Multifamily Investor Expo - Feb 15th
In this webinar, Chris Knoppe discusses the unique combination of growth and stability available in Columbus, Ohio.
- Demographic and growth trends that are working in favor of Columbus, including the city’s status as one of the youngest in the U.S.;
- Expectations for substantial population growth going forward;
- Why Columbus is an attractive destination for a growing number of employers, including Intel;
- Additional tax incentives offered by the state of Ohio to Opportunity Zone investors;
- The need for housing renovation and construction in the Columbus market;
- The history of Cbus as a family business that handles property management, construction, and other aspects of the fund;
- A review of some of the success stories in the current and previous OZ funds;
- A summary of the fund offering terms, including target returns;
- 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: Chris is gonna be presenting the Cbus OZ Funds investing in Columbus, Ohio. There you are. Chris, how are you doing today?
Chris: Morning, Jimmy. Doing great. Hello, everyone. Thanks for tuning in today. It’s my pleasure to be kicking off today’s OZ pitch day. As Jimmy said, my name’s Chris Knoppe. I’m the president of Cbus OZ Funds. We’re based in Columbus, Ohio as our name may indicate, where we specialize in urban redevelopment projects in the neighborhoods around downtown Columbus. Our long-term focus is on delivering value to our investors, while improving communities by providing desirable and attainable housing solutions throughout the urban core of our city.
So, first off, why Columbus? Over the past few years, there’s been a lot of attention and focus on the Sun Belt states, warmer climates, growing cities, coastal regions as well. You know, it might come as a surprise to you to learn that Columbus is actually the fastest growing city in the Midwest, and one of 14 cities in the entire country that added over 100,000 residents in the past 10 years.
So, we have the same growth story, but we also offer the dynamic of stability. We’re entering some interesting economic times nationally with inflation rising. Interest rates going up. A lot of the high-growth tech cities are meeting some challenges. I’m gonna show you some statistics here shortly on why Columbus offers not only the growth aspect that investors are always looking for, but also stability and certainty in uncertain times.
Population growth in Columbus is, as I mentioned, continues to grow. We’re expected to add another million people between now and 2050. The area currently has 2 million people. So, that’s pretty significant growth. We also have a diverse and economic job base. We have a cheaper cost of living, which continues to attract new companies to relocate, or to open second headquarters here. It’s easy for them to attract employees when employees can afford housing. And a fun fact, we’re actually the ninth youngest city in the United States with almost half the population under the age of 35.
We’re home to the Ohio State University, the third largest university in the country. And a lot of those students are now staying in Columbus. We have a growing startup scene, venture capital, technology, but also a very well-rounded diverse employment base. So, here’s a couple of quick charts for you to highlight these points. As you can see, the population growth both in the metropolitan statistical area, on the left, continues to steadily grow even in the shaded areas, which indicate past recessions. On the right is the actual city limits, a more concentrated measure that also continues to grow steadily.
I mentioned a stable and diverse economy. So, the pie chart on the left shows by employment category, by industry. There’s not a single industry that represents more than 20% of our employment base. Yet at the same time, a lot of our jobs are based in government and education, and those industries tend to not shrink. They just get bigger. We’re also gonna be adding, I put the decal on the right-hand corner, Intel. Intel announced a huge plant coming to Columbus. It’s gonna be the largest in the entire world, as I believe. And legislation that was passed this weekend in the Senate is actually gonna support that and grow it even further.
So, the stable economy, the diverse employment base, that translates into a below-average unemployment rate. This chart shows that over a long period of time, Columbus unemployment rate is always below the national average. That’s a nice little buffer of support when things turn rough.
I mentioned the cost of living. So, on the left, you can see in various categories how Columbus compares to the national average. It’s cheaper to live here, especially in the housing category. So, the 13% below the national average, and the chart on the right shows the difference in your average…your median rent. National median rents over 1,400, whereas Columbus is under 1,200. That’s good for companies attracting employers. It’s good for investors. You know, there’s upside growth. We’re not limited by income when it comes to affordable housing.
Another good reason to invest in Columbus is because it’s in the state of Ohio, which offers a very unique and very lucrative opportunity zone tax credit incentive. So, this is something in addition to all the federal incentives. And like I said, it’s the only state in the country offering this. It’s a 10% tax credit certificate based on the amount you invest. If you invest $100,000 in our fund, you’ll receive a tax credit certificate from Ohio for $10,000. You can either use that to offset income tax in our state, or if you’re an out-of-state investor without a lot of Ohio income tax, you can sell that certificate.
So, for the past three years, our investors have had a 100% success rate obtaining these tax credits, and we have also helped a number of our out-of-state investors sell their tax credits, typically yielding about 80% of face value. So, for a $100,000 investment within year one, you’re receiving 8% return in cash courtesy of the state of Ohio.
So, those are a couple of points on why Columbus as a whole is a good market. Now, let’s talk about urban. Why are we investing in urban? Neighborhood revitalization is the way that we can meet demand. So, while the area as a whole is growing, the downtown and urban core is growing even faster. The residential population in downtown Columbus more than doubled over the last decade. And similarly, the neighborhood surrounding downtown are experiencing above-average growth.
The value proposition here is that most of the housing in those neighborhoods is outdated and poor in quality. There’s also not enough of it. So, our expertise in renovating housing, and building new housing is able to meet this demand and the lack of supply.
A little bit about the fund sponsor. So, my partners are my brothers, Brian and Chris Knoppe. We own a company in Columbus called New City Homes. We build and renovate housing. We also property manage. The three of us have been business partners since 2005, and together we’ve participated in over 1,000 real estate transactions. We grew up around real estate investors and home builders, and we know the business inside and out.
We do our own acquisitions. We do our own construction management. We do our own property management with the help of a wonderful staff. And it’s our boots on the ground that has given us a head start in Opportunity Zone investing, and specifically urban neighborhoods. That’s why we were a nationally recognized Oz fund. In January, we were named a top 25 Opportunity Zone fund by “Opportunity Zone Magazine.” That’s all based on local knowledge and expertise within our industry.
We’ve been recognized locally by a number of periodicals, been featured in the “Columbus Dispatch,” “Columbus Business First,” “Columbus Underground,” “OpportunityZone.com Magazine” as well as other investor groups. Equally important is our community involvement. It’s not only are we good at what we do with real estate, but we’re actually involved in the communities. We care about what we’re doing. It’s that passion that drives us. And I think that relates not only within our community, within our customers, and our projects, but within our investor base as well.
So, it’s this local market knowledge, that even predated Opportunity Zone legislation, we were doing projects within Opportunity Zone neighborhoods before they were even designated. But what the legislation has done is added fuel to our impact. In 2018, we moved our office to the largest Opportunity Zone neighborhood in Columbus. And the following year, I actually personally moved my family into that same Opportunity Zone neighborhood, just west of downtown.
It started with a simple mission. We were raising our first fund in light of the Opportunity Zone tax incentives, which were going to 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, that mission has continued to grow. Fund I was a closely-held fund. A lot of it was our own money. Fund II, we opened up to other investors, and continue to grow with that same mission focusing on housing renovations. And Fund III is now open with a slightly larger focus of mid-size housing projects and some small mixed-use.
To date, we’ve completed over 170 projects in urban Opportunity Zone neighborhoods. We also manage over 300 rental units in the urban neighborhoods around downtown Columbus. It’s that base that really tees us up well for Fund III. I’m gonna cover some of that quickly here, the couple of the projects that we’ve done to date. Like I mentioned, it’s been 170 of them, so this is just a few. I always lead with this one, because it was one of our earliest ones, and I think really embodies the impact that we’re looking to do.
These three homes were separately owned by different landlords. Two out of three were vacant. They had their individual issues, but important to note, they were across the street from a elementary school. It was actually the playground of the elementary school looked at these houses. The before picture here is actually must have been taken on a good day because usually the yard was littered with beer cans and broken bottles and tall grass and things like that.
We bought these using our acquisition skills, and bought from those individual owners. We renovated them. One is now owned by a homeowner. The other two are fixed-up rental properties, and it turned that block around. This was a five-house site. It was vacant lots and boarded-up homes, and we built five new houses in its place.
Four-unit building that was all but one unit was vacant, and that occupant was a squatter. The property had its issues. We fixed all those issues, and now it’s a cash-flowing rental. Similar with this four unit. This one was a commercial property on a vibrant corridor. It was sitting empty though. A nonprofit owned it. They sold it to us. We turned it into 14 private offices, and it’s currently generating 5,000 a month in income.
This was a warehouse project that we bought distressed. We turned it around. It’s now home to a variety of makers, a blacksmith, a leather worker, a jewelry maker. Who am I missing? A coppersmith. So, they hold classes, they teach workshops, and they also sell retail goods to the neighborhood. Last but not least, our office building. So, we renovated this property. We occupy one floor, and the other floor is rented out to a new local business.
So fund III, I mentioned is launched now. It’s focusing on slightly larger projects within urban neighborhoods. It’s seeking to complement the activities of Funds I and II, which are focused on smaller housing projects. Fund III will also target commercial corridors. Now that we’re bringing more residents back to the neighborhood, we’re providing more housing for population growth. We also think there’s a need for some commercial activity. So, that’s where the mixed-use properties come into play.
It’s a multi-asset mixed-use portfolio focused on housing. There’s a variety of factors why this a basket of smaller and mid-sized projects we feel is a better offering than a large mega project. Quick map at the Columbus area and Opportunity Zones, and then more focused in around downtown, which is symbolized by the circle in the middle of the map. The shaded areas are the Opportunity Zones. The stars are the select neighborhoods in which we target. Our office is located there at the new city logo west of downtown.
Quick look at our project pipeline for Fund III. Some of these are already purchased. Others are in contracts, and others are being built for construction. So, we have some apartment building renovations, some mixed-use renovations, and some new construction, both of small apartment buildings and single-family home clusters.
Here’s an offering summary. It is a Reg D 506 C offering open to accredited investors only, where we’re seeking to raise a total of 50 million over several years. To date, we’ve raised over seven and a half million. A lot of that has already been deployed, and we’re now accepting additional investment. More than likely, we’ll raise somewhere between 10 and 15 million per year. That’s a great amount for us. And focused on small and mid-sized projects within a concentrated market, we can efficiently invest that at above-average returns.
As we renovate the properties, they’re rented out. They’re refinanced. We return the money to the fund, and invest in new projects, continuing to grow the portfolio, and also the impact on our neighborhoods. The goal is to continue to grow the equity in the fund, and for the investors over the 10-year period, and ultimately return a target return to the investors of over three times their investment.
Minimum investment is a 100,000. Minimum hold time is 10 years. We’re open for capital gains and non-capital gains. And I’d like to again mention the state of Ohio tax credit as an additional and unique incentive for investing in our fund. We have a preferred return of 8%, and total target return of over three times your contribution.
Quick example of an investment in our fund. A hundred thousand dollars not only saves you up to 20% capital gain tax currently. Reinvested over a even the five-year period for the deferral will almost double that what you would’ve paid in tax. So, the tax is essentially paying for itself. You also receive the 10% tax credit from the state of Ohio, and that’s in year one. Can be sold for cash or used for your own taxes. And over 10 years, the compounded return grows to over three times your investment.
Couple of important deadlines to keep in mind. All year we’re open for investment. In early September, for those that have passed through entities, such as partnerships or S-corps, you’re able to invest your… you’re able to personally invest your pass through gain 180 days after your entity had filed its tax… Or should have filed its tax return on time. So, a lot of entities were March 15th, 180 days is I believe September 10th is a Friday. That’s the deadline for you to invest your gain from tax year 2021.
So, then end of year, of course, is an important deadline and for federal tax purposes, but also if you wanna be included in the current round of the Ohio Opportunity Zone tax credit, those applications will be submitted in early January and issued usually in late March. So, getting the money in by the end of the year gets it working, gets that tax credit for you.
That’s it for me. Cbus Opportunity Zone Fund III is now open for investment. You can call us, you can email us, you can visit our website, or follow us on social media. Look forward to speaking with you all soon.
Jimmy: Excellent. Well, thank you, Chris. We did have a few questions. I’m gonna have to have you answer those offline. I’ll make sure that we get your questions to Chris a little bit later today. But we’re overtime right now. So, Chris, I’m gonna have to get you off the stage, but thank you for presenting today. Always great to hear from you, and hear what’s going on in Columbus, Ohio. Thank you, Chris.
Chris: Great to be here. Thanks, Jimmy.