Our Next Event: Alts Expo - Dec 8th
In this webinar, Daniel Oschin reviews a unique Opportunity Zone project in Las Vegas.
- An overview of the Dream Las Vegas, a new project on the Las Vegas Strip;
- Review of the company’s multi-decade track record across more than 1,000 full-cycle assets;
- The resiliency of Las Vegas, as evidenced by room and occupancy rates and air travel;
- Other new drivers of economic activity in Las Vegas;
- Visualization of the DLV location amidst surrounding attractions;
- Status of a major institutional partner on this project;
- A timeline of major project milestones;
- Live Q&A with webinar attendees.
Industry Spotlight: Integris Real Estate Investments
Headquartered in Orange County, California, Integris Real Estate 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 Integris
- Visit IntegrisInv.com
Jimmy: Daniel, I see you. How are you doing? Good morning and thanks for being here with us today.
Daniel: Thanks for having us. I am Daniel Oschin, chief strategy officer of Integris Real Estate investments. Just a point of clarification, Integris is not a replacement for Shopoff. Shopoff Realty Investments, a company started by Bill Shopoff 30 years ago, is our parent company. Integris is one of the brands of our company and it is focused on our family office and direct high-net-worth investor business. So this is all part of that same 30-year-old company. And we’ll touch on the track record in a minute.
The product I’m going to be talking about today is the DLV QOZ Fund, which is the Dream Las Vegas Hotel & Casino development project on Las Vegas Strip in Las Vegas. I think it is, from my perspective, the most exciting opportunity zone project I have seen. And I think it might be the largest single opportunity zone investment fundraise that I’m aware – we’re raising nearly $200 million for a $500 million project. And that’s just about to come to a conclusion now.
A lot of very exciting things happening. I’m going to skip through all the disclaimers. There’s a lot of slides in here and I’m not going to go through them all. I will stop on this just to say, the company that we’re talking about today, Integris, which is a part of the Shopoff group of companies, has been around for 30 years, doing the same business for three decades. We have full cycle’d more than 1000 assets during that time, which means we bought, created value, and sold more than 1000 assets. And we’ve had very exceptional results during that time.
We are a company that focuses on creating value and then through that generating appreciation and wealth creation for our investors. And I would invite you to communicate with us after the fact and learn more about us as a company and other products we have. We have credit funds that provide fixed interest rates and other real estate investments. But for today, we’re going to talk about the Dream Las Vegas qualified opportunity zone investment.
I will mention here very briefly that if you put the Dream Hotel in the center of this slide here, the fund that we’re talking about today is investing in this, just a portion of the money. The balance of it is coming from an institutional partner, which I will talk about in a minute. I’m going to skip most of the information about Las Vegas. When we first started this project a couple of years ago, and we went into the pandemic, people were very concerned. I had one banker we do business with say that Las Vegas was never going to come back and that it had seen its final days. And that turned out to be the exact opposite.
Vegas is very resilient for a lot of reasons. Room occupancy and room rates in Las Vegas are at or above pre-pandemic levels. The Vegas airport just announced that they have their highest visitor volume, traffic volume at the airport ever not only just higher than recently, but higher than pre-pandemic levels significantly. The amount of people coming in and out of Las Vegas is enormous. And you can see the result of this in the investments that the major private equity firms are doing. You have Blackstone, you have Apollo, you have all these different groups buying up the entirety of Las Vegas. I mean, there has been enormous M&A and transactions along the Strip buying up the land, buying up the casinos, buying up the operations.
There is a tremendous amount of enthusiasm for Las Vegas. And that is because, and it isn’t shocking I don’t think to anybody, that the business there is robust and continues to grow through the addition of from originally was the Golden Knights, and now you have Allegiant stadium with the Raiders and all the events that happen there, concerts and other things. F1 just announced that it’s going to have an entire universe of things and races in Las Vegas. They’re talking about bringing major league baseball, just up the street from where we’re developing. They’re talking about bringing Major League Soccer and the National Basketball Association.
And then you have all these concerts and other things, and that has contributed what is already there to record-setting casino revenues for 16 months now. At the time of this, I think it was 13 months, but it’s actually 16 now. And Allegiant Stadium driving in the first six months of operation, a million visitors of which 40% said they wouldn’t even have come to Las Vegas if it wasn’t for what was happening at Allegiant Stadium. Each thing that’s added is adding to that.
So it’s an exciting place to do business. We are on Las Vegas Boulevard. And the question often comes, how could you have a QOZ, a qualified opportunity zone, in Las Vegas on the Strip? And the answer is, is we’re on the southern part of the main part of the Strip. We’re right on the very edge of a QOZ that surrounds the entire airport area and goes south. And the reason we’re in it is the land we’re building on is actually vacant, and so is a lot of the land or was a lot of the land around us. And so that all fell into a QOZ, which is great for you, great for us, but it’s kind of an anomaly.
I’m not going to touch much on QOZ benefits. My assumption is if you’re listening to this, you know what a QOZ is, but just super quick because this is relevant to what we’re doing, there’s a couple of things you need to know. Obviously, you can invest any kind of capital gains, short or long term, in a QOZ. And you can do that going back six months from when you booked your gain. But something critical here is that the depreciation, which in our case, depreciation is expected to fully cover cash flow. And our cash flow is expected to be very significant. That depreciation is not recapturable. So it’s in essence…your cash flow, it won’t be taxed. Your refinancings won’t be taxed. Your capital gains, in the long run, won’t be taxed.
Assuming a QOZ is successful in general, it is an enormous resource for creating wealth. But in our case, we’re looking at pretty significant opportunity for growth and cash flow. And we think that’s very important. I would also note for those of you who are listening who do not live in California, this entire entity is domiciled in Nevada, which means you would not be subject to California tax. I know there are a number of QOZs in California that are, we are not, you would just be subject to your state tax and some of the states adhere to the QOZ rules. So you’ll want to look for your own information.
Here’s a map of Las Vegas. And I’ll do a quick annotation here to show where we are. We’re here on the Las Vegas Strip. This is the Las Vegas Strip here. We are three-quarters of a mile to Allegiant Stadium, a 15-minute walk. Quicker than getting an Uber out of there at the end of a game or a concert. We will be the closest quality hotel to Allegiant Stadium. I mean, you can stay at Luxor, Mandalay Bay, they’re a little bit closer, but I don’t know, we don’t attract Mandalay Bay customers. Let’s just say that.
We’re caddy-corner to Mandalay’s Convention Center, which is the fifth largest in the world. We’re across the street from Bali Hai Golf Course. We are directly adjacent to the “Welcome to Las Vegas” sign. We’re just up the street from T-Mobile Arena. We’re not far from where F1 is going to go. They’re looking at putting here on the Tropicana Major League Baseball. We are adjacent to private aviation, including JetSuiteX, which if you’ve never flown them, it’s kind of like the Southwest of charter airlines. They fly all around the Southwest. They’re about the same price as any other airline, but they fly into private aviation, which makes it a lot easier to get in and out. They park directly behind our building.
Interestingly enough, I would note that, there was originally a perspective that we were on the far end of the Strip. Which if you know about Las Vegas, you could look at, for example, the Encore and resort world, and know that you can move a little bit up one way or another on the Strip and create a lot of opportunity. Those are very successful hotels. But what’s happened since we started is there are all kinds of hotels coming much farther down the Strip. Where we were originally considered kind of on the fringe of the Strip, we are now considered the south end of the core of the Strip and there are hotels and casinos that are coming online that are being built a mile or two miles down the road from us along the Strip. So the Strip is really coming along here.
This is $197 million of equity, in total a $500 million project. This fund is raising $25 million of it, but I would tell you overall, right now we’ve raised about $50 million of the $197 million. And the balance we’re expecting most of it to come from an institutional group. We have a term sheet in place with them, they’re finalizing diligence, and they will take all of the debt and all of the remaining equity with the exception of a sliver of about $20 million that we carved out with them so that our various groups, including people like yourself, have an opportunity to get in before this closes. I would tell you that, at this point, they have about 45 days left on their diligence, a little bit less. Assuming everything goes as planned, I would assume that this fund will close out in the next two to three months at the latest.
It’s, as I mentioned, eligible for long or short-term capital gains. It obviously will not have any cash flow. I know that’s a question you were asking the previous people. In this case, cash flow will not start until the building is built and occupied, but what’s important here to know…and that should be at the end of 2024, it should be fully built and we should have occupancy starting at that time, and we expect cash flow to start in 2025. But I would note that, unlike most QOZs, we already have our tenant in place. And in this case, it’s Dream Hotel Group. And I’ll talk about them in a minute. They’re on a 30-year contract to operate and manage this property. Now, that doesn’t guarantee room occupancy, but we do know who is going to be running the project and how that’s going to work.
The other part of this is there will be a casino under the QOZ rules. You can’t have a casino that’s owned by a direct ownership, so it’ll be done through a lease. And so we’re leasing to a third party and that lease is in place. So you have a lease with base rent and revenue sharing, and then you have the hotel component of it. And then the other thing we’re going to have is the largest billboard in Las Vegas. I believe it’s the largest billboard at 160 feet double-sided digital. You’ll be able to see it when planes come in and out, anybody going up and down the Strip, I think you’ll even be able to see it from the freeway. And it’s expected to generate very significant revenue. And just between the revenue from the sign and the revenue from the casino, that base rent, and revenue sharing, that should cover a very significant portion of our overhead, our base overhead mitigating a lot of the risk.
As I mentioned, we expect to start distributions in 2025. We expect them to be very significant. You can look at the offering documents and it has all that information. We expect that to be covered by depreciation. And in 2026, we’re anticipating doing a refinance and returning to investors a large amount of capital from that refinance, providing them with the money that they’ll need to pay their taxes on their original gains because, obviously, those are deferred but not forgiven. And we’re hoping by around that time, 2026, 2027, the investors will have the majority of their money back. It’s hard to say how much because obviously that’s a ways down the road and it depends on the lending environment and our income and other things, but we think there’ll be a very significant portion of capital return between cash flow and refinancing proceeds by 2026, going into 2027. There’ll be cash flow after that. And we’ll sell, in theory, 10 years after the project. You have to hold 10 years for a QOZ.
Here’s a timeline, which gives you a little bit of information. We’ve already got our entitlements approved. Our FAA approval. Our ground leases executed. Our groundbreaking actually occurred on July 7th. So we have broken ground officially, the governor, the mayor, all those people were there. You can look online. There’s a lot of news about that and video of it. It was very exciting. And we’re working, as I mentioned, to finalize the financing. We expect to start construction very shortly, groundbreaking starts with, obviously, grading and other dirt-related things and bringing in all the components to start the development. But we’re in that process now. We expect to finish construction by late 2024 and have an opening in Q4 of ’24.
Let me see where we are timewise. I think I’m going to run out of time here pretty quick. So why would you do this program? It’s not like any other QOZ I’m aware of. I don’t know of any investment opportunities on the Strip at all, but no QOZs that I’ve heard of other than ours. You have Dream Hotel Group, which if you don’t know them, I would take a look at them. There are a worldwide group. They have a heavy focus on entertainment, lifestyle, food, and beverage. They have a number of hotels under the Dream brand in Miami, or New York, Nashville, Hollywood, Qatar, all over the world. They also have other brands, a variety of things that they do in other brand names under their umbrella. And they have a knack for entering very tough markets and bringing in extraordinary revenue streams from their entertainment, food, and beverage. And that’s what they’re really great at. We’re super excited to have them be a part of this. This will be their flagship.
We are in partnership with Contour, which is a long-time Las Vegas company. We are working with McCarthy doing the construction. McCarthy built Allegiant Stadium and Circa on time and on budget. They’re phenomenal companies. We have Bill Smith working for us. He is a legend in this industry. He built CityCenter right up the street in Las Vegas, the largest privately funded project in American history, $9 billion, 18 million square feet. This is the Aria, Crystals, all those things that were built for Kirk Kerkorian. He knows just about everything you would need to know about doing business in Las Vegas and building hotels. He’s an extraordinary resource and he works for us directly. And we have a maximum price contract in place with McCarthy. So we know what our costs are going to be and our budget’s going to be, and we’re in this incredible location.
We have a founder’s club for those of you who are interested. When you come, you’ll be treated like an owner, which, again, I think is a big difference from most other projects of this kind is, you can own an apartment building and you can go see it, but here you can go enjoy it. They’ll pick you up. If you’re investing $250,000 or more, they’ll pick you up at the airport, you get front-of-the-line access, you get special privileges, potential room upgrades, credits, bonuses, private labeled alcohol, and invited to parties. And the more you invest, the more opportunities there are and more things. It’s not an economic benefit per se, but I think it’s very exciting to be able to go and really enjoy an investment like that.
Here’s some general metrics about the project. I think I would tell you to dig into the PPM for this, but as I mentioned, it’s a $563 million project and our maximum price contract is already in place with the developer and everybody else, the architects and everybody falls under them. So pretty much everything’s in place to make this project work. I would invite you to do some research on Dream Las Vegas and the project itself and the Dream Hotel Group. This project itself is going to be, 531 keys. There’s a question about what we’re going to do with one of the units, but call it a 530-key hotel, which makes it small for Vegas. Big everywhere else, but small for Vegas. It’ll have a casino. It’ll have all the bells and whistles you’d expect, but on a compressed scale so that there’s a lot of high octane energy, food, and beverage being driven from this project.
And here’s some architectural renderings. You can see the billboard sign in the forefront here. You can see the “Welcome to Las Vegas” sign. We’ll be right in every picture taken up the Strip that somebody takes and posts on Instagram. Here’s a view of the entry area. Here’s a view facing towards Allegiant Stadium. You can see how close it is. There’s also the pool deck there. Here’s some other just general renderings of what the hotel will look like. This is one of the suites on the top floor. We’re doing some very high stylized design. That’s kind of a hallmark of the Dream Hotel Group. If you go to any other hotels, very, very stylized, very hip. This tends to be a very wealthy, younger crowd, willing to spend a lot of money on entertainment.
Another view of the pool here, conference areas, and what have you. So I’m going to skip most of this stuff about Dream because we’re going to run out of time. And all this is in the presentation. You can breeze through yourself, but I will show you this map, which shows you where they are globally right now. There’s a couple of new things coming online. They do unscripted. They have a chapel brand and others as well. So they have hotels all over the place that they own and operate. And I think that pretty much covers it.
So I would just tell you that we’ve broken ground. Everything’s moving forward at a pretty high pace. We’re ending the final run of our fundraising here. And I think this is an opportunity unlike any other not just because I think we have a great project, but combining that with QOZ benefits, particularly in our environment where we have extraordinary depreciation to cover all the cash flow, I just think it’s something that’s hard to beat. So I’m happy to take questions. And if somebody could tell me how much time we have left, that would be helpful too.
Jimmy: Yeah. Well, I’ll help you with that. We’ve got a few minutes left before our next presenter is scheduled to go on at 12:40 p.m. Eastern Time. So let’s get to as many questions as we can here in the next three or four minutes. John asks, how does the hotel building design address the sound produced by airplanes taking off and landing it being in such close proximity to McCarran there?
Daniel: That’s a great question. We get that all the time. Two things, one, it’s a new hotel. It’s properly soundproofed. And if you’ve been in any hotels on the Las Vegas Strip, the air traffic actually comes up and down the Strip. There’s oftentimes more noise farther up the Strip than where we are. There’s east-west and north-south flight paths and we’re not actually directly in either. So we get I would call very modest noise. We did our groundbreaking and it really didn’t affect the groundbreaking, which was just out in the open. So the noise is more moderate than you would think, but there is noise. There’s heavy street noise from Las Vegas Boulevard. There’s noise from the freeway, which affects everybody on the Strip, and there are airplanes constantly coming and going.
So the hotel itself is soundproofed in a big way, but even outside of it, it’s been designed, like, the pool deck has a big wall behind it, which is actually the parking lot that blocks out a lot of that noise. And if you’ve been to a Vegas pool, even though it’s also got constant music blaring and it’s a party all the time and it just isn’t expected between Dream and McCarthy and all the people we talked to between the soundproofing and the design, there should be minimal noise pollution and within the facility, in the building itself, almost nothing.
Jimmy: Good. Steven asks, where does the institutional investor sit on the capital stack? Are they providing both debt and equity?
Daniel: They are. So in this case, this institutional investor is providing debt and the equity. As of now, the negotiation is it will be in the form of convertible equity. So they will take a large slug of the debt and that debt will convert to equity upon the completion of the project or a portion of the debt will convert to equity. And the balance will be debt. Our original plan was to have separate institutional equity and separate debt. And we negotiated a lot of those, but this gives us the best economics and the most flexibility coming out of the construction loan. And this arrangement we have is very accretive to the overall project. I would also note, and this is really important, that the institutional partner on the equity side is para pursue to these investors. So if they have, you know, 70% of the equity and investors have 30%, whatever’s being shared is being shared 70/30. They don’t have a priority distribution on their equity component once it converts.
Jimmy: A question here from Matthew, he asks whether or not CityCenter was a losing project. And he points to an article that points out that construction was $9.2 billion, and they sold to MGM for $2.1 billion. Any thoughts there, Daniel?
Daniel: I know very little about that project. It was obviously not ours. And Bill Smith, he didn’t own it. He just built it. It was built as it was supposed to be built. But I think you’re talking about Cosmopolitan or Aria or whatever it was, some component of it being sold out of it for another price. But I honestly really don’t know. It may have been a losing project. You know, Kirk Kerkorian, you know, his grand ideas, whether or not those worked, I honestly do not know. There have been a lot of losing projects in Las Vegas. The key to making money in Las Vegas is a couple of things. It’s proper underwriting to start. And it’s an adherence to that underwriting so you don’t have budget overrides to get yourself to where you are. And then having a plan of action that isn’t dependent on creating something that didn’t exist before.
Sometimes that works, and sometimes it doesn’t, but the ones that have failed have generally not been able to get their financing to get going, or they were just overly aggressive. And I would also note that a large portion of those tend to be mid-Strip, where you’re building something like Kerkorian was on the most expensive land. There’s a land trade. Our land is worth $70 million. We bought it for $20 million. It’s currently worth $70 million. And there was a land trade for roughly the same amount of land up the street for, like, in the mid-$200 millions. So when you’re paying much more money for everything, it becomes much more complicated.
I will touch on a couple of things I saw here just to be clear. If you contact us through this process, Ben Matheson, who is the head of our Integris group will be very happy to walk you through…we have recordings. He can walk you through all the details. It’s very easy to get that information. So we’re happy to help you with that if you need it. And as noted on the notes here, there is a recording. Other questions?
Jimmy: Well, we’ve run out of time, unfortunately. But I will make sure that we get Ben Matheson’s contact information shared via the chat. Daniel, I’m going to cut you loose here, but, please, if you have any additional questions, if we didn’t get to your question, if you want to learn more about Integris Real Estate Investments or specifically about their Dream Las Vegas qualified opportunity fund, please reach out to Ben. I’m going to post his contact information in the chat in just another moment here. Daniel, really appreciate you being here with us today. Thanks so much for sharing this offering with us.
Daniel: Thank you. Take care.
Jimmy: Thank you.