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Real Estate Investing Like A Billionaire In 2019

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.

Philadelphia Opportunity Zones Already See Investment

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.

Two Suburban Philadelphia Malls See Impact From Sears Closing

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.

Bucks County Corporate Center Sees Investment

The Bucks Local News reported on the recent purchase of a Bucks County Corporate Center, Rubenstein Partners secure $63 million in financing to purchase Lower Makefield Corporate Center

Affiliates of Rubenstein Partners acquired the eight-building, 467,000-square-foot Yardley office complex this month. Affiliates of Rubenstein Partners acquired the eight-building, 467,000-square-foot Yardley office complex this month, with Rialto Capital Management providing separate mortgages for the property’s two distinct campuses on Stony Hill and Township Line roads.

The article went on mention a few items which made the suburban office market especially attractive:

Lower Makefield Corporate Center offers a distinctive combination of high-quality office product at an attractive basis, strong sponsorship, and positive leasing momentum – in a market defined by consistently appreciating fundamentals.

As we see it, there is a lot of value in investing in suburban office buildings and corporate centers with the right value-add strategy. There are plenty of recent examples of suburban corporate centers and office parks selling at a discount.

Figuring out how to reduce vacancy while providing the amenities desired by today’s office tenants will be a key to a successful real estate investment.

Investing In Real Estate Near Sports Arenas

A recent article on BisNow, Major League Sports Teams Want CRE Ventures To Boost Non-Game Day Revenue, highlights the growing trend of real estate developers looking at projects near major sports teams.

Developers across the country are looking to tap into the idea that neighborhoods can grow around a major league sports arena, from the Titletown District surrounding the Green Bay Packers’ Lambeau Field to Mission Rock, a 28-acre, mixed-use development partnership between the San Francisco Giants and Tishman Speyer.

Patient Zero of this trend is not a stadium, but a once rundown city park. Bryant Park was one of New York City’s most dangerous parks during the 1970s and 1980s, but Biederman Redevelopment Ventures President Dan Biederman founded Bryant Park Corp., which was devoted to turning it around.

Now, the Midtown Manhattan park is a magnet for tourists, and some of the city’s most valuable office properties abut it.

“We were asked, ‘can you bring Bryant Park elsewhere?’” Biederman said. “All of a sudden, we became consultant for a few major league sports teams.”

As we have written before, Should You Invest In Real Estate Near Sports Stadiums?, there is often an opportunity for the savvy real estate investor near sports stadiums especially in areas committed to it like Capital Yards in D.C.

For those familiar with Philadelphia sports teams, the promise of redevelopment along the river in Chester, was promised to help lure a new sports team to the area. It features the area’s Major League Soccer team, The Union. Unfortunately, the hoped-for development has never materialized, which should be an important reminder for all investors. It takes successful planning and execution for investor returns to materialize.

Investing Near A New Casino

This is an interesting article, East Coast States Are Going All-In On Casinos. Some Smell A Bad Beat Coming, on how casinos are being built at such a rapid rate up and down the East Coast. The article highlights how it’s likely many could see financial strain as more casinos are built and thus the available pool of gamblers is further diluted.

The article has a short look at the well-documented hit Atlantic City took.

“Atlantic City has probably seen the biggest downturn as a result of all of this [growth] than any other locality,” Peterson said.

“It’s a longer drive and you don’t need to drive there to get the same experience that you can get half an hour away.”

Guardian, who served as mayor from 2014 to 2017, thinks Atlantic City’s decline was entirely avoidable had the city done a better job to diversify its economic base beyond casinos. Comparing it to Dubai not relying on oil, Guardian said the city needed to find ways to reinvent itself to make its appeal to travelers sustainable.

“It’s a lesson to not put all your eggs in one basket,” Guardian said. “As gaming suffered, Atlantic City suffered as well and wasn’t prepared for the rainy day.”

The building of casinos up and down the East Coast is going to continue to change communities and which places are the best for real estate investment. Though it took a hit, there are many positive signs Atlantic City could be a great place for real estate investing.

Real Estate Investing In the Philadelphia Suburbs

A good reminder to commercial real estate investors, is even the best plans go turn and not go as planned. BisNow has a recent report, Main Line Office Portfolio Last Sold Before Recession Hits The Market At A Discount, on how a suburban Philadelphia office park is being offered for sale at a price point $40,000,000 below the purchase price.

Pitcairn Properties bought Chesterbrook Corporate Center in Berwyn and Glenhardie Corporate Center in Wayne for $250M in 2006, and has put them up for sale expecting to receive only $210M, the Philadelphia Business Journal reports.

AmerisourceBergen represents the issue in microcosm: It will depart multiple buildings in a sprawling, suburban office park for a single, new-construction development in the mini-urban node of Conshohocken.

Whoever buys those buildings, whether as part of the full portfolio or if they wind up taking only one of the office parks, will be looking for ways to update the property for the new paradigm.

Definitely doesn’t sound like this suburban office space investment went as planned. For those looking to invest in suburban residential and commercial properties, this article has a potential formula to improve your real estate investing, Philly’s Suburban Growth Sticks To Established Areas And Formulas For Success.

Conshohocken and Main Line suburbs like Ardmore have dense development areas surrounding their train stations, and even as King of Prussia gains value in office and multifamily, the former two areas remain the cream of the crop as public transit becomes a greater component of workers’ lives.

“I think we’ve doubled the amount of train riders in our [Conshohocken] buildings in the last two years,” Oliver Tyrone Pulver Vice President of Marketing Esther Pulver said. “[Reverse commuting] is going to increase in a pretty big way. The lines have added trains to the schedule and added cars to the trains. I don’t think transit is going any other direction.”

According to Holton and Pulver, redevelopments of large industrial parks into mixed office and light industrial have enormous potential if they are near transit.

As both articles show there is ample opportunity for the savvy real estate investor. It will be the investor that can find the best opportunities that continue to see success in the new paradigm of commercial real estate.

Finding towns near mass transit that could be poised for strong growth can be beneficial for everyone from the residential fix and flip investor to those looking to revitalize the suburban office or apartment park into the type of property being desired by today’s tenants.

Another look at the benefit of investing near a rail line can be seen in the recent purchase of a premium suburban office building in Conshohocken. American Real Estate Partners recently purchased Eight Tower Bridge in Conshohocken. GlobeSt has some highlights on the purchase including a quote from a principal at AREP highlighting the benefit of being near mass transportation.

“In Eight Tower Bridge, we have acquired a best-in-class asset in the very healthy Conshohocken submarket,” says Michael Gribbon, AREP principal and executive managing director.

“The supply and demand dynamics of Conshohocken continue to improve, and the tenant community continues to favor this market due to its great rail access, its walkable amenities and its proximity to Philadelphia’s most coveted bedroom communities.”

Opportunity Zone Laws Should Be Available By End of October

As we’ve written (Will New Qualified Opportunity Zones Change Where to Invest In Philadelphia and the Suburbs?, Will Philadelphia Opportunity Zones See Large Investments?) Opportunity Zones have tremendous potential for real estate investment in Philadelphia and throughout the country.

One of the final remaining hurdles for Opportunity Zone investment is having the final regulatory guidelines from the IRS. According to Bloomberg, the final guidelines should be available by the end of the month.

Program rules could come out before the end of October, Sen. Tim Scott (R-S.C.), a primary force behind the program, told reporters Oct. 10.

When asked about the amount of investment he expects in opportunity zones, Scott said, “I’ve heard upwards of $50 to $80 billion. Some have suggested it will be three digits—so it would be a $100 billion investment in the next couple of years, which I think will be realistic.”

The proposed rules are now with the Office of Management and Budget’s Office of Information and Regulatory Affairs, the last stop before the proposed rules are kicked back to the IRS and made final.

Is The Philadelphia Real Estate Market Cooling In Q4 2018?

An interesting article in Philly.com, Philly land prices plummet, as weakening housing market tightens purse strings, has some statistics on what could be the start of a slowing real estate market. The article opens with some interesting research on the change in vacant land prices and how they could be the leading indicator of coming changes.

Prices paid for vacant land in Philadelphia have plummeted to their lowest levels in three years after peaking in 2017, an indication that the city’s development boom led by townhouse, condo and apartment projects is losing steam.

Buyers of bare development sites paid a median price of $31.72 a square foot during the first six months of 2018, down more than 46 percent from last year’s $59.23, according to public data compiled this month at the Inquirer’s and Daily News’ request by Kevin Gillen, senior research fellow at Drexel University’s Lindy Institute for Urban Innovation.

The article then goes on to show how this data usually precedes a slowing market. As a real estate investor it’s important to be cognizant of what part of the real estate cycle is happening.

Knowing that you are likely to see the continued tightening of the market in many areas, should lead you to plan your investing accordingly.

Definitely, recommend taking a look at all the research in the article.

Redeveloping Old Malls Into Value Add Real Estate Investments

This recent article, How Dead Malls Are Resurrecting As Something Else, has a look at how malls are quintessential to American Culture but how many are facing a very tough path forward. Though for the savvy real estate investor this change could make old malls a great investing opportunity.

“The shopping mall is the quintessential American contribution to the world’s consumer culture, but the conditions that led to the creation of shopping malls and sustained them for decades are changing rapidly,” noted the Urban Land Institute — back in 2006.

The article then went on to highlight a number of mall redevelopment projects both successes and failures. Another important highlight from the article was what Simon Property Group (The largest mall owner in the US) is now looking at for its redevelopments.

Simon Property, which owns malls across the country, reported occupancy of 94.7% for all of its U.S. mall properties as of June 30.

Rent spreads were up as were funds from operations for the second quarter. “We see a bright future for our portfolio but it’s not without challenges,” Vlahos said.

Simon is working to reinvent its mall properties using trade area demographics to determine the best future fits for particular properties. “Maybe it’s entertainment; maybe it’s food; maybe it’s experiential retail,” Vlahos said. “All of us are trying to get a handle on that.”

This article from AllianceBernstein, Not Dead Yet: What Many Investors Get Wrong About The American Mall, has some very interesting thoughts on the future of malls as their potential for real estate investment.

Headlines about the death of the American shopping mall have become so common that the phrase “retail apocalypse” has its own Wikipedia page. But this is a death wrongly foretold – and that creates investment opportunities.

It’s true that some malls are dying. Foot traffic is down as more Americans shop online, while shifting demographics have made malls in some parts of the country obsolete.
We estimate that a third of the 1,200 malls that were operating at the start of 2017 will close their doors, with most of the casualties in less affluent areas where population growth isn’t keeping up with other parts of the country.

Many investors have tried to profit from the shopping mall’s expected demise…Here’s the problem as we see it: not every mall is destined to close. We think plenty are likely to adapt and survive. And those that do fail won’t all do so at once.

Investors Business Daily has a great look at 1 investor who sees great promise with old malls especially those that might be the most overlooked like those in rural areas, The Investors Who See Plenty Of Life In Dying Malls.

Buying malls on the cheap leaves Hull with plenty of money for aesthetic improvements, such as raising the ceilings and removing kiosks in a bid to create long sight lines and a sense of open space.

Hull is one of a small crowd of operators bucking the conventional wisdom that there are simply too many malls and that only those catering to wealthy shoppers will survive the death of legacy retailers.

While operating strategies vary, most are shopping for older malls in places with no other enclosed shopping center within 50 to 100 miles.

Such older properties have some inherent advantages. Many were built as the surrounding community was sprouting, so the original developers had their pick of the best locations.

Despite the rise of e-commerce, people still come to malls to participate in the social aspect of shopping — especially in suburban or exurban places with few large gathering places.

Investors outside Philadelphia could likely begin to find those type of more rural properties moving towards Reading and the Lehigh Valley or even heading west towards Lancaster.

Value-Add Strategies For Redeveloping An Old Mall

For those looking to invest in old malls the Urban Land Institute asked a panel some thoughts on how to succeed going forward, Industry Outlook for Shopping Centers, (Below are some excerpts from their answers.)

  • Retail and entertainment-related uses in close proximity to where they live. Health and wellness uses are also important.
  • When we look at reshaping a shopping center, changing the mix of uses from 20 percent restaurants to 40 percent restaurants represents a huge shift.
  • Offering an authentic experience is a way to make your shopping center not necessarily internet-proof but at least internet resistant, or perhaps “internet complementary” is a better phrase.
  • It’s important to do whatever you can do to draw foot traffic while not forgetting fundamentals, such as parking, visibility, and access.
  • More and more entertainment uses are replacing department stores, whether that means live entertainment, sports bars, users like Dave and Buster’s, movie theaters, or restaurant concepts.
  • Tearing down the department store and replacing it with a residential component. Residences, in particular, add value to the center, not only making it relevant to the market, but also helping to boost the shopping center’s sales by putting more people on the site.
  • Shopping malls have not traditionally been town centers with offices and apartments, but these are highly viable uses for these properties, especially if you can get enough density to support expanded hours for the retail portion. The office workers will use the mall in the daytime, and the residents will use it in the evenings.