Archives for January 2020

Opportunity Zones 'Full Steam Ahead' After Final Rules Debut

January 7, 2020 by CARNM

For the past several months, after the launch of his opportunity zone fund, Avanath Capital CEO and founder Daryl Carter had approached investors to invest in his project, only to hear a common word: “Wait.”
Last year, with so many questions and so much uncertainty surrounding the opportunity zone program, many investors sat on their hands waiting for the IRS and the Department of Treasury to answer some much-needed questions before releasing capital, Carter said.

But with the release of the third and final set of guidelines in mid-December, Carter believes many of those wait-and-see investors are going to start putting money into opportunity zones.
“I think you’re going to start to see more capital come in,” Carter said. “A lot of investors we’ve spoken with wanted to make sure the final regs were consistent. Clarity is so important.”
Entering the third year of its existence, the opportunity zones program is facing a critical time.
Passed at the end of 2017 as part of President Donald Trump’s Tax Cuts and Jobs Acts bill, the opportunity zones program allows an investor to roll over capital gains from the sale of an asset to a special qualified opportunity zone fund. That fund then becomes the investment vehicle for a real estate or business investment in any of the 8,700 designated distressed or low-income areas nationwide in return for a hefty tax incentive.
Since the passage of the bill, proponents of the program have hailed it as a way to pour much-needed capital and investments and economic development into census-designated, low-income and historically distressed areas.
Critics of the program see it as another tax break for wealthy investors and say that certain investments could lead to gentrification and displacement of longtime and minority residents.
The controversy surrounding the program became so great last year that the program’s sponsors in the Senate, Cory Booker (D-N.J.) and Tim Scott (R-S.C.) threatened to kill the program because of possible misuse.
In November, Sen. Ron Wyden (D-Ore.) introduced a bill to require a reporting element and eliminate 200 opportunity zones deemed not low-income. The opportunity zones were chosen by the governor of each state based on census data from 2010.
The investment numbers in the past two years also haven’t fared well, at least in California.
The number of transactions in opportunity zones are actually down in the state compared to the years prior to the passage of the program. The Golden State is one of four states that have not conformed to the program’s tax benefits, meaning an investor would still have to pay state taxes on gains from an investment.
Still, Carter, whose company is based in Orange County, is hopeful that now that the final set of regulations is in place, capital will begin flowing in a variety of investments into distressed areas.
Carter wouldn’t say it is a make-or-break year for the program but “it’s an important year.” He pointed out that many of his and investors’ concerns were alleviated by the release of the final regulations, including the change in the substantial improvement test.
As part of Carter’s opportunity zone fund, he plans to rehab a couple of existing apartments in his portfolio that are in opportunity zones and add more units on an adjacent vacant lot.
Carter launched a qualified opportunity zone fund with a target of raising $300M that would go toward the improvements and renovations of three existing Avanath multifamily properties, one each in Ontario, California; Orlando, Florida; and Cary, North Carolina; as well as for the development of a property in Detroit.
The IRS and the Treasury Department will now allow an opportunity zone investor to aggregate certain buildings on the same parcel as a single property, as long as it is in the same opportunity zone fund and it shares certain facilities and business elements.
For qualified opportunity zone businesses, The Pearl Fund Managing Partner Brian Phillips expects the guidelines to be a boon for investors looking to invest in businesses located in the zones.
Phillips, who launched The Pearl Fund aiming to raise $25M, said there were a number of things that dramatically improve opportunity zone business investing for investors, businesses that existed prior to when the law was passed, and startups.
“The improvements on when and how much investors from a 1031 exchange can put into qualified OZ funds dramatically improve the process and thus the amounts of capital into business (and real estate) OZ funds,” Phillips said.
Phillips added that if a pre-existing business in an opportunity zone wanted to become a qualified OZ business, “the process to do so was so challenging that, in our experience working with such companies, most decided against becoming an OZ business.”
That calculus has now changed, he said.
“The final regulations brought a substantial improvement in the form of an aggregated basis ruling, enabling businesses to show growth in total assets versus line by line,” Phillips said. “This is a business-friendly ruling that eases the way for more quickly growing, job-creating companies to qualify, as indeed they should.”
Phillips said the final regulations added a new provision that will benefit startups and applies only to the Opportunity Zone Venture Capital segment.
“A 62-month provision was added to give startups more flexibility and time which, in turn, will encourage and facilitate more capital to flow into OZ businesses, which yield much higher returns both financially to investors and in their economic impact in the communities,” Phillips said.
OC4 Venture Studio President Carey Ransom said he also expects good things to come from the new regulations. OC4 Venture Studio is based in an opportunity zone in West Costa Mesa.
Ransom has opened a 3K SF office with the goals of targeting, investing and nurturing tech startups in opportunity zones.
“We were fairly confident about the final regulations,” Ransom said. “This program has always been about creating jobs and making an economic impact in the community.”
Ransom said last year, investors were still hesitant to invest in opportunity zones but now it is up to him and others to educate those wary investors.
“It’s full steam ahead for me,” Ransom said. “We hosted an event last month. We’re hosting more events in the first quarter. Now it’s just about educating investors.”
By: Joseph Pimentel (Bisnow Los Angeles)
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2020’s Best & Worst States to Raise a Family

January 7, 2020 by CARNM

Raising a healthy, stable family sometimes requires moving to a new state. And the reasons for moving are often similar: career transitions, better schools, financial challenges or a general desire to change settings.
But wants and needs don’t always align in a particular state. For instance, a state might offer a low income-tax rate but have a subpar education system. However, families do not need to make these kinds of tradeoffs. They can avoid such problems by knowing which states offer the best combination of qualities that matter most to parents and their kids.
To help with the evaluation process, WalletHub compared the 50 states across 50 key indicators of family-friendliness. Our data set ranges from median family salary to housing affordability to unemployment rate. Read on for the complete ranking, relocation advice from our panel of experts and a full description of our methodology.
Best States for Families

Overall Rank (1 = Best)	State	Total Score	‘Family Fun’ Rank	‘Health & Safety’ Rank	‘Education & Child Care’ Rank	‘Affordability’ Rank	‘Socio-economics’ Rank
1	Minnesota	63.71	12	3	6	13	4
2	Massachusetts	63.22	8	4	4	20	15
3	North Dakota	62.40	30	6	1	8	1
4	Vermont	61.09	43	1	3	28	6
5	New Hampshire	60.94	39	2	7	9	5
6	New York	60.71	1	17	16	4	45
7	New Jersey	59.12	21	15	5	1	29
8	Nebraska	58.02	14	13	12	18	10
9	Connecticut	56.76	26	9	2	5	40
10	Washington	56.39	7	28	26	3	18
11	South Dakota	56.37	33	10	10	24	7
12	Iowa	56.34	32	14	11	15	8
13	Wisconsin	56.28	20	16	17	12	11
14	Rhode Island	56.15	24	8	14	2	36
15	Colorado	54.25	6	22	28	32	12
16	Illinois	54.23	3	31	22	23	37
17	California	53.88	2	36	38	14	28
18	Maine	53.47	46	5	9	25	17
19	Utah	53.02	18	25	21	37	3
20	Virginia	52.66	28	18	15	16	20
21	Wyoming	52.55	34	7	8	44	16
22	Montana	51.70	31	19	13	45	9
23	Hawaii	51.55	16	12	30	34	14
24	Pennsylvania	50.71	11	27	29	10	24
25	Kansas	50.03	35	30	23	21	13
26	Missouri	49.76	23	32	24	19	19
27	Oregon	48.81	10	20	36	33	23
28	Ohio	48.16	17	26	27	7	44
29	Idaho	47.85	40	11	46	47	2
30	Maryland	47.35	22	40	18	17	32
31	Delaware	46.88	45	21	20	27	25
32	Indiana	46.73	36	34	31	11	21
33	Texas	45.59	5	49	41	38	31
34	Michigan	45.30	38	23	42	6	27
35	Alaska	44.09	15	29	35	26	47
36	Kentucky	43.88	44	33	19	29	39
37	Tennessee	43.58	25	38	32	41	22
38	North Carolina	43.55	27	37	25	40	30
39	Florida	42.07	9	41	37	50	43
40	Nevada	40.94	4	43	49	49	46
41	Arizona	40.78	13	35	48	48	26
42	Georgia	39.42	29	45	43	35	42
43	South Carolina	39.25	42	39	34	43	34
44	Oklahoma	37.02	37	50	40	42	33
45	Arkansas	36.98	47	47	33	36	35
46	Alabama	36.78	48	44	45	22	38
47	West Virginia	36.57	50	24	39	39	41
48	Louisiana	36.35	19	46	47	31	49
49	Mississippi	31.88	49	48	44	30	50
50	New Mexico	30.68	41	42	50	46	48

By: WalletHub
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Voice for Real Estate: January 6, 2020

January 6, 2020 by CARNM

Get takeaways from NAR’s first-ever Real Estate Forecast Summit and annual conference; learn about key federal budget wins for real estate; and meet one REALTOR® who’s making a big difference in his Florida community.
By: NAR
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Expect Yields on Multifamily Investments to Tighten Further

January 6, 2020 by CARNM

Low interest rates give cap rates more room to compress while also cheapening the cost of capital for multifamily borrowers.

The combination of strong fundamentals, low interest rates and intense interest from investors should make for another white hot year for the multifamily sector.
Although 2020 faces its fair share of uncertainty with worries of a potential recession, a volatile geopolitical picture and ongoing trade wars, investors looking for low-risk returns could still flock to the sector.
Low interest rates provide a double stimulus for multifamily investment. The fact that yields on Treasuries are falling means that cap rates can tighten a bit more and still offer an attractive spread. Meanwhile on the debt side, the cost of capital is lower.
“Not only do we believe cap rates could drop, but we are forecasting a drop across property types for next year,” says Andrew Rybczynski, managing consultant for the CoStar Group. “Real estate is much less liquid, so it will take a while for cap rates to react to the 10-year, but it has been below 2 percent for some time now, and we expect cap rates to follow it down,” says Rybczynski.
Apartment investors paid cap rates averaging 5.5 percent from January through the end of November 2019, according to RCA. Cap rates have fallen to those levels from about 6 percent over the last four years, since 2015. Over the same time, the total amount of money investors spent to buy apartment properties has continued to rise. “It just goes up and up,” says Jim Costello, senior vice president for Real Capital Analytics. “It is a really competitive lending environment. We’ve been seeing loan-to-value ratios creep up in a number of markets,” says Costello.

Potential buyers like private equity funds also have money to burn.
“The sector continues to attract resounding fundraising figures, with more than $20.0 billion in closed-end funds targeting the U.S. multi-housing sector raised in 2019 through mid-December,” says Lauro Ferroni director of research for JLL.
Potential sellers also have more options—because they can now borrow more against their properties, they have a little less incentive to sell. “Potential sellers can afford to wait awhile,” says Costello.
With so much competition to buy properties, investors are being much less selective. They are paying almost as much for riskier properties, relative to the income from the properties, as they do for relatively safe investments.
“Primary and secondary market cap rates have converged to the narrowest gap this cycle—at 23 basis points,” says Ferroni. That limits how much more prices can rise for properties in secondary markets relative to the income from the properties— though secondary markets continue to get more and more attention from buyers— and capture larger and larger shares of transaction volume, says Rybczynski.
Value-added investments are also now more difficult as the yield for these investments becomes thinner. “Value-add is still difficult compared to the earlier parts of the cycle,” says Rybczynski.
Instead, investors are looking to new, risky kinds of apartment investments where they can earn the reward of a higher yield.
“The thirst for yield has also led to increasing interest in alternative multi-housing concepts, such as co-living and short-term rental business models,” says Ferroni. “These sectors are expected to continue to benefit from growing interest stemming from new capital sources.”
By: Bendix Anderson (NREI)
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