Our Next Event: Alts Expo - October 4th
In this webinar, Chris Knoppe shares the opportunity to invest in urban redevelopment in Columbus, Ohio.
- Summary of the positive momentum in Columbus, Ohio, including recent announcements from Intel and Hyperion.
- A discussion of the unique incentives offered by the state of Ohio.
- How urban rehab is differentiated from ground up construction.
- Highlights of the recognition for Cbus both nationally and locally.
- A review of some of the assets that have been rehabbed in the current and previous funds, as well as previews of several assets in the Fund III pipeline.
- Live Q&A with webinar attendees.
Industry Spotlight: Cbus OZ Fund
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 Fund
Jimmy: Without further ado, I’ll turn it over to you. Thank you, Chris.
Chris: Perfect. Thank you, Jimmy. And hello, my name’s Chris Knoppe. I’m president and a partner at Cbus OZ Funds. For those of you who don’t know, Cbus is hip lingo for Columbus, as in Columbus, Ohio, and that’s where we’re located. First, just a quick disclaimer. We are presenting this offering under Rule 506(c) of Reg D. And to see the full details of our offering, please request our PPM on our website, cbusozfunds.com. I’m gonna spend the next 10 minutes explaining why our fund is an excellent opportunity for you as an investor. So, like I mentioned, we’re based in Columbus, Ohio, and we specialize in urban redevelopment projects in all of the residential neighborhoods surrounding downtown Columbus.
It’s in partnership with our operating company, New City Homes. We are property manager, home builder, and construction manager. So, a couple of things are important to touch on here. First, why Columbus? We’re gonna talk about the benefits of this fast-growing city. We’re gonna talk about some very unique additional incentives that the state of Ohio offers opportunities for investors that’s unique to the rest of the country and gives us a step ahead. And lastly, we would touch on, you know, why my team is worthy of your investment and managing it over the next decade. And we’ll close the presentation covering the terms of the offering and also giving you a view into the pipeline of projects that we already have well established. So without further ado, why Columbus, Ohio? I mentioned it’s the fastest growing city in the Midwest.
Many people aren’t aware of that. It’s the state capital. There’s [inaudible 00:01:54] Ohio state university, a massive amount of large employers that cover all different economic bases, and we have a growing startup. We have one of the highest percentages of young professionals in the country. Specifically, the city was one of only 14 in all of the country that added at least 100,000 residents since 2010, and that’s based on the last most recent census data. The population in Columbus Metro grew by 12% during that period of time and has over 2 million residents. And the region is expected to add 1 million residents by the year 2050. And important to note that we recently had two major economic announcements.
Well, one I would say beyond major, and the other is still big, and there is others coming. So, this forecast of adding a million residents was done before these recent announcements. So, what are those announcements? Just in January, Intel announced plans to build a mega-site on 1,000 acres outside of Columbus. It’s a $20 billion initial investment that’s expected to grow up to $100 billion and will total 8 leading-edge chip factories. This is expected to create 3,000 Intel jobs, thousands more construction jobs, and tens of thousands of permanent local jobs with the various suppliers and partners that Intel will use. Shortly after that, the company Hyperion, which is a car company in the hydrogen fuel cell vein, they announced a relocation from their headquarters in Orange, California to Columbus.
They’re investing $300 million to renovate a 65-acre warehouse where they will manufacture the hydrogen fuels cell stacks for their vehicles. That’s gonna create 700 permanent jobs. These are just very recent examples of why Columbus is attractive. And don’t take my word for it. This is what the CEO of Intel had to say about it. These factories will create a new epicenter for advanced chip-making in the U.S. It’ll bolster Intel’s domestic lab-to-fab pipeline and strength Ohio’s leadership in research in high tech. Ohio has a emerging venture capitalist segment and it’s just leading to a ton of technology investments. We have Google, Amazon, Facebook, all the majors are in central Ohio.
The CEO of Hyperion said, “We looked at many of the top leading states across the country. We looked for a long time and we went through the process of analyzing every piece, every metric, and Columbus had the perfect blend because it’s so diverse, from tech resources to manufacturing base.”
But let’s talk real estate. Why are we focused on urban redevelopment? The residential population in downtown has more than doubled since 2010, or between 2010 and 2020, via the census data. National and local population patterns show that people wanna live in a walkable and affordable neighborhood. The neighborhoods surrounding downtown are experiencing tremendous growth.
And the current housing stock in the urban neighborhoods is inadequate in both quantity and quality. Many of these neighborhoods were built 50, 60, even 100 years ago. And so, the housing stock is outdated and requires renovation. Strong demand exists for a vast revitalization of existing housing stock as well as construction of new housing, particularly in the workforce housing price category that appeals to the masses, and it’s currently undersupplied.
Local knowledge and operations is of huge importance when revitalizing urban communities, and that’s where our company comes into play. And before I get into that, I wanna touch on…I mentioned the tax incentive offered by the state of Ohio. It’s called the Ohio Opportunity Zone Tax Credit, and what it offers is for investors of funds that exclusively invest their money in Ohio opportunity zones, they receive an additional tax credit of 10% of their investment. That tax credit, if you’re in Ohio, can be used to pay your taxes, of course, but if you’re not in Ohio, it’s transferable, meaning you can sell it.
We’re on our third round of these tax credits. They just started being issued for the investors last year. Just were issued just starting today, actually. And we have a buyer lined up at 85% of face value. So, our out-of-state investors are all receiving, you know, 85% of their tax credit in cash. And it’s within the first year of their investment often within first three to six months, depending on your timing. So, It’s a nice little kicker.
Background on us. So, my partners are my two brothers, and we’ve been business partners since 2005. We co-founded New City Homes, and we participated in over 1000 real estate transactions together.
We have extensive experience in new construction, remodel, acquisition, finance, property management. We specialize, like I said, residential and mixed-use redevelopment within urban neighborhoods surrounding downtown. I wanna get to the meat of what our fund is doing. And so, I’m gonna jump through this slide, but it just highlights some of our experience. We’re recognized local housing and development experts. We’ve been featured in publications. We’ve won awards and not only locally but nationally. We’re a nationally recognized OZ Fund. I’m proud to share with you that, just in February, we were announced as a top 25 fund manager by opportunityzone.com. And the national recognition is nice, but it’s really about boots on the ground and also community involvement. This is our team at Cbus and New City.
Every month, we’re out in the streets, we’re picking up the neighborhood, we’re attending community events, we’re hosting round tables. We’re truly giving back to the neighborhoods in which we improve. It also keeps us in touch with the communities, and that’s vital because it’s all about connections to the community. We wanna make sure our projects fit within the community and improve the communities.
So, our office is located right in the middle of one of the largest opportunity zones in the Central Ohio area. And I personally live in that opportunity zone. I moved my family into the opportunity zone a couple of years ago. So it started with a simple mission as it was quoted in “Columbus Business First” magazine two years ago, “The opportunity zone tax incentives enable us to restore vacant and blighted residential properties back into productive use, thereby increasing the housing options available to residents, eliminating havens of crime, and preserving rather than replacing the vibrancy of our urban neighborhoods.”
So, we’re on our third fund now. We’ve successfully completed over 170 projects in urban OZ neighborhoods. Those range from single-family homes to apartments to commercial space. And we currently manage 285 rental units in urban opportunity zone neighborhoods.
Here’s a few examples of past projects we’ve completed. This one is a personal favorite of mine, not because of its complexity but because of really the symbolism involved or the impact that we’re making. On the left, you will see the before pictures of three boarded-up houses. We acquired those strategically from separate owners, and we renovated those properties and they are now…two of them are rental properties and one has now been sold to a homeowner. But more importantly is what’s across the street from these properties. It’s a local elementary school. All the neighborhood kids would go to school and play on the playground. Their playground stares directly at these houses.
And prior to our renovation, the grass was overgrown, boards on the windows. There’s often trash in the yards. Some would even have squatters in the properties. So, instead of the kids viewing that sort of activity and atmosphere every day, they’re now looking at what I would call a more hopeful environment. And this was just a seed that planted early on. There’s since been properties all up and down this block renovated and as well as behind them. Here’s a new construction example. So on the left are the before properties boarded up vacant. One had squatters in it. The other one had flooded and was full of mold. Those were demolished, as you can see in the middle, vacant land, and then we started construction. We built five single-family homes on that site.
Here’s a 4-unit apartment building that we bought vacant. Three out of four units were vacant. One had a illegal tenant in it. And we went through the process to remove that individual. The property had code violation citations. We worked with the local city officials as we corrected those. And we did a full renovation on all four units. It’s now a cash-flowing rental property. Same thing on this four-unit, nearly identical situation. And here’s a commercial property. This was a vacant medical center that was…it’s on a main commercial corridor that cuts through a urban residential neighborhood. It was last used by a non-profit as a medical clinic. The non-profit no longer needed it. They consolidated their services elsewhere. And we purchased it from them and turned it into shared office space. It was converted into 14 private offices, 13 of those are currently rented to small businesses, and it generates $5,000 a month in income. And that’s an investment.
We have less than $300,000 invested into the building. I wanna touch on that though. We’re bringing new business into neighborhoods, specifically filling vacant properties with new businesses is crucial to the revitalization of these neighborhoods. And a lot of them have lost population for 50, 60 years. Many of the businesses have moved away, and it’s just been a downhill spiral. You know, that has stopped. We’ve been at this for several years now since the beginning of the Opportunity Zone initiative, and it’s gaining traction and it’s working. Businesses are coming, residents are moving, the neighborhoods have life again.
Here’s a warehouse example. This was a 5,000-square-foot warehouse that we purchased at an auction. The roof was caving in, the water was leaking through, there was mold in the finished space. We cleared that out, replaced the roof, enhanced the lighting, the electric, the plumbing, remodeled the office. And it’s now home to a maker space for the community. They hold community events. There’s a blacksmith that works in here, a leather smith, a copper worker, a jewelry maker, a pretty awesome creative environment. I’m gonna speed up so that we can get through this. But this is another example of a mixed-use building that we renovated into office space. And now onto Fund III. Fund III differs from Fund II in that Fund II was focused mostly on small housing units. So that would be primarily single-family homes and duplexes. While that was vital to buying the board of properties and renovating them and clearing out the blight in the neighborhoods and getting the population stabilized and starting to grow again, we now identified a need for additional commercial properties along those corridors of the neighborhoods.
So, Fund III is targeting not only commercial properties but also residential properties of a larger scale than Fund II, so these would be small and midsized apartment buildings as well.
I’m gonna skip through because I know we were limited on our time today. But this is a look at the project pipeline for Fund III. These are actual projects in our pipeline. They range from apartment buildings to mixed-use to small commercial to also some new construction where…I mentioned we’re a home builder. We can build residential and commercial. This is actually our first completed project in Fund III. Fund III opened last fall, and we had a very successful end-of-year fundraise. And the intent is to stay open for investment for several years as we continue to build our pipeline and grow our portfolio of assets. This was a 2,700-square-foot commercial garage. It has been vacant. Our innovation included a new roof, windows, garage doors, concrete apron, bathroom, heaters, then lighting. It’s now rented to a local non-profit that’s been in business for decades providing housing and other supporting services to allow homeless families to be self-sufficient.
A very similar building is a recent acquisition of ours, a 1,500-square-foot commercial garage, formally a car wash. That’ll undergo a similar renovation. This one’s an 18-unit apartment building. It was mostly occupied but long neglected by the prior owners. Our plan here is to immediately renovate the exterior, which will include replacement of all windows. We’ll renovate all the vacant apartment units, and, as the occupied units turn over, those will be renovated as well. This is less than three miles from downtown Columbus. It’s located on a major bus line and is ideal workforce housing.
Jimmy: Chris, sorry to break in. But we are running a little over. If you could wrap things up. I know we got one or two questions I wanted to get to also.
Chris: Perfect. Thanks, Jimmy. Same thing here on a 20-unit apartment building. Here’s an eight-unit that will be a full renovation and we’re currently undergoing due diligence of more than 50 units user portfolios of properties that range from apartment buildings to mixed-use to small commercial. And I mentioned new construction. This is a project that has only approval for 12 units. We’re also considering increasing that. This is the OZs in the greater Columbus area. Here’s the snapshot of closer to downtown. The circle is the downtown area. We’ve got sports arenas nearby. Our office is located there on the left. And those stars represent all neighborhoods that are target neighborhoods for investment.
Well, summary of the fund is gonna be a total of $50 million. We raised $7.5 million already and we match up our fundraising with our pipeline with the expectation of raising about $10 million per year. So we are not a megafund, but that is something that’s very manageable and works well with our hyperlocal concentrated investment strategy.
Minimum investment is a $100,000. The preferred return is 8%. Our total target return on equities is 3.1 times your investment in 10 years. I mentioned the tax credit. I think you’re all familiar with the federal benefits, and some important deadlines. So we’re open for investment right now. There’s various deadlines throughout the year depending on when your gain was incurred, but we’ll be open all year. And anyone who invests in 2022 is eligible for the next round of the state Ohio Tax Credits.
That wraps it up for me today. There’s our contact info. We have both company websites as well as social media pages for both companies. So please follow us and let me know if you have any questions. Thank you so much for your time today,
Jimmy: Chris. Awesome. Well, thank you. Thanks for participating once again on OZ Pitch Day. One question for you here. We got few, but we only have time for one, is the…does the sale of homes trigger a taxable event or can the proceeds be invested back into other assets within the fund?
Chris: Yeah, if an asset’s sold within a qualified Opportunity Zone business, you know, that sale will be a tax reporting event that passes through to the K-1, you know, depending on your structure. Our Opportunity Zone business is owned by the Opportunity Zone Fund, and the Fund is then owned by the investors, so there is a pass-through gain there. It is not our goal to sell the properties. So, I do wanna point that out. We are buy, renovate, and hold, or build and rent and hold. And then the sale would come at the end of the 10-year hold period. We have…with our strategy of accumulating a large portfolio of smaller assets, we then have the option to refinance and return capital, or we can sell all or some of the properties at that time. But if an opportunity of sale does come up, if somebody offers you a lot of money and you choose to sell it, you can certainly do that. That gain would pass through to the investors, but more than likely there’s enough offsetting expenses, mainly depreciation, which we do accelerate, that would offset that gain.
Jimmy: Very good. All right. Well, Chris, I’ll cut you loose there. Thank you again for participating and if you wanna follow up with Chris, please do visit their website cbusozfunds.com. I just posted in the chat a few moments ago and I’ll get his email address in there as well. Chris, thanks so much. Appreciate it.
Chris: Thank you.