The Opportunity Zones Podcast is now on YouTube!
In this webinar, Chris Knoppe discusses the investment case for Columbus, Ohio and how his OZ fund is improving neighborhoods through a hands on, boots-on-the-ground strategy.
- The favorable demographic and economic trends that make Columbus an attractive destination for capital.
- How the Ohio Opportunity Zone Tax Credit further enhances OZ returns, even for out-of-state investors.
- Backgrounds on the Cbus OZ Fund principals, and their focus on purchasing small properties and developing through a “hands on, boots-on-the-ground” approach.
- How Cbus OZ Funds is providing the overlooked “missing middle” in the multifamily marketplace.
- A review of some completed projects in previous funds.
- Q&A with webinar attendees.
Featured On This Webinar
- Chris Knoppe on LinkedIn
- CBUS OZ Funds
- Chris Knoppe on the Opportunity Zones Podcast
- Ohio Opportunity Zone Tax Credit
Industry Spotlight: Cbus OZ Funds
Cbus OZ Funds is a Qualified Opportunity Zone Fund specializing in urban redevelopment in Columbus, Ohio. The principles of Cbus OZ Funds are distinguished operators who continually identify investment opportunities and execute on redevelopment plans to benefit investors and the surrounding communities.
Learn More About Cbus OZ Funds
Jimmy: And next up is going to be Chris Knoppe right now. And he’s gonna be talking about the CBUS OZ Funds and what he’s doing in Columbus, Ohio.
Chris: All right. Well, without further ado, thanks for having me, Jimmy. My name is Chris Knoppe with CBUS OZ FUNDS. For those of you who are not hip to the lingo, CBUS stands for Columbus, as in Columbus, Ohio that’s where we’re located and that’s where we invest. A little bit of housekeeping, we’re Reg D, 506 (c) offering for credit investors only. Past results are not indicative of future results. Forward-looking statements make assumptions and contain risks. Please see the DPM for full details.
So as I mentioned we’re a qualified Opportunity Zone in Columbus, Ohio, our focus is urban redevelopment in the neighborhoods surrounding downtown Columbus. And before the coastal and southern U.S. Sunbelt investors tune out here, let me tell you first that Columbus is a compelling investment option. For one, Columbus is the fastest-growing city in the Midwest. Not only is it a fast relative to the Midwest, but it’s one of the fastest-growing cities in the entire country. So based on the most recent census data that just was released, there was only 14 U.S. cities that added at least 100,000 residents in the last 10 years. Columbus was one of those cities.
So the population in Metro Columbus continues to grow double digits, and it’s expected to add another million residents by the year 2050. We’re benefiting in a few different ways. We do have the stable Midwest economy. We are distribution hub, being centrally located to about 60% of the United States. We’re state capital so we have plenty of government jobs. We are home to the Ohio State University, which brings in massive amounts of young people. We have a very vibrant and innovative start-up ecosystem. We’ve had several unicorns exit in the last few years.
But, you know, more recently we’re benefiting from a lot of migration patterns. One of the really large cities are losing populations, the New York City’s, the LA’s, and they’re going into the secondary markets, which we’re one of, and on a related note, our cost of living is relatively affordable to a lot of other markets. So we’re seeing companies set up second headquarters here in our city.
We’ve got diverse job offerings. We have banking insurance, manufacturing healthcare, retail, a lot of food and beverage operators, so all kinds of things happening in Columbus. Why urban? We focus in neighborhoods around downtown Columbus. I mentioned how Columbus is growing. Well, the residential population of downtown Columbus has more than doubled in the last 10 years.
So, nationwide the urban dynamic is in flux right now post-COVID. I mentioned a lot of the larger metros, you know, the urban scene suffered during the pandemic. Well, that’s not really the case for the secondary markets. Columbus’s urban demographic continues to grow a group before COVID, a group during COVID, and it continues to grow after COVID. People want walkable neighborhoods. They wanna be able to live, work, and play, and that’s what our urban OZ communities offer.
Another reason to invest in Columbus is because it’s in Ohio and there’s something called the Ohio Opportunity Zone Tax Credit. For those of you who aren’t aware, this is a very unique program. The State of Ohio is the only one offering something like this, and it’s a quite compelling incentive and this put Ohio high in the rankings in Opportunity Zone investing. So the way it works is if you invest in an OZ Fund that invests exclusively in Ohio Opportunity Zone Property, you’re eligible to receive a tax credit equal to 10% of the amount you invest in that fund. Put it another way, if you invest a million dollars in our fund, you’ll receive a tax credit certificate of $100,000.
Now, for all the out-of-state investors, why this matters to you is because the tax credit is transferable, you can sell that for cash, and we can help you do that. In the past two years, we’ve helped all of our out-of-state investors sell their tax credit certificates successfully for a net between 70% and 80% on the dollar. So you invest $100,000, you get a $10,000 tax credit. And within the first 120 days of your investment, you’re putting about $8,000 cash in your pockets. That’s an 8% return cash on cash within 120 days courtesy of the State of Ohio. On top, that’s over and above what are our fund return offers.
So, I’ve told you a little bit about why Columbus, Ohio is a compelling investment option, now let me tell you, why you should invest with us? My business partners are my two brothers, Brian and Sean Knoppe. We’ve been partners since 2005. You know, we own a company called New City Homes here in Columbus, Ohio. We build homes. We renovate homes. We also do mixed-use and commercial properties. We grew up around real estate investors and home builders. We know the business inside and out. We’ve participated in over 1,000 real estate transactions, are well versed in all aspects of construction remodel, property acquisition, finance, and property management.
So we’re boots on the ground. We’re not a mega million-dollar fund that deploys money to a few selects, large developers who then in turn do a few select large projects. We buy a lot of small assets, and we get down and dirty, we renovate them. We’re making grassroots change in the urban communities that have been starved for new investment.
So, as I mentioned, we’re well-versed in all aspects of the business, we’re hands-on, and we’ll be around for the next 10 years and beyond. We’re still young in our careers. Recognizes local and regional housing experts, we also speak national conferences, had been featured in variety of publications, received awards from Columbus Business First, mentioned in the columbusdispatchopportunityzone.com and several others.
A couple quick shots of some projects. I’ll get in more detail in just a few minutes, but here’s a quick snapshot of some new bills that we’ve done, some before and after remodels, as you can see, heavy construction, which goes well for Opportunity Zone projects.
Just as important is our involvement in the community. We moved our office into an Opportunity Zone in 2018. I personally moved my family into the same Opportunity Zone. That’s where I’m sitting here today. I walk to work every day. I live flour blocks from our office, personally volunteer in the community. Our staff gives back in the community. And more important, we listen to the community. We wanna make sure that we’re doing projects that actually help, projects that are needed and wanted within the urban neighborhoods of Columbus.
So it all started as far as Opportunity Zone investing goes, we all know the history of that legislation. CBUS OZ FUNDS came about with a simple mission. The first one was our money. We sold some suburban properties, and we were looking to redeploy it into our urban neighborhoods. So we lost our first fund to test the waters with our multi-asset/small asset strategy. It worked well so then we launched Fund II and invited outside investors.
By the way, we raised that during COVID, closed it successfully at the end of 2020. So we had our first fund in 2019, second fund in 2020. Fund II has completed over 20 projects to date. And now we’re on to Fund III. Fund III is gonna be bigger and better than Funds I and II. So Funds I and II, we’re single-family homes, duplexes. We did a couple of four-units, really, small residential assets. What we identified is now they need to tackle some of the commercial corridors within the Opportunity Zone neighborhoods. So we’re gonna bring some businesses back to the neighborhood, some small business job centers, and at the same time, continue to grow the population base with some small multi-unit development.
So very complimentary to Fund I and II, Fund I and II tackles the blighted properties, the boarded-up houses that then in turn reduces crime and improves safety, makes the neighborhoods more inviting, gets more diverse incomes and buying power, which then, in turn, can support the retail businesses.
Quick little tour of our projects to date. This is a personal favorite of mine. It’s right down the street from our office and across from an elementary school. This was three separate houses. One of the first ones we did, we acquired all three from three different owners. And they were boarded up, vacant, blighted, the before pictures are actually complimentary of the state, the true state of the properties. There were overgrown grass weeds, beer cans, and whatnot, in the front yards and every day the kids on the playground would have that to look at. We now have them renovated, stabilized, cash flow in rental properties, and it’s turned the block around.
This project was five new builds that we did in a gateway street into an OZ neighborhood. There was two vacant lots and three vacant houses. Two out of three houses had squatters living in them, plumbing stolen. One of them flooded. There was mold, rats, all kinds of stuff. We tore them down, rebuilt five brand new homes. There’s a four-unit, three out of four units were vacant. The one that was occupied was a spotter. There was drug activity, the city had code enforcement action on this. There was an environmental case pending. We stepped in, mitigated all the issues, renovated the units. It’s now cash flow on rental.
Similar case on this one, this was another four units, you know, pretty much the exact same type of outcome. I know I’m short on time so I’ll keep coming through here. This one a little different, and this leads me to Fund III. So this was a vacant medical clinic on a main commercial corridor within an OZ neighborhood, just outside of downtown. And we took these medical offices, it was all chopped up. We made it into 14 private office suites today, and these suites happened during COVID, by the way. We have 13 units currently rented to small businesses. So we have 13 new small businesses renting from us here, we’re bringing in income of $5,000 a month. And our total cost for purchase and renovation was $285.
There’s another commercial example, it was a vacant warehouse that we bought. It was distressed. The roof had gaping holes in it so it was flooded in mold and all kinds of stuff. We put on a new roof. We cleaned it up. We brought in actually a blacksmith. It’s in our makerspace. He subleases to a leatherworker, a coppersmith, and a jewelry maker. And they teach classes to the community. They also make their own goods and [inaudible 00:11:21] festivals. They have community events, they also have an online presence so bringing more business into the neighborhood.
Last but not least, this is our office building. So we bought this one. We renovated it. We occupy one level, and we brought in a salon who had outgrown their space in another neighborhood. We brought them in. They specialize in curly hair. They took the whole space and their business is booming. Property was vacant before.
So we’re launching Fund III now as I stated with the focus on scaling up slightly based on Fund I and Fund II’s activities. So those funds will continue to buy the boarded-up houses and duplexes, and Fund III will now scale it up a bit to the small and mid-sized multi-units, both purchase and renovate and new construction, as well as the mixed-use properties.
Give me 60 seconds here, Jimmy. Local market experts were located within the core neighborhoods in Opportunity Zone. We’ve completed over 160 projects within OZ neighborhoods around downtown Columbus. Quick look at the Central High Opportunity Zones and then zooming in around downtown Columbus. Downtown is along the river curve, and as you can see, to the west of the river is all Opportunity Zones. That’s where our office is located, and east of the freeway is also all Opportunity Zone neighborhoods.
Here’s a pipeline project. We have fully approved 12-unit new construction infill. That is we control the land in the projects approved [inaudible 00:12:52] zoning so that’s lined up for Fund III. Here’s a quick glimpse at some other properties in our pipeline. We’ve got commercial mixed-use with apartments above. We’ve got workshop spaces. We’ve got what will be neighborhood pizza places and coffee shops.
So a little bit about our fund, again, the OZ Tax Credit, and raising a total of 50 million dollars over the next several years. It’s open to accredited investors. I discuss the strategy quite a bit. Minimum investment’s $100,000, and we have a 8% preferred return with a total target return over 10 years of over 3 times your initial investment.
All right, any questions?
Jimmy: Fantastic. Well, one question for you is, how do we learn more, how do we request subscription docs if we’re interested in investing? Where’s the best place to go for that?
Chris: Cbusozfunds.com. You can fill out the inquiry, a contact form, and we’ll shoot that right over to you.
Jimmy: All right, fantastic. We have one good question come in. Actually, Gary asked a couple of questions. I think we only have time for one. What I’m most interested in is that Ohio Tax Credit, I’m not in Ohio so it doesn’t really mean anything to me, but you said I could sell it and typically pick up 70% to 80% on the dollar, how was that characterized for tax purposes, that ordinary income, or reduction of tax bases in the fund, how does that work exactly for an investor who sells those credits?
Chris: Yeah, great question. So, if you use the credit yourself, there’s no tax consequence. If you sell the credit, the sales proceeds are treated as a capital gain so you can then in turn reinvest it and do another OZ Fund.
Jimmy: Fantastic. Okay, well, that’s a great answer there. So, for those who are interested in learning more, please do head over to www.cbusozfunds.com. Chris, sorry, we couldn’t get the video going for you. I’m not sure what happened there, but maybe we’ll get that sorted out next time. We do appreciate your time and for you partnering with Opportunity DB on OZ Pitch Day. Thank you so much, appreciate it.
Chris: Thanks for having me, Jimmy.