Miami Multifamily OZ Development, With SF QOZ Fund I

In this webinar, Liam Krahe presents a multifamily development project in a thriving Miami market.

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Webinar Highlights

  • Background of Liam and his partners.
  • Overview of the project in Miami in the arts & entertainment district.
  • Discussion of the Miami market and the OZs there.
  • Live Q&A with OZ Pitch Day attendees.

Industry Spotlight: SF QOZ Fund I

SF QOZ Fund I, LLC, is a private real estate investment fund investing in unimproved or improved real estate located in “qualified opportunity zones” (QOZ) in Miami-Dade County, Florida. Specifically, the fund is targeting properties in submarkets that have significant possibilities for capital appreciation, such as properties requiring ground-up development, redevelopment, or repositioning, with an emphasis on land entitled for multifamily rental and mixed-use development or existing class-c multifamily assets.

McCaffery Interests and Grand View Development Company are the development partners for this fund.

Learn More About SF QOZ Fund I

Webinar Transcript

Jimmy: This is the SF QOZ Fund. They are targeting the development in Miami, Florida. There’s Liam. Liam, how you doing?

Liam: Hey, Jimmy. Great to be with you today.

Jimmy: Great to have you here. Thanks for joining us. So, you have a 10-minute presentation. I’ll turn it over to you now, and then, again, as a reminder, next up after Liam is our panel discussion, “Why Invest in Opportunity Zones Now?” But without further ado, Liam, the time is yours. So, feel free to take it away when you’re ready.

Liam: Great to be with everybody today, and thank you for your time. My name is Liam Krahe. I am the co-founder and principal of SF QOZ Fund. We are a, currently, a captive QOZ Fund, based out of Miami, Florida. There is a link here to our data room, where you can access this deck, along with all of the information, using the QR code there. My contact information is here as well.

So, today, I’m gonna take you through just a description of the project that we’re currently working on in Miami, Florida. But before that, I just wanna give you a quick, brief overview of who I am, and my partner, David Cohen, and our development sponsors, Grand View and McCaffery. After I go through that, I’ll walk you through the details of our project, the offering, and then share some details or information about the market, the Miami market, and why we believe it’s the best OZ market in the country, currently.

Just to share some background about me, I am an attorney, licensed in Florida, also in Pennsylvania. I practice as an attorney, in real estate and securities law, handling complex commercial real estate transactions, and representing developers throughout the country, structuring their deals, and handling both acquisition, disposition, land use issues, structuring joint ventures, and packaging their security offering documents. My partner, who is not on the call with me, but is a partner of our fund, and also co-founder, his name is David Cohen. He is also an attorney, an expert in M&A, and real estate as well, and has over 16 years of experience in commercial real estate and mergers and acquisition transactions. I am also a member of ULI and ICSC, and actively involved in the Miami Community, which is where I’m based.

We are in a programmatic joint venture with two best-in-class developers. McCaffery Interests is a vertically-integrated, full-service real estate development company. They’ve completed over $3 billion in real estate transactions and have over 30 year experience handling complex multifamily transactions throughout the United States. Grand View Development Company is also vertically-integrated, full-service, has over $2 billion in transactional value completed, and also has experience handling complex ground-up multifamily transactions throughout the U.S., and including in Florida.

So, before I get to the project investment terms, it would be good just to take a look at the project, and where it is in proximity to other areas of Miami. As I mentioned, we are in the process right now of developing a fairly sizable project in the arts and entertainment district of Miami. That area is located north of downtown, and south of Edgewater, which is one of the hotter areas of Miami. It’s settled down, and a lot of the growth has transitioned to the arts and entertainment district. This area is also walking distance to Wynwood and other areas in Miami. We are excited about this opportunity, just due to the fact that there isn’t a ton of land available in this area for development. This was an off-market transaction, which we are proud to say, it took a lot of work, but we’re about to go under contract in the next day with the seller, so perfect timing, as far as the OZ Pitch Day. And then we’ll immediately go into due diligence on the project, and close within…well, we have a 90-day due diligence period, and a 45-day closing after that. So, this is just an example, or a good illustration, I’m sorry, of where the project is located in proximity to other areas in Miami. And, just, coming back to this slide here, this is the selected project and investment terms. We intend for this project to be 438 multifamily units, with ground-floor retail. There is a second phase to this project, but the first, this offering, is, and what we’re discussing today is for that first phase.

The total land size is 55,650 square feet, which is a fairly large parcel in this area. It’s effectively a city block. And so, again, it’s a fairly unique opportunity, given the lack of properties in this area for sale. The total project costs are $185 million today, that’s projected, and we are underwriting at a 50% LTC for the construction debt. So, we’re currently raising $92,500,000 in equity for this project. We view the equity raised, really, in two tranches. There’s an acquisition and entitlement tranche, and then there’s a construction equity tranche. It’s not to say that one investor can’t be in both tranches. You can. But it’s, our focus is on taking down this property in the next 120 days, immediately going into entitlements, and then going vertical with the construction. So, viewing the equity raise, we are currently focused on that $34 million tranche, for the acquisition.

To incentivize early investors, we are offering a 9.5% non-compounding cumulative preferred return, for that acquisition tranche, which will be 24 months. It will then be reset to a lower preferred return, at a 7.5% non-compounding cumulative preferred return, which will carry through, through construction, and then stabilization. The projected equity multiple is a 2.69, and will likely be higher with the OZ benefits. That is a non-OZ benefit equity multiple. So, one thing to note there. And again, we’re fairly conservative on our construction financing, with a 50% LTC. You know, McCaffery and Grand View, they’re handling the underwriting from a development standpoint, and they pride themselves on being fairly conservative on their underwriting, you know, under-promising and over-delivering. However, it allows us also to have some room there, should we wanna increase that, if market conditions change.

This slide here shows, again, the location of the site, which I think is great. I’ll talk more about the location in a minute, but it’s a good illustration of where it is relative to the other areas of Miami. This road, if you could see my cursor, maybe not, but on 15th Street, that is the Venetian highway, one of the more scenic highways in Miami, that takes you directly over to Miami Beach, and then 395 is also a major highway, which takes you to Miami, a different area of Miami Beach. So, direct access to Miami Beach. On the other side of the slide, it just shows you a breakdown of our sources and uses for this initial entitlement and development, or excuse me, entitlement and acquisition phase. The total purchase price is $28,825,000, and that’s for the land, and we’re, in addition to that, we’re raising another $5,175,000 in soft costs, in total project soft costs. And one other note. For this initial tranche, we are seeking capital commitments before August 1st, 2024.

On this slide, you’ll see here the location, again, with some of the other growth in this area, some of the projects that are underway. This map has not been recently updated, as of a few months. I think it’s a few months old. But, one of the notable projects in this area that is underway is number 15. That’s Casa Bella residence. It’s a luxury high-rise condominium. You’re seeing several other multifamily projects that are under construction, that should be in the next year or two. That, we view that as a bonus to bringing attention to this area, as, you know, the growth continues to flow here. However, from our standpoint, we would be delivering when most of those units have already been absorbed. So, it’s a perfect timing for us, and we think that the market should be stabilized at that point as well. There’s a lot of multifamily coming on in Miami, but that’s really coming on in the next 12 to 24 months. There hasn’t been too many projects announced recently, compared to where it was a few years ago. So, we feel we’re coming in at a great point in the cycle.

Again, you could see from this view, just, the other major projects that are occurring in this area, but also just a different perspective. The other one was, the other, or this view, is looking west, so, east to west. And this would be looking north to south. And so, again, 15th Street takes you directly to South Beach, or excuse me, to Miami Beach, Sunset Harbor, and 395 will take you to South Point, into the South Beach area. Different area of Miami Beach. Actually, before I move on here, one of the other interesting aspects of this project, we were able to negotiate a fairly significant discount on the purchase price. I’m not gonna go into too many details about that now. We have a lot of information regarding that in our data room, that we’ll be happy to share with you, should you have any information, but it really serves as a risk-mitigating aspect of this project, from an investor standpoint. And we are doing some pretty cool and creative things with that, to allow for liquidity for investors at that time, at the 2026 time, and I’ll be more than happy to discuss that with any investors one-on-one, and to go into the details about that, and what we have planned.

Just kind of touching on a few other points, just on the market in general, which I think are important to note. It’s been national news that there’s been a ton of attention on Miami over the past few years. Several companies have relocated to this area. What’s interesting is, those companies, several of the companies that announced they were moving are now just, that, two or three years ago, are now just moving their workforce to Miami, which is resulting in, you know, an influx of additional residents. We see this as a tremendous, you know, benefit from a multifamily standpoint, you know, developer standpoint. There’ll be individuals looking for housing. One other thing that that plays into kind of the landscape in Miami, is, there aren’t too many single-family homes available. So, most renters will continue to rent, will continue to use their current residences, as opposed to looking for new single-family homes, or leaving, and finding another rental unit.

Some information here about that. One of the lowest occupancy rates. Miami has one of the lowest occupancy rates in the country, and we continue to see migration from the Northeast, and also the West Coast of the United States, which is driving demand. I think this is one of the more interesting market insights. The average number of days that apartment remains vacant, nationally, is 32 days. Miami, it’s 25. The average number of prospective renters competing for vacant apartments, the national average is 14. In Miami, it’s almost double that. Or it is double that. So, again, really, you know, interesting stats there, which, you know, being here, we see it every day, but from a national standpoint, it’s hard to explain, or hard to understand and feel. Again, I mentioned this earlier. Seventy-five percent of the renters renewed their leases in Miami in 2022.

Here are just some key acquisition terms about the deal I already mentioned. The purchase price, the location. So, again, just kind of recapping here on what we’re doing. We’re raising $34 million for the acquisition and entitlement for this project. That will commence in the 90-day due diligence period. We’re opening that offering up to the public today. And so, we’re now receiving capital for that initial acquisition and entitlement. At that point, once that is fully funded, that will open a second tranche for the construction and development equity, which will be significantly more. Closing will be 45 days after the due diligence period. Just a few notes on that. We’ve conducted a significant amount of the due diligence already. We already have a title. We already have environmental completed. We are just doing a few other minor… We’ll have to do a few other minor site inspections, related to the property itself. We feel great about where we are with that process. And so, we will use the remainder of that 90-day period to raise the acquisition and development capital, and all of the due diligence information will be available in our data room, should anybody have any questions regarding that.

And so, that’s the conclusion of our presentation today. I’ll open it up for any questions, and be more than happy to discuss this, again, if anybody wants to look into this, or has any additional items they would like to discuss.

Jimmy: Tremendous. Well, thank you, Liam, and thank you for being a member of my OZ Insiders mastermind group, as well as great seeing you and several of our other members in Chicago a few weeks back, at that dinner, and getting to know a little more about you and your deal. We’ve got a couple questions. By the way, we are gonna start our discussion panel, “Why Invest in Opportunity Zones Now?” in just a few more moments. That’ll feature three professional members of our OZ Insiders mastermind group, Andrew Doup, Jill Homan, and Coni Rathbone. We’ll get to that panel, “Why Invest in Opportunity Zones Now?” in just another minute or two, but I did wanna get to a couple questions here for you, Liam. First of all, Theresa asks, and I’ll answer, “Can we receive copies of these slides?” Theresa, we’re gonna put slide decks for most of our presenters up on our website, alongside the recordings of their segment, by tomorrow, so you’ll be able to view those at ozpitchday.com. Not all of our sponsors make their slides publicly accessible, but Liam I I forget, is your slide deck going to be shared, or no?

Liam: Yes. Yeah, so it will be available.

Jimmy: Okay. Very good. So, Theresa, hopefully that answers your question. Sanford asked, and you discussed this a little bit toward the end. I’m gonna lump this in with another question I got also. “Did you mention that this was an off-market transaction? What were the circumstances around that?” And then, “Also, can you discuss the entitlement situation and closing timeline/exposure?”

Liam: Sure. So, just answering the first question, it was off-market. We had a broker that we worked with for the past year, trying to find a project that made sense for us. We have been very diligent in our review of the Miami market, and what deals we were looking for. Miami has a really unique zoning and land use code. There are limitations on height, obviously, and densities, as most cities are, but they really limit the development in and around the area. And so, for us, we were looking for a deal that was in a transportation-oriented development zone. We were looking for a deal that was close to downtown and other, you know, major areas of Miami that were high-growth areas, where we could, you know, justify the rents that we have in our pro forma. And it turns out, there aren’t too many. And too many deals that make sense in the city. A lot of, you know, the pricing of real estate in Miami has not been adjusted, as other markets have. Hopefully, it eventually happens, but it hasn’t happened yet, and so, there are a lot of, you know, offers being made right now for deals that just don’t make sense. And for us, this one did, but it was brought to us by our broker, who spent the past seven months working with the seller, to package this deal and make it available to us, and really, this is, I’m not going to share too much. I don’t wanna violate our confidentiality agreement with the seller, but this was an institutional group, and they had done extensive amounts of due diligence on us, and eventually, we were able to come to terms on their offer. So, that was a long-winded answer, but I hope that answered the question. So, that was the first one. What was the second one, Jimmy?

Jimmy: Can you discuss the entitlement situation and closing timeline/exposure? And we are over time, so, very briefly.

Liam: Yeah. So, just quickly on that, entitlement period will be 12 to 18 months. We intend to expedite entitlements. Closing will be 45 days after due diligence. So, we have a 90-day due diligence period, 45-day close. We’ll then immediately move into entitlements.

Jimmy: Good. Okay. This one comes from Christopher, another fellow OZ insiders member, and he was at the dinner with us in Chicago as well. Christopher wants to know, “What’s the minimum investment?”

Liam: Hundred thousand.

Jimmy: Hundred thousand. Easy enough. And then, last question. And we’re over time, so if you can keep it under 30 seconds, that’d be great. “What’s your untrended yield on cost for the overall raise, or even broken down by each tranche, if that’s easier?”

Liam: 6.5.

Jimmy: 6.5. Very concise answer. I love it. Liam, we’re past time. I gotta cut you loose there, but really appreciate your support of OZ Insiders, and of OZ Pitch Day. Thank you for being here with us today. Really appreciate it. Thank you.

Liam: Really appreciate your time. Thank you, guys.

Jimmy: Excellent.