In this webinar, Chris Knoppe discusses the unique combination of growth and stability available for investors in Columbus, Ohio.

Webinar Highlights

• The focus of Cbus on providing desirable and attainable housing solutions in Columbus, OH;
• Review of the growing and historically resilient Columbus market;
• Summary of recent corporate relocations, including Intel and other big tech players;
• How institutional investors overlooking Columbus has created attractive investment opportunities there;
• Challenges in completing large projects in Columbus due to an outdated zoning code;
• The quick, profitable, and effective elements of an urban redevelopment strategy;
• A review of the unique state-specific tax credits available for projects in Ohio;
• Review of several of the assets in the Cbus portfolio;
• How Cbus engages with the community, and how that engagement is important from an investment standpoint;
• Review of the management team and their historical track record;
• 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 principals 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

• Visit CbusOZFunds.com
• CBUS OZ Funds on Facebook, Twitter, and Instagram

Webinar Transcript

Jimmy: Chris Knoppe comes to us today from Columbus, Ohio, and he’s gonna be presenting CBUS OZ Fund III, I believe it is. Yes, CBUS OZ Fund III, which is a multi-asset fund focused on residential real estate in Columbus, Ohio. So, Chris?

Chris: All right. Hello, everyone. My name is Chris Knoppe. I’m president and co-founder of CBUS OZ Funds. For those that don’t know, CBUS stands for Columbus, as in Columbus, Ohio. That’s where we’re located and that’s where we invest. We’re an opportunity zone fund specializing in urban redevelopment in Columbus, Ohio. We have a long-term focus of delivering value to investors while improving communities, providing desirable and attainable housing solutions throughout the urban neighborhoods within the downtown Columbus area.

Well, housekeeping first, we are a Reg D 506c offering for accredited investors only. Past results are not indicative of future results. And this document contains forward-looking statements that make certain assumptions and contain certain risks. For full details, please see the PPM.

Okay. For any investors out there sitting on gains and wondering, “In this current economic climate, where the heck am I gonna invest these?” By the end of this presentation, I hope that you’ll agree that our fund is a good place for you. And that’s for the following four reasons. This is what we’re gonna review today. First, the Columbus market. It’s a growing market, there’s strong demand for housing, and it’s also a historically resilient market. We’ll go into a lot more detail on that here in a few minutes. Next is our investment strategy. Renovating existing housing stock and also building new ones. It’s quick, it’s profitable, and it’s effective. The third is the management team. We’re seasoned local experts. And last, we’re in Ohio, which offers a unique state opportunity zone incentive called the State of Ohio Opportunity Zone Tax Credit. That’s very unique from around the country, Ohio is the only one that offers it, and it’s a tax credit equal to 10% of your amount invested in a Qualified Ohio Opportunity Zone Fund. We’ll also hit up the fund overview, and time-permitting, some question and answers.

So first, why Columbus? I mentioned growth. It’s the fastest-growing city in the Midwest. And beyond that, it’s one of the fastest-growing cities in the entire country. You might be surprised to learn that there was only 14 cities between 2010 and 2020 to add 100,000 residents. Columbus was one of those cities. The metro population grew by more than 12% during that period of time, and we have currently over 2 million residents. The region is expected to add an additional 1 million residents by the year 2050. What’s fueling all that growth? For one, we have a low cost of living where it’s under 10% of the national average. So, we’re benefiting from migration patterns away from larger, more expensive, and crowded cities. Companies recognize that. We also have a lot of universities, which I’ll touch on in a minute.

So, between a low cost of living and an educated workforce, companies are interested in locating here. We have robust job growth. We’ve recently been dubbed the Silicon Heartland because Intel announced a mega site project for chip fabrication, which is gonna be over $100 billion in investment in the coming years. Google, Facebook, Amazon, all the big tech players are adding locations here due to being able to hire engineers and the low cost of living. I mentioned all the colleges. We have a very young population so the startup and venture capital scene is also on the rise. We’re a top 10 millennial concentration city with nearly half our population under the age of 35. So we’re very young and vibrant. The median age is not quite 36 years old. And “Forbes” ranked us the number one opportunity city.

So, the growth is great but also you have to factor in supply and demand. So, Columbus currently has a strong demand for housing because, despite all of this growth, the creation of new housing units has not kept up. So, compare us to other sister cities in the Sunbelt around the coastal markets where right now they’re feeling a little top-heavy because they’ve been inundated with supply and demand is starting to wane. Columbus is the opposite. For the past 10 years, our city has been underbuilt. Between 2009 and 2019, our mayor recently pointed out, 140,000 new jobs were created, 300,000 new people moved to the region, yet only 50,000 new housing units were created. Even the next year, in 2020, where we hit peak housing production in the past 15 years, we still fell well short of demand. We’re also building significantly less than our sister cities. We built less than 12,000 housing units versus an estimated need for 14,000 to 21,000.

The chart on the right, the bar chart, the red bars represent sister cities with Columbus pointed out in green. You can see, to the far left, Austin built 40,000 new housing units last year whereas Columbus was less than 12,000. Now, in order for those numbers to make sense, Austin should be growing four times faster than Columbus, and that is not the case. Columbus should be building up to that green arrow, and we’re not. So what does that do? It creates a massive demand for new housing. It also means rents and prices are going up.

There’s a reason for this. For one thing, we’ve been overlooked in a large way by institutional investors, at least to this point. In recent years, there’s been more of it but, by and large, we’ve kind of flown under the radar. That’s a good thing for those of us investing here because the returns are good and there’s more upside in the years to come. The other reason is we have an outdated zoning code. It really hasn’t been updated in a significant way in 50 years, which makes really massive projects difficult to do. That bodes well for our investment strategy, which I’ll get into in a moment, where we build…we’re nimble, we’re small, we do a whole lot of small projects, a lot of renovation of existing housing stock, and building new housing, even single family homes or clusters of single family homes. That by and large skirts the zoning problems.

The third great thing about Columbus…so we talked about growth, we talked about the strong demand and need for housing, but it’s also a historically resilient market. So, in times of economic uncertainty, that needs to be factored. Columbus has a stable and diverse economy and employment base. We’re a huge logistics hub. We all know that logistics and supply chain are of utmost importance in today’s economy. And 60% of the U.S. population lives within 600 miles of Columbus. So, we’re a huge logistics headquarters. We’re a State Capitol, which brings plenty of government jobs, which also tend to be stable. And we’re home to the Ohio State University. It’s the number third largest college in the United States. And hence, even more surprising, 51 other college campuses are in our 8-county region. So we have16 Fortune 1000 headquarters in our region. And despite all that activity, no single industry represents more than 18% of the employment. And the largest, 18%, is professional and business services. You can see in the pie chart there. The next two, at 15%, each are government and education and health care. Both of those industries tend to be fairly resilient. Any cyclical industry represents just a small slice of our total employment base. You can see on the right, the notable employers, we have a lot of them.

So, that’s a little bit about the market. Now, let’s talk about our investment strategy. I mentioned that we both renovate and build housing. So I say it’s quick, profitable, and effective because, well, first, let’s talk about where we’re doing it. We’re doing it in urban neighborhoods. I talked about all the growth in the region, more specifically, the City of Columbus in the city limits grew by 15% over the last 10 years. That’s a higher growth rate than Nashville, D.C., Phoenix, Portland, Las Vegas, Houston, Dallas, and San Antonio. Even more dramatic is that in actual downtown Columbus, the residential population doubled during that period of time. National and local patterns are shifting residents towards walkable, transit-friendly, and affordable neighborhoods. That bodes well for the neighborhoods surrounding downtown Columbus. They’re all experiencing tremendous growth, and that’s expected to continue.

The issue is that the current housing stock in the urban neighborhoods is inadequate both in quantity and quality. So, strong demand exists for vast revitalization of existing housing stock as well as new construction, particularly in the market rate workforce housing price category that appeals to the masses and is currently under supply. On top of that, many urban neighborhoods are opportunity zones. They are low-income census tracts due to historical trends that are now beginning to reverse. And many urban neighborhoods have a local property tax abatement for new construction and new development. This is meant to incentivize development, to build new housing, to bring back old housing. And many of them are 15-year programs. This makes a lot of our projects not only feasible, but long-term cash flow works well because this is a 15-year tax abatement.

So that’s why urban. Now, we’ll talk about how we’re doing these projects. So, many of the houses are 60 to 100 years old. Houses, properties, mixed-use properties, all the assets are that age and they require full renovation. They have old electric. They have old HVAC systems, if any at all, old floor plans and old amenities, so they need to be fully renovated. And that renovation requires a significant improvement aspect of opportunity zones. Also, once fully renovated, they have lower maintenance, which works well for a long-term hold like a 10-year opportunity zone fund. By replacing everything up front, you’re bound to have less issues down the road.

Renovation of existing units is faster and less risky than a larger new ground-up construction time. So, we’re able to mitigate risks, we bring properties online faster. Our typical project is anywhere from 6 to 12 months, and if it’s a large project, it may be a little longer than that. And as soon as they’re completed, they start generating cash flow, the mortgage starts amortizing down creating additional equity, and we also start generating depreciation to pass through to our investors. And we try to generate as much depreciation as possible so that our investors can take that over a 10-year period and not have to recapture it when they exit our fund tax-free. We typically buy and renovate the properties for 75% of their completed value. So, over that 6 to 18-month project timeline, you’re creating an instant 25% equity gain. And then the equity grows over time as the mortgage pays down. And we’re not relying on it, but we fully expect the properties to appreciate as well.

So that’s renovation. Next is new construction. So, vacant in-fill building lots exists throughout the urban neighborhoods. They’re there because over time, dilapidated properties have been demolished. So, large home builders are not interested in building on scattered site in-fill lots, but a nimble opportunistic builder like ourselves can, and we will. We are. We have. So we will build, whether it be a single house for rent, or a cluster of homes for rent. And typical cost of construction is 80% of the home’s value. So, over a 6 to 12-month construction timeline for a house, and we can build many, many homes at one time, we’re creating 20% equity gain for the fund. Newly constructed homes and duplexes and small multi-units is the strategy here. And that construction satisfies a significant improvement requirement. And a brand-new home is also very appealing to tenants. They have the most modern floor plans and amenities and they also have the lowest maintenance possible for us as the owner.

Here’s a glimpse of the map. So, downtown Columbus is represented by the circle. That’s where the high-rise buildings, the 20-story office towers, and whatnot are located. All of the shaded areas around there are the urban opportunity’s own neighborhoods that we invest in. As you can see, more neighborhoods than not around downtown Columbus are opportunity zones. We’re active in all these neighborhoods and we plan on being active in the coming years.

Next is our management team. Why should you invest in us? Columbus might have a great story, we might have a great investment thesis, but who’s driving this action? We’re a dedicated and seasoned team of local experts. The CBUS OZ Funds is managed by myself as well as my brothers, Brian and Sean Knoppe. We’ve been business partners since 2005, and we co-founded New City Homes, which is our construction and property management company. We’ve participated in over 1000 real estate transactions in that time. We have extensive experience in all aspects of the business, including acquisition, new construction, renovation, financing, and property management. We specialize in residential and mixed-use redevelopment within urban neighborhoods surrounding downtown Columbus. And important to note, we’ve been doing this a while, we’ve been through different market cycles, but we’re still relatively young and will be in our place as management for the next 10 years plus.

We have been recognized as regional and local housing experts. We’ve been asked to speak at various events and conferences and investor meetings. We’ve been featured in “Columbus Business First,” “The Columbus Dispatch,” and several other periodicals. Equally important is our involvement in the community. Once a month, we do a neighborhood cleanup. Our staff and the community at large is invited as well to participate. Our next one is actually this Friday. We go around and we clean up the neighborhoods. We’re doing a canned food drive at the same event. Between volunteer and philanthropic activity, we try to give back as much as we can. Not only is that important to our mission, but from an investment standpoint, it’s also important to keep an ear to the ground and understand what the community wants and needs.

So, we have a micro-local market knowledge within the urban core. We were an early and active presence in the urban neighborhoods of Columbus as they start their revitalization. We’ve invested in these opportunity zone neighborhoods before they were even officially designated as such. Even our office is located on West Broad Street, which is in the heart of the Franklinton neighborhood, which is the most compelling opportunity zone neighborhood in the city, just one mile west of downtown. We have a robust track record of urban revitalization projects here in Columbus. We’ve completed over 200 projects in urban neighborhoods, ranging from single family homes, apartments, and commercial mixed-use assets. And we currently manage over 300 rental units in those same neighborhoods.

Here’s a few applicable projects that demonstrate our experience. So, on the left, before pictures show that there was a couple boarded up houses and some vacant lots mixed in between. In their place, we constructed five brand new houses and we sold those to homeowners. This was a vacant four-unit building that had been condemned by the city. We stepped in, cured the issues that the city had cited for code violations and whatnot, removed some drug activity in the property, renovated the property top and down. It’s now a stabilized rental property. Very similar situation here on this four-unit. It was in pretty decrepit shape before we purchased it. We did a full renovation. It’s now fully rented. This one’s a commercial building. It was a vacant former medical clinic. We bought it and transformed it into 14 private office spaces.

This was a 5000 square foot warehouse with gaping holes in the roof, flooded, of course. The office aspect of it had been moldy drywall. Tore that out, renovated it, cleaned up the warehouse. It’s now home to a makerspace. Blacksmith, coppersmith, leather maker, and a jewelry maker all share this space. Not only do they teach classes to the community, but they create their own goods for sale, both live and online. And last but not least, this is our office building. So, we occupy the second story, which we renovated, and the downstairs we renovated as well. It’s occupied by a hair salon that specializes in curly hair. So, that gives you a little range in the breadth of our activity in urban neighborhoods.

Now, where this met is, you know, we had this interest in revitalizing urban neighborhoods. We have this track record in local knowledge. And then came the opportunity zone framework, the incentive program. So, this was back in early 2020. “Columbus Business First” published this article about us. At the time, we were raising our second fund, which was our first fund for external investors. And we said, “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, that’s how the OZ funds aspect of our business started.

In mid-2019, our first internal fund began acquiring properties in the OZ neighborhoods of Columbus, mostly single family homes, duplexes, we did some four units. After we proved that concept, worked with our tax professionals and our legal team, we launched fund II and that was open to outside investors. And fund II was targeting in a larger way to remove the blight while increasing populations and decreasing crime to improve neighborhood safety and atmosphere. Again, fund II targeting houses, duplexes, four units, existing properties like that. So, after fund II closed for investment, we formed and opened fund III. And this fund is our current fund open for investment. It’s gonna be open for several years. This fund has a goal of raising up to $50 million over a several-year period and will focus on building and renovating housing and mixed-use properties of slightly larger scale than funds I and II.

So, whereas funds I and II were buying and rehabbing the houses, fund III will be building clusters of homes, buying and renovating small apartment buildings and small mixed-use properties. Little bit of track record performance. Today, opportunity zones are new to everybody, but we’ve been doing it as long as almost anyone. Fund I, I’d mentioned was internal, about 900,000 in equity contributed to that. This was our proof of concept fund. We’ve completed to-date 12 projects in that fund and grown the net asset value by 43%. Fund II, which launched in 2020, began acquiring properties. There was $4.3 million of equity contributed. That was raised over a 12-month period during COVID and to date has completed 40 projects. The NAV growth on that fund is 32% in that two-year period.

And fund III, now open for investment, it’ll be a several-year raise of up to $50 million. We’ll deploy it as we raise it. We have a robust pipeline where we match our acquisition opportunities with our equity raise, and we will build and renovate housing and mixed-use properties of larger scale than funds I and II. All this activity has led to us being nationally recognized opportunity zone fund. We frequently speak at industry conferences. And earlier this year, “Opportunity Zone Magazine” listed us as a Top 25 Fund Manager.

If that’s not enough, there’s another incentive. We’re located in the state of Ohio, which offers a very unique state income tax credit for anyone who invests money into an Ohio opportunity zone fund. The way this works, it’s applicable for both local and non-local investors. So, whether it’s capital gains or non-capital gains, the state doesn’t care. If you invest in our fund, and we in turn invest in opportunity zone projects in the state of Ohio, which is all we do, the state will give you a tax credit certificate equal to 10% of the amount you have invested in our fund. If you happen to be local and can use that tax credit to pay for your own income tax, it can be applied and used over the period of six years. If you’re not local, or you don’t have a need for the tax credit, it can be sold, generating instant cash returned to you in less than a year of your initial investment. So, that’s the actual form you get on the screen. That’s the certificate. And in this case, there was a $728,000 investment, and that generated a tax credit for $72,800. That tax credit can be used applied against your income tax, or it can be sold, and we can help you do that. We’ve helped all of our out-of-state investors sell their tax credits over the last 3 years, typically netting them about 80% of face value.

So, that’s the where, why, and how. Now, I’ll talk about our fund III overview specifically. So, I touched on all this. we are a Reg D 560c offering accredited investors up to $50 million. I talked about our strategy. There’s a minimum investment of $100,000. And our target rate of return for our investors is to do a little better than triple your money over a 10-year hold. If you stay in longer than 10 years, it will continue to compound at our target return of 12% annually. There’s a preferred return of 8%. We don’t receive any of the proceeds of the fund until the 8% preferred return plus return of capital is met. At that point, 85% of the proceeds still go to our investors until they hit their target return of 3x. Here’s a quick look at our project pipeline. And then Jimmy, if we have any time, we can open it up for questions. But that’s a real rendering of a project we’re working on right now. New construction houses in an urban in-fill area. Those are real apartment buildings that we have acquired and are renovating. Some are occupied or partially occupied and we’re renovating them as they turn over. Others are completely vacant, and we’re bringing them back to life. So, really exciting stuff in the pipeline for fund III.

Jimmy: Awesome. Well, thank you, Chris. Unfortunately, we’re over time. We don’t have any time to answer the questions, but I did put your email address in the chat. And I answered some questions by saying, “Reach out to Chris directly. He’ll get in touch with you.” Chris, great presentations. Thanks so much today. I really appreciate it.

Chris: Thanks for having me, Jimmy. Anyone’s welcome to reach out to me with any questions for the rest of the day or after. Here’s my contact information. Thanks, everyone.

Jimmy: That does it. Thank you, Chris.