of an eligible gain for which a deferral election was made is eligible for the gain exclusion. So, check with your CPAs and tax advisors to make sure that everything qualifies. A quick little illustration on a million-dollar gain. You know, if you realize that $1 million gain and invested into an OZ fund, you can claim the zero gain, at least until December 31st of 2026. If you get it in before December 31st of this year, you can get a step-up in basis, 10%, which basically is a 10% reduction on the gain. And by 12/31/2026, you’ll have a gain of only $900,000 and that’s what your tax will be based on. At that point, it’s eligible to be excluded post-acquisition, all the gains. And let’s just say if the investment sells for $3 million and you realize a $2 million gain, basically it will be a zero gain. So, there is a massive advantage here. You have a tax savings of…on this example, it’s about $476,000 savings and $3 million in realized gains, you’ll probably only pay about $214,000. That’s a massive difference.
So, what does an opportunity zone look like? Let’s take a little ride here, and this is a place in Cleveland that we’re targeting with our Midwest Cleveland Opportunity Fund and sit back for a second and let’s take a look.
Lawrence: All right. Well, I hope you enjoyed the ride. This is an area just outside the core of downtown. We’ll back up here. Well, let’s start with right in front of us. This is gonna be a brewery called the BrewDog Brewery. And they have a pretty cool concept. They’re gonna have a dog park as part of the brewery with a lot of…basically a playground for dogs and all their owners. And so, this is kind of gonna be the start of this area’s redevelopment and kind of an anchor to attract multifamily and residents to the area. If we look over here this way, we’ve got…this property here is on the river, the river that feeds up to Lake Erie. And then we’ll go back even a little more, a little further here, and you’ll see that downtown has put a lot of walking and biking paths in. And this is just part of that trail. So, they’ve done a preemptive strike into the areas that they would like to see redeveloped. And so, there’s a walking and biking trail that goes all the way into the suburbs, and takes you all the way to the shores of Lake Erie. So, this is one of the areas that we’re targeting in Ohio.
This is what it could look like. You know, this is why we do opportunity zones. This is what we’re focused on. They’re not very pretty to begin with, but this is what they can turn into. And we’re really excited about this project and that’s why we’re targeting it. Our Midwest Tax Advantage Fund also known as the Cleveland Opportunity Zone Fund, to give you a little overview about this, Ohio, the Buckeye State, there’s a lot of compelling reasons to invest here. One of these is recently, and I’m not sure if anybody’s talked about this yet, but Ohio Governor Mike DeWine signed into law a state budget that renews funding for Ohio OZ income tax credit for a two-year term, which means investors can receive income tax credit of up to 10% of the amount invested into Ohio opportunity zone property. Now, investments of eligible gains obviously count, but here’s the kicker, ordinary after-tax cash also qualifies for the credit, and all of our funds except investments that are non-qualified capital gains. So, this is a very interesting concept, an example of what a state has been doing to attract capital investments into the area.
The tax credit certificate may be used for up to five years or transferred in whole on a one-time basis, meaning it can be sold for an immediate cash return on investment. However, the time is of the essence. The application period is in January of each year, and the tax credits are awarded on a first-come, first-served basis. Success has definitely happened here. According to the state public records, in 2020, taxpayers saved approximately $120 million income tax by investing into 73 opportunity zone projects throughout the Buckeye State. So, we’re coming up on a deadline, everybody knows about this, up to a 20% tax credit possibly. Invest eligible capital gains into an Ohio opportunity zone before December 31st, 2021 and receive possibly a total of up to 20% combined tax credit. That means 10% step-up in basis at the federal level plus up to a 10% tax credit from the state of Ohio. So, this could definitely be very interesting to a lot of taxpayers out there coming up here shortly.
Here we are…the project called Thunderbird that we like and are targeting. It’s 315,000 square feet with 315 residential units and 63,000 square feet of parking with over 300 spaces of parking as well. But, you know, a lot of people are gonna need cars in this area because all the progress that Cleveland’s making with trails and walking and biking abilities are fantastic. Jimmy, I know when we were in Cleveland, you made the trek from where we were staying down to the flats area to check that out and it definitely was easy for you to walk to and it took about 15 minutes.
Jimmy: I did indeed. Yeah. And it was easy to walk to.
Lawrence: Yeah, yeah. So, pretty much all the city is very walkable to all the amenities. Revitalizing the Rust Belt, here we are, Cleveland has been revitalizing its downtown area since the ’90s and more than $3.5 billion has been invested in the area since. Forbes ranked Cleveland as one of the top 15 emerging downtown cities in the country. The growth and redevelopment of the city have continued and with the designation of these opportunity zones, downtown is set to accelerate and is accelerating with robust revitalization. We just had a conference call with one of our valued analysts in the area and we continue…continually monitor what’s going on in terms of growth and development and what’s in the pipeline. And the area is really, really going nuts right now. The vacancies are really low, the supply coming in the pipeline is still being filled and there’s still room to be developed. So, that’s another reason we’re targeting this area. Cleveland today is viewed as a great example of revitalization and now ranks as one of the most livable cities in the country.
A diversified group of employers built on the foundation of a city that inspires growth and innovation and passion. It’s a very tax-friendly environment, so companies are being enticed to move there. Cleveland’s doing a lot of legwork to get more companies to move in. Cleveland Clinic is one of the top health providers in the world and is based right there in Cleveland, employs the most people in the area at this point, but Sherwin-Williams is hot on their heels. They’re putting a new headquarters right in the center of downtown along with a lot of outlying research and development buildings and close by in the suburbs. As you can see, there’s a great number of massive employers in the area, and continuing to attract more. Access to jobs, public transportation, restaurants, nightlife are just some of the attributes of these areas, there’s a refreshing cost of living. These neighborhoods provide a level of population diversity that is highly desirable. And I have to say it, Cleveland rocks.
So, a little summary of the fund. The fund intends on investing into several real estate development projects within designated qualified opportunity zones predominantly in Ohio and throughout the Midwest. It will be a multi-asset fund. Our initial raise, obviously $50 million, minimum investment, $100,000, and obviously open to accredited investors. Our newest fund, our U.S. Opportunities Fund. So, this fund will invest directly into commercial real estate development opportunities, real estate-related equity investments, and other real estate-related assets throughout the U.S. Targeted real estate opportunities will be added to the fund. The fund identifies best-in-class development opportunities and has completed a thorough due diligence. This is our first targeted asset in this fund. This is in Las Vegas. This is called the Charleston Development. It’s a multifamily, 343 luxury apartments with about 8,000 square feet of street-level retail. We’re gonna take a little fly over the area so you can get a kind of a picture of what we’re looking at and why we like it so sit back and enjoy the ride.
Lawrence: Hopefully you guys enjoyed that next fly-over. We really love the area, and for a lot of reasons, one of them, the vacancy rate, 3.7% in a 12-month rent growth of 17.4%. And this is predicted to continue. There’s been very little residential supply for the past decade. And along with roughly 9,000 U.S. Air Force personnel who live, work and play in the area, Amazon, Bed Bath and Beyond and CDW have chosen to locate large distribution centers in Las Vegas, attracting even more in-migration, and this is just to highlight a few. Quickly on the fund, the fund intends investing into several real estate development projects within designated qualified opportunity zones, a multi-asset fund, and initial raise is $150 million with a minimum again of $100,000 open to accredited investors. Our next fund, the Phoenix Opportunity Zone Fund. Some of you may have been here for the last pitch and seen this, but this is one of our most prestigious projects that we are raising for right now.
This fund is a single asset fund formed to invest in the development of The Blue, a 25-story mixed-use project located in Downtown Phoenix, Arizona. The development is a 700,000 square foot, 25-story tower with a 233 key five-star or Category 7 luxury hotel, and approximately 160 branded residential condo units. At this time, we are in contract with our hotel operator and our flag and so we are waiting for them to make their public announcement about this in conjunction with the Downtown Phoenix. Investors can ask me what it is on a one-on-one basis and I’m happy to share more details. Location, we are right across from Footprint Center where the Phoenix Suns play, but three blocks from Chase Field here and catty-corner the Convention Center and CityScape, which was kind of the anchor building that started to kick off the redevelopment of Downtown Phoenix. If you haven’t been there, you really need to check it out. I have a lot of fun every time I go there. I actually love really staying in Downtown Phoenix. Ten years ago, roughly 10-15 years ago, there was not a whole lot to do down there that was fun and exciting.
And so the city of Phoenix has really done a remarkable job in attracting and redeveloping the area. We’ll do a little fly-over. I actually got to ride in this drone. It was much bigger than the other one that we hired for the Vegas deal. But as we come into Downtown Phoenix, through the air, we’re coming over and through what they call the Warehouse District, which has been traditionally a lot of industrial, but all of this eventually is slated to be redeveloped. And this really sits to the east and south of our site. And as we come in for a nice landing, we will take a look at where our site lies in conjunction with the downtown area. And so, here’s Footprint Center, here’s city center, here are new office buildings, new apartment complexes. This is another new apartment complex that’s set to be delivered shortly. And our project will be right in this area here. And this will be the last tower south of…in the south end of the downtown area, as this is all considered in the flight zone and will…basically, we’ve preserved our views to the south and into the east, basically forever. So, this makes us a very compelling area, maybe one of the best in downtown. All of this will end up being redeveloped into more amenities and restaurants. If you haven’t been to the Footprint Center, they have a very cool sportsbook and sports betting is now legal. And it’s a lot of fun to be down there. So, we’ll go in for a landing and take us to the next slide.
This is what the nighttime looks like. It’s really exciting. Footprint Center here, they have roughly 300 plus venues a year. And that being filled along with the Convention Center and also the Diamondbacks stadium, Chase Field there, we’re anticipating that our occupancy rates will be higher than normal on a continual basis from stabilization throughout the history of the building once it’s up and running. The other great thing about this area is the light rail that’s being put in. This is gonna run from North Scottsdale all the way down to the South Mountains. The south of the mountains are back in this area here and it’s a big playground for runners, hikers, bikers, you name. It’s a massive, fun outdoor area, lot’s of parks and recreation. As you can tell, the construction has started with all the, you know, orange barricades and barrels. This is a look north near our site. This is, you know, underway. This is really exciting, our building and our site is right located to the left corner up there. And as you can tell, this is going to really start to drive even more traffic to the downtown area. We’re really excited about that light rail coming through for a lot of reasons, not only our development but all the future developments that are being planned.
As everybody knows, if you’ve read the papers and continue to monitor what’s going on in Phoenix and the influx and the rapid employment growth, which continues driving people to the area, and the increase in demand for housing is incredibly strong and is predicted to remain even stronger. I was at a conference and talking to a few people and some talk about roughly 25,000 residential units being under construction in the area, which they said is only about 25% of what they need. So, there’s a long runway for Arizona and particularly Phoenix to continue to develop. And these are just some of the massive employers here. Not shown here are a lot of the chip manufacturers that are moving into the area and literally billions of dollars are being spent on chip manufacturing facilities with all the onshoring that’s going on and particularly in the Phoenix area. We’re creating impact with this project, big impact. Partnership, this is a partnership with the intention of building a platform that will propel our Arizona OIC and its mission forever into the future. The building is named The Blue in honor of Mr. Gene Blue and the Arizona OIC. Arizona OIC has been making impact for over 50 years and since 1967, Gene Blue and the Arizona OIC has focused on addressing the critical employability needs of Phoenix’s economically disadvantaged residents.
They put over 65,000 through their program and placed more than 48,000 of those into meaningful, quality jobs. Their mission has been and still is to help the vulnerable populations of Phoenix to help themselves by providing access to education, career preparation, and skills training and job placement assistance. And The Blue will become a major employment center for the graduates of the OIC, which is something we’re very, very proud of. And we had initiated this before opportunity zones even came into play. So, our impact was on a road to success before opportunity zones gave us even more reason to propel this forward. So, our Phoenix Opportunity Zone Fund, a quick summary of the fund, it’s formed to invest in the development of The Blue, a 25-story mixed-use project located in Downtown Phoenix, Arizona. It is a single asset fund, the maximum raise on this is $100 million, again, the minimum investment is $100,000 and it’s open to accredited investors.
You know, all of our funds target areas of growth and income and business development. All funds pursue business development, investment-friendly states and local governments. And one thing we constantly do is monitor the states and local markets for new and constraining regulations that may be creating headwinds to development and growth. And we also monitor the state’s local markets for market saturations, etc. This is something that we constantly monitor throughout any area that we’re targeting. The basics of each of the OZ funds, I’m just gonna give you some quick highlights, they all are pretty much similar. And we kept them that way for a purpose so that the investors could choose areas if they wanted to, they could diversify how they wanted to, and without having to worry about differences in return. So, you know, we are the manager of the funds. We have a targeted fund IRR of 15%, a targeted fund equity multiple of roughly 2.5%. Obviously, the minimum hold period in OZ funds is 10 years, every investor get a tax statement K-1. And distributions is normal, payable upon a capital event as these are development projects. And capital events include stabilization, substantial sale, refinance, or other events that may provide capital for distribution.
There’s a cumulative non-compounding 6% preferred return to the investors and then we’ve structured the splits to be 90% to the members and 10% to the manager until the members realize 10%. And then 80/20 until the members realize 15%, which is our target. And then after that, if we’re doing really awesome, then the investors will get another split of 70/30. A quick recap. We aggregate capital via our family of funds to deploy into strategically located and deeply vetted commercial real estate development projects throughout the U.S. Our three OZ funds, Phoenix Opportunity Zone Fund or Midwest Tax Advantage Fund, also known as our Cleveland Opportunity Zone Fund and our U.S. Opportunity Zone…or Opportunities Fund. Reminder, December 31st, I know you’ve heard it a million times, but December 31st of this year is the time to get those gains into a fund to get that 10% reduction. And if you are so inclined to get another 10%, we have the option to do that too in our Ohio fund.
So, to learn more, contact us and join us at the end here in our breakout session. But here is our information, reach out and we’re happy to set up one-on-ones. And, you know, be on the lookout for some new announcements coming up as well. That’s it.
Jimmy: Fantastic. Well, thank you, Lawrence. Thanks for participating at the end of day 2 here, OZ Pitch Day Fall 2021. We do have one question for you that we’ll get to. And then we ran a little bit over, so I do wanna get the happy hour set up. I think everybody should have just received an email address with the happy hour…not an email address, an actual email. All of you received an email with the happy hour link in it and I also just posted it to the Zoom chat. It’s the same Zoom meeting that we’ve been using for all of our breakout sessions throughout the course of today and yesterday. So, please click on over that in a minute. But one question for you, Lawrence, before I wrap up the main session here. This one comes from Joel. He asks, why are you structured for the Midwest and not just Ohio? Won’t investing outside of Ohio disqualify the investors to receive that 10% tax credit?
Lawrence: Yeah, that’s a great question. So, first and foremost, we’re targeting Ohio. You know, we mentioned Cleveland, because Cleveland is our first project that we’re targeting, or there’s actually a couple of projects, but that’s one of the projects, we just don’t have enough time to share more. But Ohio, in particular, is our first go-to. And should we not find projects that are in Ohio that are compelling enough to meet the targets of our investors then, you know, we wanna be able to invest into some other projects within the Midwest that are also…would make…you know, meet those targets.
Jimmy: Fantastic. Well, I would encourage everybody to join Lawrence in his breakout session. It’ll be the same link that we’re using for the post-event group networking session. So, Lawrence, you should hop on over there now. And I know Chris Cooley at OZworks Group is gonna get that set up for you, that special CRE Development Capital breakout room for anybody who has any additional questions for you. So, I’ll let you go and then I’ll sign off, Lawrence. Thanks for joining us today, again. Appreciate it.
Lawrence: Great. Thank you, Jimmy. Great seeing you.