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As we’ve previously written, we think Opportunity Zones hold tremendous opportunity for both businesses and real estate investors from both the commercial and residential side. As we’ve already seen developers in Philadelphia are changing their investments as a response to the creation of Opportunity Zones
Now we see a major investment in an Opportunity Zone coming from Amazon. The Intercept has an article from David Dayen and Rachel M. Cohen, Amazon HQ Will Cost Taxpayers At Least 4.6 Billion, More Than Twice What The Company Claimed New Study Shows, in which they mention how Amazon’s selection of Long Island City in Queens is within one of the newly created Federal Opportunity Zones.
The Amazon location in Long Island City, in the New York City borough of Queens, is situated in a federal opportunity zone…the northern Virginia site, in the Arlington neighborhood of Crystal City (which developers and local officials have rebranded as “National Landing”), is not directly in an opportunity zone but is virtually surrounded by other geographic areas that are.
Savvy real estate investors and business owners may see an additional boost from Opportunity Zones, as mentioned in the article.
Investment managers have been salivating at the chance to take advantage of opportunity zones. Special funds have been built to cater to people holding unrealized capital gains — such as Amazon employees with large holdings of company stock.
Not only could Amazon benefit from the opportunity zone directly in Long Island City, but Virginia employees with unrealized capital gains will have an escape valve next door to an Amazon campus.
As gentrification likely pushes out residents in the opportunity zones surrounding the northern Virginia site, Amazon employees who buy real estate could not only find a place to live, but also avoid unrealized capital gains taxes.
As the article mentions, we may see the 2nd wave of people look to take advantage of Opportunity Zones, and those could be the employees of businesses that succeed in areas adjacent to Opportunity Zones.
Those investors that are able to find strategic real estate investments in Opportunity Zones early, may see a faster appreciation once more people look to save money on their capital gains taxes.
One area not to overlook when looking to make a value-add commercial real estate investment, especially in the suburbs or rural areas, is to look at repurposing the parking lot. As we wrote before, if you’re looking to convert an office building into residential or another use such as a hotel, the amount of parking you need may drastically change.
One major corporation, I’ve always thought has invested almost too much money on parking lots in Wal-Mart. It seems Wal-Mart is coming to the same conclusion and is now looking to better use their massive parking lots. Dees Stribling has an article in BisNow, Walmart Plans To Redevelop Supercenter Land Into ‘Town Center’ Gathering Places, which highlights this change.
Walmart is planning to develop the land surrounding a number of store sites nationwide into town centers, or what it calls “reimagined centers.” The town centers will be located on land around Walmart supercenters that the retail giant considers underutilized.
Interestingly, it seems Wal-Mart is going to use the space to bring an almost experiential retail feel to the redeveloped space. Dees goes on to write.
The concept is flexible and will include the addition of restaurants, health clinics, day care establishments, gas stations, bowling alleys, food trucks, bike rental stations and driving ranges.
For example, the plan for a reimagined center in Loveland, Colorado, a suburb of Denver, calls for a two-phase development plan that will introduce new food, wellness and entertainment options to the site.
Walmart hasn’t released a lot of details about the specific tenants at the Loveland site, though it does say that Torchy’s Tacos, Wahlburgers and Wake & Bake will be among the food tenants. One of the entertainment features of the reimagined center will be a skatepark.
This is definitely a smart move by Wal-Mart as they look to continually redevelop themselves for today’s consumers’ preferences. Many real estate investors, can keep this strategy in mind as they look to redevelop older office buildings or retail complexes.
Noah Buhayar (@NBuhayar) writes an interesting article in Bloomberg, A Google in Newark? VCs Hit Snag in New Tax Break for Poor Areas, that shows Opportunity Zones may be great for local investors and real estate developers, but there is a potential snag for those looking to invest in potential high-growth businesses like tech startups or high-tech manufacturing.
One of the rules requires that businesses generate at least half their gross income within the distressed community or “opportunity zone” in which they operate. That’s fine for, say, an apartment building or a grocery store, but a disaster for a business hoping to manufacture a product to be sold widely, or provide services online.
The clause seems to be at odds with the intent of the legislation, which is to attract private capital to roughly 8,700 disadvantaged economic areas and create jobs. Treasury Secretary Steven Mnuchin has suggested that $100 billion could flow to opportunity zones. The Economic Innovation Group, a Washington think tank that helped push the idea, has called the incentive the most ambitious effort to spur investment in low-income areas in a generation.
The tax breaks are especially attractive for people looking for ways to minimize levies on capital gains. Investors can plow proceeds from the sale of a business, stock or other asset into opportunity funds, deferring those taxes until 2026 — and potentially reducing their liabilities by as much as 15 percent. If the funds buy and hold qualifying businesses or property in opportunity zones for at least a decade, investors can avoid paying capital gains on any of the fund’s appreciation altogether.
As great the potential Opportunity Zones offer, there are going to be a number of nuances to investing in Opportunity Zones.
For those accredited investors looking into investing in Opportunity Zones funds, I recommend keeping an eye on Steve Glickman. He is a highly connected investor and specifically runs an Opportunity Zones advisory firm, Develop LLC.
Even for those looking to make non-institutional investments in Opportunity Zones, keeping an eye on someone like Steve makes sense. Below is a snippet of why:
Steve is the Co-Founder & former CEO of the Economic Innovation Group (EIG), a bipartisan research and policy organization in Washington, D.C., which was the architect of the OZ program, the largest community investment incentive in U.S. history.
Steve is also an Adjunct Professor at Georgetown University, where he teaches on economic diplomacy & international trade in the School of Foreign Service. He serves on Georgetown’s Board of Governors & the Board of The NewDEAL.
Steve previously served in the Obama Administration — as senior economic advisor at the White House, where he managed trade and investment, manufacturing, and small business policy for the National Security Council & National Economic Council. Steve also served as Deputy Associate Counsel at the White House & Chief of Staff for the U.S. & Foreign Commercial Service at the Commerce Department.
From his mention in the Bloomberg article above to his instrumental part in helping Opportunity Zones become law, he is someone whose insight on OZ’s is sure to matter. As an individual investor looking to take advantage of large investments in institutional areas, it could be a good idea to follow what Opportunity Zone advisors like Steve are recommending.
As we’ve mentioned numerous times, every real estate investor would be smart to keep an eye on what happens with Opportunity Zones. As the article above mentions it is definitely important to keep an eye on the nuances of the law, to see what segments of the real estate market are likely to benefit most.
For those investors looking to buy in Philadelphia, the city just made things easier with the launch of there new Real Estate Transfers website (https://data.phila.gov/visualizations/real-estate-transfers) which includes data visualizations.
Philly.com has some great insights into what the tool is going to offer.
The Real Estate Transfers site, which debuted Friday, makes records searchable by address, giving prospective home buyers a look at the life of the property over the last 20 years. The site currently dates back to 1999 and offers 3.7 million records.
Types of records include documents, document grantors and grantees, monetary values of the property, and transaction dates.
This is the first time getting such data on a Philadelphia property didn’t require the use of Atlas, which was unveiled almost a year ago, or a visit to City Hall. While just one transaction could be checked at a time through those methods, the new tool gives a fuller span.
In addition to finding out about a single property, the new tool also reflects greater property trends in the city. A chart on the homepage showcases the number of monthly document transactions month by month since 1999, as well as bar charts that break down documents by type.
One of the greatest challenges as a real estate investor is getting access to data to drive your decisions. From those looking to fix and flip to buy and hold, as many a savvy real estate investor has pointed out.
“You make money when you buy…not when you sell.”
Which seems counter-intuitive as you get paid when you sell, but the underlying principle is that the price you pay for the house or property is eventually going to determine how much profit you will potentially gain or lose.
Accessing this new dataset from the City is going to be a great way to better drive one’s real estate investments.
Below are a few screenshots from the new site. You’ll see it offers some excellent insights into investing in Philadelphia houses.
One segment of the real estate investing market we are constantly monitoring is the redevelopment of older malls into the new consumer paradigm including experiential retail. It was just announced that an older Lehigh Valley mall is being purchased, potentially for redevelopment.
The Westgate Mall in Bethlehem which was originally built by Harold S. Campbell in 1973, and sits on just over 22 acres, was just purchased by Onyx Equities for a reported $30,000,000. The previous owner Mark Pepitone reportedly invested $5,000,000 into the property in 2015 as part of a redevelopment which included adding SkyZone as a tenant.
From the HFF Press Release:
Holliday Fenoglio Fowler, L.P. (HFF) announces the sale and financing of Westgate Mall, a 270,000-square-foot enclosed mall in the Lehigh Valley community of Bethlehem, Pennsylvania.
The HFF team marketed the property on behalf of the seller. Additionally, HFF worked on behalf of the buyer to secure financing. New ownership is the joint venture between Onyx Equities, LLC and PCCP, LLC.
Situated on 22.6 acres on Schoenersville Road, Westgate Mall is adjacent to the intersection of Route 22 and Route 378, providing quick regional access to Lehigh Valley, Philadelphia and New York. More than 93,900 residents earning an average annual household income of $71,641 live within a three-mile radius. Westgate Mall is anchored by Weis Markets, Rite Aid and Sky Zone; was formerly anchored by The Bon Ton; and is adjacent to Lehigh Valley Hospital.
Jon Harris (@ByJonHarris) of The Morning-Call has some excellent insights into how the redevelopment of the mall could potentially happen, New owner of Westgate Mall in Bethlehem: We plan on ‘revitalizing this well-located retail center’.
Jeff Green, a partner at Hoffman Strategy Group, a retail consultancy, said Onyx has pumped money into its acquired retail properties before, specifically pointing to an ongoing redevelopment at Hazlet Town Center in New Jersey. Green also pointed out that Onyx has non-retail properties, including office buildings in New York and New Jersey.
“They own a lot of non-retail properties, so I wonder if their play here is to redevelop with a mix of retail and non-retail uses,” Green said.
As it is now, the mall is anchored by Weis Markets, Rite Aid and SkyZone, after the shopping center lost its largest tenant, Bon-Ton, earlier this year. The 10-acre parcel that includes the former Bon-Ton is adjacent to Lehigh Valley Hospital-Muhlenberg, which has long fueled speculation that the site could eventually serve a medical purpose, among other redevelopment options.
For those interested in how Onyx Equities redevelopment of the Hazlet Town Center has progressed can check their website which lists current availabilities and property information.
Readers of the blog know we are big believers in the potential for co-working spaces as a value-add real estate investment. From retail to older office buildings and corporate centers, adding a vibrant co-working community could be the kickstart to a successful redevelopment.
Catie Dixon has an excellent article in BisNow which even the title highlights what today’s tenants desire, Working From Home Never Looked So Good, that points out some ways multifamily real estate owners could benefit from incorporating co-working spaces into their building or buildings. Catie writes:
As remote work increases, multifamily landlords are increasingly swapping out clubroom or lobby space for coworking.
It can serve as an amenity for residents, and some multifamily owners are taking an extra step — bringing in outside coworking tenants, monetizing the space and perhaps drawing in new residents along the way.
To meet this rush of demand, designing common areas in multifamily to include workspaces has changed dramatically over the last two years, according to Linowes Design Associates founder Elyse Linowes, whose firm specializes in multifamily design. “It’s now something that’s a must-have,” Linowes said. “It’s no longer just a bonus.”
This is what we’ve been preaching. Those who are able to re-work old un-used or under-used space in their multi-family buildings into a productive co-working space, have the ability to capture the tenant of the future.
Real estate investors looking to succeed, with the continued changes to the paradigm of office space needs, who take a creative approach to the redevelopment of older office buildings have a great opportunity for success.
This article from Hotel Resource News shows one way older office buildings are being redeveloped, Hotel Development Trend – Office Buildings Convert to New Hotels
An emerging trend that architects are seeing taking shape in hotel development is the conversion of older office buildings into hotels. Office space locations and needs are rapidly changing as trends in the traditional office environment are evolving.
Companies in suburban areas want to be in “live, work, play” locations causing an increase in office buildings sitting vacant that don’t offer “urban-type” amenities, such as walkability, public transit, more housing options, retail and restaurants. Large office buildings and huge surface parking lots are less appealing to companies. Hotel developers are seeing these buildings as prime locations for hotel properties. Many of these outdated office buildings need modern improvements and through that process are being converted to other uses.
The article then goes on to quote an architect Stephen Overcash of Overcash Demmitt Architects. Stephen specializes in old office building conversions and laid out some very interesting thoughts on the benefits of converting older mid-rise office buildings into a new use.
“It is more efficient to convert an office building to a hotel versus building new. It’s more environmentally friendly and saves months of tedious site approvals and permitting”.
Another advantage of converting an office building is that hotels require less parking than offices. The large parking lots necessary for the office user is prime real estate for an additional hotel or restaurant.
The quote about the parking is something which really stood out. As I drive around the Philadelphia area especially in Chester County and Delaware County, I often notice the extreme amounts of parking part of the older office buildings and even office parks. Looking at these properties for new uses, seems like a tremendous investment play.
We are always looking for innovative real estate investment strategies. That’s why we’ve been covering Opportunity Zones and their potential to allow for serious investment. Earlier today we put up a post about how Philadelphia Opportunity Zones are already seeing investment.
If you are looking for more proof that Opportunity Zones offer the potential for tremendous investing success Theodore Schleifer wrote a recent article in reCode which offers some insight into just how big Opportunity Zones could be, The new hotness for tech billionaires? Do-gooder investments they can write off on their taxes.
At private dinner parties and on the suddenly overflowing conference circuit, billionaires like Tom Steyer and the people who advise the rich are swapping notes, beating back viral rumors and trying to understand whether these tax write-offs are indeed too good to be true.
“It’s a lot of the high net worth individuals talking to each other,” said Bernier, who advises clients at Ernst and Young. “A lot of it comes from, ‘I heard this on the internet.’”
He then goes on the write…
The ability to defer paying capital gains tax through 2026 after selling your company, for instance? Appetizing.
The chance to not pay any capital gains tax on any money you make on top of that payday if it’s invested into an Opportunity Zone? The real cha-ching.
By spending the money in one of 8,700 Opportunity Zones — low-income census tracts ranging from nearby Oakland to the Aleutian Islands of Alaska and covering as much as 12 percent of the country — people can reap those extensive benefits thanks to the tax bill passed by Congress earlier this year.
As we see it, Opportunity Zones and the associated Opportunity Zone Funds are going to end up making significant investments in many of these areas. Outside of putting money in a fund, there are going to be numerous opportunities for the independent investor to find great investments.
For those looking at value-add multifamily, retail or office building investment strategies, finding off-market properties in Opportunity Zones may be the strategy to consider.
It seems like there will be no delay in real estate investors and developers utilizing the new Opportunity Zones in the Philadelphia area.
BisNow is reporting Philadelphia real estate developer Eric Blumenfeld is already planning to make a significant investment in an opportunity zone, Eric Blumenfeld Plans 30-Story Tower In North Broad Street Opportunity Zone.
Eric Blumenfeld, the man behind the multifamily redevelopment of the Divine Lorraine hotel and the conversion of the Metropolitan Opera House into a Live Nation concert venue, plans to build a 30- to 33-story tower at the corner of Broad and Spring Garden streets….
Though Blumenfeld is still soliciting community input as he firms up plans, the Inquirer reports that he is eyeing a $130M project with 250 apartments sitting on top of two floors of office space and ground-floor restaurants.
The retail would open onto an outdoor plaza facing the eponymous mural on the side of the Mural Lofts apartment building. The project, with funding assistance from frequent Blumenfeld partner Procida Advisors, is to be titled Mural West, according to the Inquirer.
From investors looking at Fix and Flips to those looking to make major investments in office buildings or retail, there is a great potential for Opportunity Zones to be the next big thing in real estate investment.
With the continued changes to the retail market and real estate, the Bucks County Courier Times reports that two Bucks County malls will be affected by the Sears Bankruptcy, Sears to close at Oxford Valley and Neshaminy malls amid bankruptcy filing.
The stores at the Oxford Vallley Mall in Middletown and Neshaminy Mall in Bensalem are slated to close.
That’s in contrast with chains like Walmart, Target, Best Buy and Macy’s, which have been enjoying stronger sales as they benefit from a robust economy and efforts to make the shopping experience more inviting by investing heavily in remodeling and de-cluttering their stores.
For those looking to make investments in the changing face of retail real estate, this article from BisNow has some excellent insight into how mall and shopping center investors can benefit from the changing face of real estate, 4 Things Retailers And Landlords Want You To Know About Consumer Shifts
If shoppers can ’Gram it, they will come. While the retail experience is driving foot traffic to stores, the key to sustained success goes beyond luring people to brick-and-mortar locations.
Making something worth posting means customers do the marketing themselves, and stores become locations worth visiting.
“When people photograph things, they become influences for a brand and that can really push digital sales, and really push people back into a shop,” Sugar Hill Real Estate Chief Creative Officer Jay Solomon said. “Old types of retail didn’t offer in-store experiences that were ‘Instagrammable.’
There’s nothing interesting about walking into a Home Depot and taking pictures of aisles with hammers.” Starbucks Director of Store Development Dan Shallit said customers posting videos improves company and store standards.
There will continue to be shifts in retail real estate and investors with a forward-thinking approach will be the beneficiaries.