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We reprinted the FAQ document on Opportunity Zones, so you don’t have to go to the Treasury site and download them. Looks like a continued great opportunity for real estate investors.
Final Regulations on Opportunity Zones:
Frequently Asked Questions
After considering over 300 formal comment letters and additional taxpayer feedback, the Treasury Department and IRS have issued final regulations on Opportunity Zones to provide clarity and certainty for investors and communities.
The questions and answers below describe changes made to the proposed regulations that are reflected in the final regulations in response to engagement with the public.
What types of gains may be invested and when?
When may gains be excluded from tax after an investment is held for a 10-year period?
How does a Fund determine levels of new investment in a Qualified Opportunity Zone?
How can large C Corporations invest in Opportunity Zones?
The HUD Release stated:
Beginning December 16, homebuyers seeking to purchase a home in a qualified Opportunity Zone can use the Limited 203(k) program to finance rehabilitation costs up to $50,000 into the total mortgage amount.
This is an increase of $15,000 over the Limited 203(k) rehab maximum amount of $35,000 allowed through the program on single family homes not located in Opportunity Zones.
Existing homeowners with homes in Opportunity Zones can also use the larger allowable rehabilitation amount when refinancing to rehabilitate their existing homes.
“Providing this opportunity means that the families seeking affordable homeownership or to improve their homes in distressed neighborhoods – where rehabilitation is needed the most – have a path to financing that makes it realistic to do the repairs and improvements that will uplift the entire community,” said HUD Secretary Ben Carson.
FHA’s Limited 203(k) program permits homebuyers and homeowners to finance rehabilitation costs into their mortgage to repair, improve, or upgrade their home, allowing them to tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or an appraiser.
Allowable improvements include connecting to public water and sewage systems, repairing or replacing plumbing, heating, air conditioning or electrical systems, and covering lead-based paint stabilization costs.
In our blog post yesterday, we mentioned wow we are seeing the growth of rural areas for mixed-use developments. This potential for real estate investors was also highlighted in an ancillary way by a study put out by Emsi which is a LaborForce Analytics company, economicmodeling.com.
The study, The Fourth Annual Talent Attraction Scorecard, examines standouts in large counties (100,000+ population), small counties (5,000-99,999 population) and very small counties (5,000 or > population to find which counties were the most successful in growing their workforce.
Note for Small Counties: “A theme in the stories of these small counties is that the talent attraction and job growth largely came from within via capital investments by existing companies (energy companies in the case of Cameron and Burke) and infrastructure buildout. Highlighting that investing in existing assets and regional infrastructure is often the most feasible and beneficial route to jumpstart growth and prosperity.”
Note for Micro Counties: “Storey has essentially become a commuter hub, a place where people from other regions come to earn and spend money. In Storey’s case, this is the result largely of the Tahoe Reno Industrial Center, home to the Tesla Gigafactory. This highlights the importance of looking at economic development from a regional level – as talent can, and will, migrate beyond city and county boundaries.”
For real estate investors finding areas with companies making capital investments, governments making infrastructure improvements, or the creation of new corporate and industrial centers can provide strong signals for strong places to make new or additional real estate investments.
Below are some local counties both small and large which have seen positive growth year over year. For local investors, this could prove one step towards finding strong real estate investments.
Salem County, NJ went from 1,822 to 1,485
Fulton County, PA went from 257 to 47
Cape May County, NJ went from 1,373 to 1,007
Kent County, MD went from 1,126 to 719
Queen Anne’s County, MD went from 725 to 417
Camden County, NJ went from 514 to 458
Gloucester County, NJ went from 302 to 239
Montgomery County, PA went from 397 to 304
Delaware County, PA went from 531 to 523
Philadelphia County, PA went from 587 to 575
Lancaster County, PA went from 358 to 295
Berks County, PA went from 456 to 429
Axios has an excellent write-up, The U.S. cities that are thriving under the radar, on the study with some good highlights for those looking to invest in some smaller cities, throughout the country.
For smaller cities, an anchoring corporate headquarters or university can be a boon. But there’s hope even for those without a flagship institution. Cities are finding success with “placemaking,” says Kristin Sharp, a partner at Entangled Solutions, an education consulting company. That means they’re figuring out a brand that convinces people to move there — or, often, move back home after a stint in a bigger city.
The industrial market has long been a favorite amongst CRE investors and occupiers for a variety of reasons. In the United States, there is normally a need for industrial properties at any given time. This makes the industrial sector especially hot for future real estate endeavors due to its resilience.
By using NAI Global’s expert local research, along with the input of their region-specific team members — which produces intelligence that conveys future predictions in quarterly reports — we have put together a list of 5 hot industrial real estate markets and why you should be watching them now.
Northern New Jersey has always been a hotbed for industrial activity. New Jersey has the appeal to many investors and major corporations, especially in the warehouse, manufacturing and distribution sectors. The market has remained incredibly strong for a number of years and continues to grow. Due to the proximity to New York City, the valuable space in the Meadowlands, Wayne, and Totowa often results in incredibly high demand from buyers.
Overall, at the end of 2018, Northern New Jersey had an average asking rate of $8.16 and vacancy of only 2.9%. Asking rates have almost doubled since 2015, and vacancies have plummeted creating incredible demand. “Leasing of new construction has led the charge, being absorbed before or upon delivery. Overall, this sector’s vacancy rate has further declined to leave little availability. This pressure has pushed rates to record heights with NNN deals in the $14 range,”says Russell Verducci, Vice President of NAI Hanson.
San Diego and the surrounding areas are commonly associated with success in the multifamily sector, and while that is true — the industrial sector is also thriving. Unlike the aforementioned area in New Jersey, San Diego mainly appeals to the defense, biotech, and life science industries. “Torrey Pines is home to world-renowned research institutions performing groundbreaking work,” research shows. Innovative current tenants looking to expand increases demand and pushes flex vacancies to an extremely desirable rate. Additionally, with new construction on the rise, and the enthusiasm shown by investors NAI San Diego’s regional experts predict high sales volume by the end of 2019.
North Carolina also has a positive outlook in the current and future industrial market making it one to keep an eye on. According to Colin Rockson, industrial division broker for NAI Piedmont Triad, vacancy is predicted to stay low in the regional industrial market, which will encourage increased rental rates. Not to mention, the high demand in the area has sparked interest amongst developers — thus prompting new properties to be developed, especially ones with larger footprints.
Western Michigan has some great stats for industrial development. With a low unemployment rate of only 3.3% and 130+ international companies in the immediate area, jobs flourish and so do industrial needs to support those jobs and companies. Pair this with a limited supply which has prompted new construction, giving even more opportunities to investors, corporations, developers, and brokers. This area of Michigan is especially proficient in the manufacturing sector, and predictions for the remainder of 2019 are looking especially strong so ensure you keep an eye on the industrial market here.
An interesting trend highlighted by a recent BisNow article, Coming To A Rural Area Near You: Urban Mixed-Use Development, is the growth of developers looking at rural areas to build urban style mixed-use developments. The article highlights some mixed-use developments happening outside Atlanta but we are beginning to see the growth of the concept along the Mid-Atlantic also.
Southeastern Pennsylvania, for example, is seeing more mixed-use developments in suburban areas outside Philadelphia and as far West as Lancaster and North in Allentown. The growth of these developments is fueled by cheaper land and a population increasingly interested in areas outside the city.
While it’s not shocking we are seeing these developments in places along the Main Line, the growth of the concept as far out as Lancaster shows there is a desire for people to have basically a town center.
While most of the town centers require the majority of residents in an area to take a short drive in order to reach them, the attraction is the density of available shopping and dining offerings.
When these new developments find a strong tenant mix that attracts both those needing to shop and dine, success seems to follow.
As the article highlighted in a quote from Cheri Morris, “In some ways, it’s like we’re going back to the way things used to be, in which most people could walk or just [take] a short ride to a retail area that was the town square.”
With the increase in the number of people who don’t go to an office every day, we may continue to see these types of developments continue to grow in increasingly rural areas.
Today’s workforce is undergoing a major shift in population. As of 2017, 56 million Millennials are either working or actively searching for work, making them the largest segment of the U.S. labor force, surpassing Gen Xers in 2016.
More than one out of every three American workers is a Millennial — more than Gen Xers and much more than Baby Boomers. And, just as every other generation that came before them, Millennials pride themselves on marching to the beat of their own drum, if you will — wearing different clothes, listening to different music, and working differently.
The very idea of where and how we work is undergoing a revolution right now, with major changes being made in physical design and decor.
Millennials often get a bad rap for being aloof, self-centered and poor communicators in the workplace, this doesn’t seem to hold up in practice. Millennials prefer “work casual” environments — thriving in open workspaces with lots of common areas for casual, impromptu meetings. Long gone are the closed offices and rows of traditional cubicles; now, glass walls, common tables, and even sofas rule the new workspace.
These days, people aren’t the only capital that needs to work smarter, not harder — offices are regularly required to accommodate more and more workers with less square footage and fewer desks. One solution to this issue is unassigned workspaces. Strategies such as free desking, desk sharing, benching and more all allow employees to work at different places throughout the day. An added bonus? A change in scenery is proven to boost your performance at work.
While technology isn’t exactly a design trend, it definitely plays a major role in today’s modern workspace. With more and more millennials in leadership roles, outfitting office spaces, technology everywhere — wireless keyboards and mice, headsets, smartboards, dual monitors, personal laptops and tablets, smartphones, and more. And, in true Millennial fashion, these items are pulling double duty — that PA system that was used in this morning’s budget meeting? It’s being used for karaoke later during office happy hour.
One of the most marked trends of millennials in the workplace is that they’re making work feel, well… not like work. Millennials work hard and play hard, and they demand an office environment that keeps up with them. They’re looking for a space that has plenty of room for office gatherings, or even a pool table or ping pong table. Providing engaging areas throughout the office will help your employees relax and give their brain a rest. And rest assured, they’ll be back at work in no time — recharged and ready to go.
More Than Design: Putting the Pieces Together
You may be wondering why all of this matters. If your company is successful and you pay competitive wages, you’ll attract the best employees, right? Not necessarily. Another trait of millennials workers is that more and more factors are becoming more important than their paycheck — things like workplace culture, flexibility and yes, a well-appointed workspace.
At recently reported by Bloomberg, Macy’s is planning to build a skyscraper on top of its famous Herald Square location in order to unlock the real estate investment potential inherent in its prime location. The plans currently call for a 1.2 million square foot tower. The plan also calls for the tower to be occupied by tenants other than Macy’s giving it a great opportunity to grow a cash flow positive asset, in addition to its recent success in growing its digital presence.
Another company looking to unlock the power of real estate development is Life Time. The fitness and now co-working company just announced plans to build several high-end multifamily properties in conjunction with its fitness and co-working spaces. The new concept called Life Time Living, which will be health-focused luxury residential residences.
BisNow reports on this new offering, Life Time Launches High-End Apartment Concept.
Combined with Life Time Fitness and Life Time Work, these projects will now be Life Time Villages…Residents who join these communities will obtain direct access to high-end fitness facilities and coworking space.
Every apartment will offer a Life Time Athletic Resort & Spa and a LifeCafe. Renters will have access to a variety of one- and two-bedroom apartments.
“Living an active, healthy and happy lifestyle is dependent upon many factors. Among them is the critical element of where we choose to live,” Life Time founder, Chairman and CEO Bahram Akradi said in a press statement. “By integrating where we live, work and play in these Life Time Village developments, we’re creating far more time efficiency for members in their day-to-day lives while also having a positive impact on our planet. The design truly is a natural extension of our mission to inspire people to live completely healthy, happy lives.”
For both Macy’s and Life Time, real estate development allows each company to unlock stored value. With the creation of Opportunity Zones, it will be interesting to see what other companies follow suit and begin to utilize real estate development as a means to unlocking more shareholder value.
Savvy real estate developers and investors will find value in helping corporations unlock the hidden value in their real estate holdings.
Real estate investors in the Philadelphia Metro area have numerous excellent opportunities for investment. For those with a long-term outlook, it is important to look at a number of variables, one being what’s the long-term outlook for growth.
One area which is currently seeing tremendous growth and could potentially see even more growth is Montgomery County. Right now areas like Conshohocken and King of Prussia are seeing strong growth in industrial and commercial and residential real estate projects and from a look at projects in the planning phase, even more, growth can be expected.
Currently, more growth is expected even along Lancaster Avenue in Ardmore. Piazza Management recently unveiled plans for a new mixed-use development on Lancaster Ave. Katie Park for Philly.com wrote a recent article, Ardmore is getting ready for its transformation — a downtown, which highlighted this potential development.
If approved, the complex would replace the Acura and Volkswagen dealerships on Lancaster Avenue with a six-story, mixed-use complex that would have 257 apartments, 122,990 square feet of commercial space, and 840 parking spots.
Located on a highly visible and traversed section of Ardmore’s commercial district, the development could be a linchpin of the town’s vision of an attractive, walkable downtown that abuts residential neighborhoods.
This new development could bring major changes to downtown Ardmore and trickle out up and down Lancaster Ave and the surrounding neighborhoods. Meanwhile, Conshohocken is seeing tremendous growth in office space and mixed-use developments. One major project that has been announced is SORA West.
A massive new mixed-use development featuring office space for a major company, a hotel, and dining options has broken ground in Conshohocken.
Officials are calling SORA West “vibrant public plaza,” which, when complete, will include a 200-foot tower, 165-room hotel with a rooftop restaurant and lounge, a 1,500 space parking garage, and more.
Amerisourcebergen, a pharmaceutical distributor and one of the wealthiest companies in the world, will relocate its global headquarters to the 11-story, 429,000 square foot office tower.
This new development and the relocation of Amerisourcebergen from Chesterbrook (Chester County) to Conshohocken (Montgomery County) will likely spur additional growth in Conshohocken and throughout Montgomery County.
Fortunately, for investors in Conshohocken and Montgomery County, this is not the only new office development planned. More Than The Curve reported, that Seven Tower Bridge, a previously bankrupt development, is now going forward with another building 250,000 square feet of office space on the Conshohocken riverfront.
Within the article they mention the potential tenant being Hamilton Lane who would be making a move within Montgomery County from Bala Cynwyd to Conshohocken.
While all these developments are great for Montgomery County, it also means there are plenty of opportunities for savvy real estate investors throughout the area.
With Opportunity Zones continuing to be on the minds of real estate investors, one Pennsylvania Opportunity Zone that could be poised for tremendous growth is in Coatesville. The Coatesville Opportunity Zone has several positives outside just the OZ incentives.
Vista.Today has a recent article, Coatesville’s Future Isn’t in Our Rearview Mirror, highlighting the changes happening around Coatesville:
Despite repeated and well-intentioned initiatives over the years, Coatesville was seen by many as distressed and unable to summon the vision or willpower to rise up and revitalize itself on its own.
That all started to change 10 years ago when city leaders, local clergy, county and state politicians, together with civic and business leaders, began imagining what a revitalized Coatesville might look like and began working incrementally toward that vision.
Today, the city’s “Green Tape” policies make it easier than ever to apply for and receive building permits and code changes.
A LERTA program, meant to offer tax abatements to developers who invest in and redevelop difficult or undesirable properties, is in place.
Another excellent benefit for Coatesville is being located in Chester County which is experiencing tremendous growth and is among the most affluent counties in Pennsylvania along with being one of the healthiest counties in the US. Patch.com has an article on it, Chester County Among Nation’s Healthiest Communities: U.S. News.
Chester County is in the top echelon of the nation’s healthiest communities, new rankings say.
Released on Tuesday, the 2019 healthiest communities rankings are a joint collaboration between U.S. News & World Report and the Aetna Foundation. To come up with the finalized list, U.S. News and the Aetna Foundation evaluated nearly 3,000 communities across multiple health-related metrics in 10 categories.
Chester County placed 117th overall, just behind Pennsylvania leader Montgomery County (110th) and ahead of Bucks (174). Those were the only three southeastern Pennsylvania counties to make the list.
NBC 10 Philadelphia highlights another big change coming to Coatesville, SEPTA Set to Resume Regional Rail Service in Coatesville. The return of SEPTA regional rail service could potentially be a bigger boost than the Opportunity Zone designation.
After more than two decades away, Chester County and SEPTA officials announced Thursday that regional rail service is set to return to the city. The move is part of a larger effort to revitalize Coatesville…
The nearest SEPTA train service is the Paoli/Thorndale line, which goes only as far as the Thorndale station, about 3 miles from the current Coatesville Amtrak station.
The new train station would be located at Third Avenue and Fleetwood Street, and service would not begin until the station’s completion. However, though the county commissioners promised $1 million to fund a parking lot for the station, it’s still unclear when the Pennsylvania Department of Transportation will complete its construction.
If you are an investor who is considering buying real estate in or around Opportunity Zones in Pennsylvania, then it definitely could be beneficial to check out what’s happening in Coatesville.
Though not an article about local Philadelphia retail real estate, BisNow London has an article called, If You Don’t Want Your Property To Become Obsolete, Here Are The 10 Things You Need To Know. The article cites a new study from the Urban Land Institute and PwC called Emerging Trends in Real Estate: The Global Outlook for 2019.
The customer used to be the capital markets, but now it is the person using the building.
The acute problem for the real estate industry going forward is how to value older, retail properties that are becoming obsolete in today’s new retail paradigm? The problem retail real estate investors face going forward, is how to begin properly valuing these properties before and after their conversion.
The article from BisNow highlights an interesting part of the retail paradigm where a number of retail real estate investors, may be trapped by their current leases and see the value in current leases and not find value in reinvesting money back into the property. This seemingly narrow-minded outlook could be the best option for many.
If you are a leveraged investor, you might know that the equity value of the scheme that you own is zero,” one investor said in the report. “With that in mind, the only value the property has for you comes from the leases that are currently in place.
So why would you invest money in the property or do anything that reduces the income from those leases?” On top of this, it will take some time before those willing to step in and undertake the process of repositioning retail get the chance, the report said.
Going forward retail property owners will need to elicit better feedback from those using their buildings. As the study points out the future of retail is going to be driven by the end users experience.
It is no longer okay to just give people a box and then not speak to them for the next 10 years. People want you to design, develop and manage the space for them. They want you to provide amenities, experience and help to create a community.
In our opinion experiential retail is going to play a big part in redeveloping older retail properties. The drive towards increased understanding of one’s tenant is only going to grow. The adoption of digital tenant engagement apps by the major REIT’s is an early first-sign in the drive towards increased tenant engagement.
It’s clear that to avoid obsolescence and remain relevant in the modern world, real estate will need to provide that amenity and experience that the ultimate end users require – be they office workers, shoppers or residents.
Technology will be key in measuring feedback from people – both in terms of what they say they like about a building as well as how they actually use it in practice – and in creating a clearer link between new uses and value.
Owners will need to forge closer ties with occupiers, to collaborate and analyse what’s working for the people using buildings, day in and day out. The owners who can assess how people want to feel about a building and fulfil that intangible demand will be the most likely to avoid their assets becoming obsolete.
If you are a real estate investor that is considering the opportunities offered by retail and older mall redevelopment than it is going to be important to continually focus on how you can drive value to your visitors. Adopting innovative mall marketing strategies is one step towards going forward.