In this webinar, Kirk Walton presents a casino and hotel conversion project in a Reno Opportunity Zone.

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Webinar Highlights

• Kirk’s experience in the OZ industry over the last several years.
• GPWM’s focus on rehab of distressed assets over new construction.
• Opportunities to accelerate and maximize depreciation expenses by using QIP and other incentives.
• History of the acquisition of Harrah’s in Reno, and the ongoing conversion to a mixed use property.
• Highlights of the Reno market, including rapid job growth.
• Live Q&A with OZ Pitch Day attendees.

Featured On This Webinar

• BestCities.org names Reno ‘America’s Best Small City’

Industry Spotlight: GPWM

GPWM Funds is a group of private equity real estate funds providing investors tax advantaged real estate investing with a purpose. The management team has decades of experience in real estate investment, tax law and investment management. GPWM invests with developers and real estate companies across the country, focusing on sound real estate investments that deliver attractive, risk-adjusted returns while improving the local communities.

Learn More About GPWM

• Visit GPWMFunds.com

Webinar Transcript

Jimmy: Kirk with GPWM Funds. Big fan of Kirk Walton. I think he’s brilliant, and this fund strategy that he’s utilizing here is quite interesting. Today, he’s gonna spotlight one particular Opportunity Zone project in Reno, Nevada. They’re transforming the former site of the Harrah’s Hotel and Casino in Downtown Reno into Reno City Center, which will be a mixed-use property, a lot of apartments, some office, some retail. Did I get that right, Kirk? Did I do that justice?

Kirk: Absolutely. Absolutely, Jimmy, fantastic. And if I could share my screen, I’ll walk you through where this Reno project fits into the big picture, and do a little drill down.

Jimmy: Kirk, without further ado, please dive in. Thank you so much for joining.

Kirk: Thanks, Jimmy. It’s great to be here. I always love Pitch Day, and I’ve done a lot of presentations. I’ve been active as a thought leader and fund manager in the Opportunity Zone space since day one. We’ve done 12 Opportunity Zone funds and have 15 projects so far across the country actively raising capital to continue to build out some of these projects. We’ll do a dive into one. There’s a lot of content on our website, GPWM Funds, which you can see here. And if you wanna learn more about us, there’s a tab over here, More, and In the News on the right side. And you can see some of the podcasts and interviews that I’ve been on under the Media section and the Webinar section there on our website. I mentioned we’ve done…here’s my team. This guy’s really handsome. The rest of them, yeah, they’re cool, but talk about Opportunity Zone funds and benefits of investing in Opportunity Zone funds.

And then you get to our projects and you can see some pictures and info on some of our projects. And if you wanna click on one you can learn a little bit more about them. The two that are in the funds that we’re raising money for right now are this Tacoma Tower project and the Reno conversion project. The other projects are already in other funds are various stages of completion. Some of them have gone to the point where we return to the funds from the project nearly all of the capital, like this Florida Sears conversion project. You can hear me talk about those other projects in some of those other podcasts I mentioned. I wanted to take this opportunity to show how one projects fits into our platform of funds.

Some of the hallmarks about our funds in general are we focus on more rehab than new construction. We have been buying distressed assets at discounted prices, repurposing them, and putting them back on the market in some new and improved form. We like rehab over new construction for some extreme tax efficiencies, especially with respect to qualified improvement property, which is a way you can accelerate the deductions of depreciation up front for your interior improvement costs. This Reno project, for example, we think will be able to have more depreciation deductions and passive losses than the cash into the project, which is really quite something when you consider that the depreciation is not taxed on exit in the Opportunity Zone fund. So that’s an enormous benefit, so that’s one of the reasons we like rehab.

I should also mention that we work with multiple developers. We don’t have our own in-house development, or construction team, or property management team, which allows us to have independence and no conflicts of interest. We advocate for the investors and we’ve been doing that forever. So one of our projects that’s in mid-transformation is this Reno city center project, and it typifies our approach across the platform. It was a distressed asset. We bought it from Caesar’s as they were merging with Eldorado and they needed to divest it because Eldorado and Caesar’s were in the midst of a merger, and Eldorado owns three other casino hotels in the vicinity right around the corner from this.

So they needed to dump this but they didn’t wanna sell it to another casino hotel operator, and we acquired it for an incredibly discounted price. It has almost 7 acres in total. These two city blocks, it’s about 6 acres. There’s another parcel, almost an acre, 6 blocks away, and it has three towers. You can see from this view, it’s got three towers. This one on the right side has 26 floors. These two in an L shape on the left city block are 24 and 18 stories, and then it has a 900-space parking garage, and the old bank building from 1910, and a bunch of old convention space, and casino space that’s being repurposed into restaurants, retail, a grocery store, things like that. Reno is one of the fastest growing markets in the country. You can see where this asset sits, in the center of town, a block from the river, a block from the baseball field, and 6, 7 blocks from the university. And this town has been booming. Some of the fastest job growth market in the country has been in Reno.

You can see, we’re about 25 minutes from the Tesla Gigafactory, and all of these shipping distribution center warehouses out here, as well as all the data centers and the tech growth. Reno is rapidly becoming a tech town, and so we love Reno, got a couple projects in Reno, and this one’s our largest. So what are we doing with this space? Well, the plaza is getting a complete facelift. The old bank building is gonna have office. The Starbucks is already open down here on the corner. The Parkway Tavern District and restaurants are going to be open later this year. In fact, there was a great article just last week from Jonathan Fine talking about what they’re doing here and how excited they are to open it later this year. This office space is now completed.

One of the neat things about bringing this project to your attention now is we’ve been working on this project since 2020 and it’s almost complete. The restaurant space is near complete. The office space has been converted. Some of these old hotel rooms are becoming apartments. Some of those are completed. We don’t have any occupancy there. We still need to finish off the corridors and some of the common areas before we can open those apartments, but some of them are ready to be occupied now, and the others are close to being finished. The hotel, we have a signed lease with them. The restaurant tenant is injecting $10 million to $11 million of their own money to improve their space. The hotel tenant is going to inject $20 million of their own money to improve this space, so we have a lot of capital backing this project.

We have encountered snags and challenges along the way, like all projects. We bought an old asset with buildings that were built over decades, which is part of the reason we were able to acquire it so cheaply. When the dust settles on everything, in the lot next to us they’re building four-story apartments to about $450 a square foot. All in, even after some cost overruns and unexpected expenses, when you remodel an old building sometimes you don’t know what you’re gonna get, which is why you can negotiate the acquisition price so cheaply, we’re still gonna be in the 200 bucks a square foot range, when new construction is in the 400 bucks a square foot range. And we’ve got 26, 24, and 18-story views that are just gorgeous. So there’s a list of interested parties who wanna rent in our space.

Tesla and other companies have approached us about renting apartments as executive offices. We have a lease with the university that’s signed for 85 of these 390 hotel rooms starting next month, where 85 rooms are gonna be rented to university students. And that’s a decent credit-quality tenant, the University of Nevada. So we’re working on finalizing that and hopefully expanding our relationship with UNR with this project. The hotel lease is for almost two times the revenue that we would’ve gotten if we had kept it in our model for apartments.

And so negotiating this lease, which we finalized last month, we have a final LOI in place for the theater. Underneath this hotel is the theater where Sammy Davis, Jr. performed. And our hotel tenant is tied to the music industry, and their plan is to bring in concerts at the baseball stadium that’s a block away as well as Sammy Davis, Jr.’s theater, which is here, and it seats 400 or 500 people, and do these concerts and attract additional revenue from the entertainment aspects of this project, which will also drive extra parking revenue from concert attendees. And they’ve booked our Sammy Davis, Jr. Theater for a minimum of 120 nights a year, so really excited about the improvements there.

In the grand scheme of things, the apartments will lease up very quickly. We’re not worried about that. The restaurant, Parkway Tavern, Starbucks…Starbucks already opened, Tavern will open in a couple months. Office space, complete. We lost our office tenant there. We’ve got another one touring it right now and we’re not worried about renting it in the space that we’re in. And this hotel is completely leased up, and we’re getting parking revenue from that. So we do have some areas that need to be leased up, but we’re gonna make money even if we don’t rent out the office ever. We have enough profit on this just from the hotel, and the apartment side, and the restaurant side of things.

We think when the dust settles we’re going in at maybe $260 million total cost, and total value at stabilization is in the $350 to $40 million, which means our debt is gonna be maybe 55% loan to value. If we levered it up and did a cash cash-out refi upon stabilization, we think we’ll be able to return all of the equity or most of the equity on a cash-out refi. And then, with our fund structure, you also have the ability to reinvest those distributions back into additional projects inside the Opportunity Zone, kind of like a Roth IRA reinvested into capital. And you’ll hear me talk about that on one of Jimmy Atkinson’s podcasts. So that’s our Reno project, taking this asset that is already built, and gorgeous, and solid bones, but giving it a new use, and doing it at an incredibly cheap price.

Jimmy: Terrific, and right on time there, Kirk. Thanks for sticking to the schedule. I’m gonna give you a couple minutes to see if we can field some of these questions we got from our audience. Jerry chimes in, “Congrats on the completion, nearly, of the Reno project.” Kirk, I know you know Jerry well. A few questions here from the audience and then we’ll move along. “Is the Reno project available as a single asset qualified Opportunity Zone fund if I wanna just invest in that, or is it only in the multi-asset fund? How is that structured?”

Kirk: That’s a great question. If you have a capital gain event in the eight-figure range, we can set up, and we have set up, six such funds for large families, single families, and bring them in directly into a single asset or multi assets, and we can discuss that. For our multi-asset funds, the minimum is 100k investment, and if you’re in that range, you’re gonna come into the multi-asset fund. But right now its competition is Reno and Tacoma. Both of these projects are in a very similar state, where they need an injection of additional capital because cost overruns, and higher interest rates, and need to restructure their debt, and that has created the opportunity. Some people have been invested in this since 2020, and so to be able to come in at this late stage, right before completion, is generally gonna be the highest IRR on investor dollars.

So it’s a good opportunity because of the challenges in the banks of lending, and things like that, out in the marketplace. And Jerry, thank you for the kind comment. It’s almost complete. We’re getting close to the finish line. Some will be open and placed in service this year, the rest, early next year. And it’s looking good. It’s looking really good.

Jimmy: Very good. I’m gonna combine three of these questions into one. Andy mentions, “Office and retail worry me.” We had another question saying, “Hey, I see the retail leasing is 31% pre-lease. Any concern that that segment won’t lease up on schedule?” And someone chimed into the chat saying, “What are you worried about, Kirk?” Because you mentioned you weren’t too worried about that, but maybe you can address some of those concerns, 60 seconds, Kirk, and then I gotta move onto the next presenter.

Kirk: I got it, Jimmy. Look, our main attractiveness of this asset is the apartments. And we took one of the towers away from apartments. We have been running it as a hotel right now, the 390 rooms, with no room service, no amenities, no nothing, and our revenue on that has exceeded our expectations, which has proved the concept that there’s value for this hotel still in the marketplace, which is what has allowed us to attract a hotel lease that’s a 35-year lease, triple net, at rent rates that are more than, well, almost double than what we expected to get from apartments. The rest of the apartments, the demand for housing in this town is still so high, we’re not worried.

Like I said, under our model we make money even if we don’t really lease out the retail or the office for that much. Yeah, office makes me nervous, too. I don’t like office, but we went into this because of the housing and the hotel. And there’s enough revenue in what’s been signed that we’re gonna be okay even if we don’t get an office tenant, which I’m not worried about in the long run because there has been enough interest, and somebody is touring it this week. And there’s another person that wants to tour it next week. It will lease. There is demand, but it’s not the main focus of this project. There’s enough revenue without that.

Jimmy: Well, it’s a good position to be in. Kirk, we have run out of time. I know we had a few more questions still floating around out there. If you have questions for Kirk, please email him. I just posted his email address in the chat. I hope you don’t mind, Kirk, but where to reach…oh, yeah, it’s on your screen, too.

Kirk: Not at all, and there’s my contact info up there on the right. Jimmy, it’s great to be here, and yeah, the benefit of buying things at a discounted price is you can absorb some of that. You don’t have to worry about maximizing and getting everything absolutely perfect. We’ll be okay. In fact, we’ll be great. It’s looking great. Thanks, Jimmy.

Jimmy: Very good, Kirk. Thank you so much.