Origin QOZ Fund Deal Update Webinar
Watch this webinar to hear Origin Vice President of Investor Relations & Business Development Ben Harris overview the Origin QOZ Fund’s current and pending deals. Ben covers how our acquisitions team found these opportunities, what the competitive advantages are of each project, plus how these submarkets are experiencing hyper-growth, translating to potentially out-sized returns for our investors.
Introduction 0:00 – 1:46
2404 Navigation 1:46 – 5:42
Pilsen Gateway 5:42 – 9:03
NoDa Greenway 9:03 – 12:01
Farmhouse 12:01 – 14:11
Union @ Roosevelt 14:11 – 17:55
Closing 17:55 – 18:52
Create an account to access the QOZ Fund’s due diligence materials such as an overview, frequently asked questions, and legal documents. Then, if you’d like to learn more about Origin, take the next step towards making an investment, or have any questions, you can schedule a call with your personal Origin representative directly from your account.
Hi, everyone, and welcome to the deal update for Origin’s QOZ Fund. I’m Ben Harris, Origin’s Vice President of Investor Relations and Business Development. Today, I will be covering all the deals already in our fund and the deals expected to be added to the fund by the end of 2019. I do want to note that all current investors will be diversified across these deals, and if you are not a current investor and hope to participate in the future, you will also be buying into all these deals, not just the future deals. I thought that was worth noting. For each of the individual opportunities that I’ll be covering today, I’ll be covering how our team found them, the markets that they’re in and really those specific micro markets, and the specifics about each project and their various competitive advantages. But before I dive in to each individual deal, I want to highlight one theme that permeates itself across all the projects, and it’s the fact that we’re so local and it’s really a major competitive advantage for us.
I sit in Chicago where we’re headquartered, but we also invest in 11 markets, and we have regional offices in and around those markets. In opportunity zone investing, that’s a big deal because you’re investing in transitioning neighborhoods, and it’s important to understand where the growth has been and where it’s continuing to grow. By living in these markets and investing in them for a while, we have that knowledge. But it’s also where noting that knowledge doesn’t get good deals done. It’s relationships. A lot of the opportunity zone investments are off market and it’s about who you know and your reputation in the market. For us, we’ve been at this for a while, specifically in these sub markets, and that’s one of the reasons we’ve been able to get deals done. So, let’s dive in.
The first deal I’m going to cover today is 2404 Navigation. We just broke ground on this project. It’s a Class A multifamily development in Houston, Texas. The thesis of this deal is to take advantage of the growth already occurring in the East End neighborhood. The project is only one mile from downtown where most people work, except like in most cities across the country, people like being close to work but slightly away from it as well with more of a neighborhood feel. Those people who are looking for the neighborhood vibe have gravitated to East End with its thriving bar and restaurant scene. Now, this project is a joint venture with Marquette Companies. They’re a vertically integrated development and management firm and they’ve built more than 5,500 units. They’re highly active in both Houston and in Chicago just like us. In fact, that’s how we got to know them. We’ve previously partnered with them on a non-opportunity zone deal, and it’s going quite well, and we have really appreciated the way that they’ve carried out the partnership.
In terms of Houston, and specifically downtown Houston, it ranks as a top 10 Central Business District in the country. It’s certainly best known for energy, but the city has diversified into other industries like finance and healthcare. We expect the tenants in our building to be coming from all the industries. Now, downtown is benefited tremendously from an eight-point $2 billion capital infusion from both the public and the private sector. It transitioned the city from a work hub to what 24/7 live, work, and play hub, and this has certainly spilled over into the East End neighborhood that our project is in.
Going forward, the city of Houston is expected to get even more capital. For example, $7 billion has already been earmarked for a city improvement project. This project is expected to improve the accessibility to East End, but also promote parks and trails, which will be amazing amenities for the tenants of our project.
Our project is going to be 300 units. It will be eight stories tall with an average unit size of 840 square feet. To be competitive in today’s market, renters demand an impressive suite and amenities, and we’ll be offering that, and this is something you’ll see across all the projects. Amenities will include a resort style pool, bike storage, and structured parking. The total cost of 2404 Navigation is expected to be about $80 million with a loan to cost ratio of 75%. The Origin QOZ Fund will be contributing $19 million to the project. The projected hold period for this deal is 10 years, and in fact this is true for all the deals that I’m going to be talking about today and all deals that we’ll be talking about in the future. That is because investors realize the true maximum benefits of opportunity zone regulation when they are invested for 10 years, so of course we’ll be building these projects and then holding them for at least 10 years.
And so, over the projected 10-year period, we are projecting returns of a 2.9x multiple and a 13% IRR. Please note that these projected returns, along with all their deals that I’ll be covering today, are pretax. In fact, when we underwrite each of these opportunities, we are not even considering the tax benefits afforded to investors with the opportunity zone regulations. For us, real estate is real estate, whether it’s in an opportunity zone or not, and so we underwrite it accordingly. I should also note that 2404 Navigation was recently awarded a $7 million tax incremental financing abatement, which will reduce future tax liabilities. This is a big deal and we just got it, so it’s not yet reflected in the projected returns that I just stated.
The next deal I’ll cover is called Pilsen Gateway a Class A multifamily development in Chicago, Illinois. The thesis of this investment is to invest in one of the fastest growing neighborhoods in Chicago, and really the greater Midwest. The project is only 1.5 miles from downtown Chicago, which is also known as the Loop. Similar to Houston, many people work in the Loop. I’m actually recording this webinar from here right now. But most people want to live in a neighborhood with some actual character. And Pilsen has it. It’s home to Michelin star restaurants and one of the most popular concert venues in the city. People want to live there, specifically young professionals.
Now, this deal is a joint venture with CEDARst Companies, a vertically integrated development firm that has delivered more than 5,000 units to the city of Chicago. We’ve long admired their success and unique projects and this project gave us the first opportunity to work together. CEDARst recently delivered a similar project less than seven minutes from our site and it’s already performing really well, it’s stabilized, and that gave us even more confidence in our own project.
In terms of Chicago, the narrative for a while has been both positive and not so positive. We would know. We’re based here. Chicago’s the largest city in the Midwest and its home to the headquarters of 36 Fortune 500 companies, many of which shows to be here because of the city’s very deep pool of talent, especially young talent from world class universities like Northwestern and the University of Chicago. It offers all the attractions you could want in a big city, but what sets it apart from cities like New York and San Francisco is Chicago is actually affordable. Because of this, young professionals continue to flock to the city. In fact, asking rounds have increased for 36 consecutive quarters and we expect this trend to continue.
And now to the not so positive. Chicago has a fiscal deficit. The belief is the taxes will increase to help manage this deficit, and we agree. And so, as we were underwriting this deal, we consulted with third party tax professionals, and then we implemented an additional buffer to arrive at the tax assumption in our model. In other words, if taxes increase, and perhaps even dramatically, we have already assumed this. Now to Pilsen specifically, it is one of the fastest growing areas in Chicago. I already mentioned it. It has trendy concert venues and renowned restaurants. In fact, I’ve spent a lot of time in Pilsen over the years. But the neighborhood is also home to Chicago’s Medical District, which is a primary driver across the entire neighborhood.
As for the project, it is 202 units. It will be seven stories. And the average unit size would be about 620 square feet. Similar to the other QOZ projects in this fund, it is going to be rich and amenities. We’ll have an entire floor with a beautiful view of the Chicago skyline that will include a pool, a fully-equipped gym, and a resident lounge. The total cost of the project is expected to be $64 million with the loan to cost ratio about 65%. Origin’s QOZ Fund will be committing about $15 million to the project. The total cost is expected to be about $64 million with a loan to cost ratio of 65%, so the Origin QOZ Fund will be contributing about $15 million to the project. Over the projected year hold period, the returns are expected to be about a 2.9 multiple and a 13% IRR.
Now I’ll cover NoDa Greenway. It’s a Class A multi-phase multifamily development in Charlotte, North Carolina. The thesis of this project is to invest in the path of growth, which is exactly what NoDa offers. It’s three miles northwest of Uptown, which is Charlotte’s downtown, and NoDa is already populated with trendy restaurants and bars, but we expect the growth to accelerate because it is benefiting from a recently delivered light rail line. Now previously, the light rail only ran from Uptown, south through South End, and because of it, South End became one of the most popular neighborhoods in all of Charlotte. Now that the light rail runs through NoDa, we expect the same tap into that neighborhood. In fact, about a year and a half ago, we were already looking at investing in NoDa for a non-QOZ Fund. As we were looking at that project, our potential partner, Flywheel Group, mentioned that they had another site just down the street that’s at an opportunity zone.
The legislation was very new at the time and so we weren’t yet familiar with it, but we got smart really fast. Actually, we were so excited about the deal that we launched our own fund and we started looking at our markets across the country and realized that they all had opportunities zones in sub markets that we’re already looking at for non-opportunity zone investments. We ended up moving forward with this joint venture with Flywheel Group. Their a local developer who has shaped the vision for urban renewal and development in the noted neighborhood. Our managing director of acquisitions actually is based in Charlotte, and has been there for years now, and has really deep relationships, which is how he originally met Flywheel. In terms of Charlotte, with 1.2 5 million people, it is one of the major commerce centers in the country. In fact, it has the second largest banking center.
However, the local economy has diversified significantly since the recession. It’s been experiencing significant population growth, actually ranking as a top five fastest growing city in the nation. As for NoDa, I already mentioned that is trendy restaurants and bars, and now it benefits from the light rail only a few stops for uptown Charlotte where most residents will work. But it’s also set to benefit from the new Greenway Initiative, which is a restoration program for parks and trails, only a short walk from our project.
Now for our project, it’s expected to be 326 units, although we do have the opportunity to develop another thousand units if we decide to proceed with a multi-phased project in the future. We acquired the land in early 2019 and we’ve patiently been waiting to break ground while we wait for the city to move forward with improved accessibility already planned for the site. In the meantime, our land has appreciated more than 30%, highlighting demand for our site and the overall project. The total project cost is expected to be about $61 million with a loan to cost ratio of 65%, and our fund will be contributing $20 million to the project. Over the expected 10-year hold period, the projected returns are 2.9x multiple and a 13% IRR.
Now I’ll cover Farmhouse in Murfreesboro. It’s a Class A multifamily development in Murfreesboro, Tennessee. It’s 25 miles South of Nashville. The thesis of this project is to capitalize on the hyper growth of Nashville, specifically though in the city of Murfreesboro, where residents still have access to downtown Nashville, but where they choose to live for a more affordable option with great schools, strong amenities, and a small-town charm. This project is also a basis play. Because of the efficiencies with our local development partner, we’re able to build our project for 30% less than what it would cost someone else to build the project today.
It is a joint venture with Front Street Partners, which as I just mentioned, is local to the area. They’ve successfully completed 11 other projects in the middle Tennessee region over the last five years, and in fact one of them was completed two years ago and it’s a carbon copy of Farmhouse, our project, and it’s already been stabilized and sold, giving us even more confidence in our own project. As for Nashville, it has certainly grabbed the headlines over the last handful of years as one of the fastest growing cities in the nation. It’s home to more than 40,000 businesses who are attracted to the city because of its low tax burden, but also, it’s amazing talent pool. The city offers a vibrant cultural scene and affordability, which helps attract young professionals from all over the country. I certainly know a lot of people who are moving there.
But Nashville has grown north for a while and we believe there’s little room for this trend to continue, and as a result we expect the city to now start growing south even more than it already is, which will benefit Murfreesboro, where our project is. While many Murfreesboro residents do commute to Nashville, the city itself of Murfreesboro is a strong standalone city. In fact, the US Census Bureau recently ranked it as a top 15 fastest growing city in the entire country and Time Magazine ranked it as a top 20 place to live in America. As for our project, it’s expected to be 288 units with an average unit size 950 square feet. The total project cost is expected to be $43 million with a loan to cost ratio of 70%. our fund is expected to contribute about $13 million to the project. And so, over the projected 10-year hold period, we’re expecting returns of a 2.9x multiple and a 14% IRR.
Now for the last deal that I’ll be covering today, it’s Union @ Roosevelt, which is a class a multifamily development in Phoenix, Arizona. The reason I saved it for last is because it’s a very unique deal. Let’s start with the thesis. This project is located in Downtown Phoenix, almost on main in the Roosevelt Row Arts District, one of the top arts districts in the country. However, I said it’s a unique one and that’s because it’s not just a standalone development. In fact, first we’ll be buying phase one, which is an already built 95% occupied multifamily that was delivered in 2017. However, we can’t just buy that project because we wouldn’t qualify with the opportunity zone tax benefits. You do need to double your investment basis to realize the full benefits. In addition to buying phase one, we also bought a vacant lot just next door, where we’ll build phase two, which will be slightly larger and going to also be highly complementary to what we already have. We’re really excited about phase one and phase two together because we’re getting the upside of development while also stabilizing the property with an already built project.
This deal is a joint venture with Randolph Street, which is a group that’s highly active in both Phoenix in Chicago, just like us. In fact, we’ve already partnered with them on three different projects, all non-QOZ deals, that have either fully realized already going really well, so we’re confident in their ability to execute and we’re also confident in their ability to be good partners. As per Phoenix, it has been experiencing rapid expansion for a while now. In fact, last year it ranked fourth in the US for employment growth. Over the past five years, $5.5 billion of public and private funds have been invested directly into downtown, which has resulted in a dynamic urban center. People live, work, and play here.
In addition to being the regional headquarters for companies like JP Morgan and Wells Fargo, downtown is also home to Arizona State campus of 19,000 students. Let’s focus on the micro market though, which is Roosevelt Row. It was ranked by USA Today as a top 10 arts district in the country, the top galleries and music venues. To illustrate the growth already going on here, over the next 12 to 18 months, a handful of projects will break ground, and all will be complimentary to what we are building here. One is a Cambria Hotel. There’s also an Oxford Hotel. There are two office buildings totaling 400,000 square feet. Then there’s a Punch Bowl Social going in, which is a popular restaurant bar, bowling, arcade concept already in major cities across the country, and there’s actually one here in the trendy West Loop neighborhood of Chicago.
Now for the specifics of the project. Phase one is 80 units and it has 9,100 square feet of retail. Phase two when built will be 105 units with 4,000 square feet of retail. And so when completed, the total project will be 185 units. Phase two will also include amenities that phase one does not currently have, but phase one tenants will get to use one completed, and so it’s creating a better experience for tenants of both buildings. Those amenities include a rooftop deck and a swimming pool. I also want to note when looking at this site, projects actually on the north side of the street are not an opportunity zones and products on the south side of the street are, and so we feel very fortunate that we are on the south side of the street. In terms of the total project costs, it’s expected to be about $55 million with the loan to cost ratio of 65%. Origin will be funding equity of $17 million. Over the projected 10-year hold period, we’re expecting returns of about a 2.7x multiple and a 13% IRR.
That’s all I have now covered all five deals that are currently in the fund or expected to be in the fund by the end of 2019. I’m really hoping you feel more educated about the deals themselves, how they came about, the markets, the micro markets, and just some of the specifics about each project. If you have any follow-up questions or want to learn how you can participate, please email or call your personal Origin contact. If you don’t know who it is or you don’t have one yet, you can also email us email@example.com. Our fund is currently accepting investors and we’d love to partner with you. Thank you for tuning in and we hope to speak with you soon.
The information discussed herein is for informational purposes only, and is not intended to provide, and should not be relied on, for investment, tax, legal or accounting advice. The contents of this presentation are not provided with regard to your specific investment objectives, financial situation, tax exposure or particular needs. Nothing presented should be used as the basis for making any specific investment, business or commercial decision. You should consult your personal tax, legal and accounting advisors before engaging in any transaction. The provision of any services or products provided by Origin Holding Company, LLC or any of its affiliates is expressly subject to the particular terms and conditions contained in separate written agreements between you and Origin or such affiliate, as applicable.