Opportunity zone land scooped up near Samsung
The opportunity zone specialists at River City Capital Partners LLC have closed on a new acquisition in Northeast Austin near major employers and budding neighborhoods.
The 69-acre opportunity zone tract is located on undeveloped land at the intersection of East Yager Lane and East Parmer Lane, just a stone's throw away from Samsung Austin Semiconductor's massive campus. The parcel is also near Shops at Tech Ridge, a 519,354-square-foot shopping center home to major retail tenants, while Reger Holdings LLC is planning a major mixed-use development of its own in close proximity. It's also near the growing Parmer Austin business park that's already home to companies such as General Motors and Facebook.
River City Capital Partners navigated the COVID-19 pandemic to close on the property in early April. The firm declined to disclose the purchase price, but the property was valued for tax purposes at $4,085,893 in 2020, according to Travis Central Appraisal District.
"It’s an opportunity zone tract that is still in close proximity to major employers," said Peter Kehle, CEO of River City Capital Partners. "That’s kind of the main driver for us in what we were looking for, and that’s what we have there.”
Kehle declined to say who River City Capital Partners bought the site from, though TCAD's website still lists the owner as a trustee for J. Tim Brown.
River City Capital Partners plans to develop three distinct elements on the site: multifamily market rate apartments, income-restricted units and a separate commercial development. Because the site is located in a federally designated opportunity zone — part of an investment program created by the 2017 Tax Cuts and Jobs Act — investors in the development can qualify for a variety of perks. That includes significant tax cuts and delays for those who funnel money into opportunity zone projects; up to 15 percent of capital gains invested can be exempted from taxes, if investors keep it in the zone for at least seven years.
Kehle and River City Capital Partners President Cory Older have become something of opportunity zone experts since realizing that a property they were developing in East Riverside was located on the edge of federal opportunity zone. A mixed-use project called Urban East is currently in the works there; it's set to feature 111,000 square feet of office space, about 20,000 square feet of retail and 384 apartments units spread across two buildings.
Urban East was supposed to break ground in early 2020 but that has been delayed due to COVID-19, Kehle said. Closing a deal during a pandemic It wasn’t easy for River City Capital Partners to close on its latest opportunity zone development site.
The effort proved cumbersome as the COVID-19 pandemic raged, with extra steps and safety precautions shoehorned into the process at nearly every step.
“Fortunately for the real estate industry, title companies were from the very beginning considered an essential business," Kehle said. “Now, getting to the title company, what would normally be a one-day process turned into a four or five-day process.”
Part of the problem was getting together at one time all of the key players: the buyer, the buyer’s attorney, the seller, the seller’s attorney and the title company. Communications were naturally slowed as all parties acclimated themselves to operating out of home offices.
The process only grew more surreal once it was time to close the deal; Kehle recalls that visitors were allowed inside the title company, Stewart Title of Austin, by appointment only. Even then, the doors were locked upon arrival. Someone came out and wiped down the exterior door handles before anyone entered.
"At the closing table it was made a point to say, 'Here's a fresh pen,'" Kehle recalled. Kehle described the process as a hectic experience.
“You’ve got minimal staff, but you’ve still got all these deals that are moving forward, and less staff to do the work," he said. "So they were really putting in some hours.”
Moving forward, the tract will have to subdivided and a traffic impact analysis will have to be conducted. Given the ongoing COVID-19 pandemic, Kehle estimated it will be at least a year before any construction begins at the site.
The impact of COVID-19 Kehle predicted that real estate will become an increasingly popular investment vehicle as the COVID-19 drags on.
“Generally, people are looking at the money printing that is going to be going on out of the Fed. There will be schools of thought out there that it will eventually become inflationary," Kehle said. "That same school of thought leads people to real estate investing.”
“Money was looking for a reason to get out of the market … and this was a reason," Kehle said.
Because opportunity zone regulations require capital gains investments to unlock the full tax benefits, there is reason to believe money pulled out of the markets could find itself in opportunity zone projects.
“The road is leading to an increased interest in real estate investing," Kehle said. “Yes, that could end up finding its way into these opportunity zone projects.”
Of course, River City Capital Partners isn't the only real estate firm looking to take advantage of opportunity zone benefits. Kehle knows he will continue facing competition for those investments.
“There’s been a lot of money flowing into Opportunity Zone funds, and we try to know who those pools of money are," he said. "But it seems on a regular basis we keep coming across pools of money that we didn’t know were even there. Their names aren’t in neon lights.”
By Paul Thompson
Austin Business Journal