Miami Opportunity Zone Investing, With Liam Krahe & David Cohen

Miami is experiencing steady and comparatively outsized growth, with strategically located Opportunity Zones offering new avenues for investment and development.

Liam Krahe and David Cohen, co-founders of the South Florida QOZ Fund, join the show to discuss the challenges and opportunities of investing in Miami’s rapidly evolving urban landscape.

Episode Highlights

  • National real estate trends, vs. the local real estate market in Miami right now.
  • The role and financial efficacy of targeted investments in Miami’s Opportunity Zones, and their potential to drive community growth.
  • How strategic investments can lead to job creation and economic development in underserved areas.
  • How cost segregation and accelerated depreciation strategies are used to enhance tax benefits and improve the financial returns on Opportunity Zone investments.
  • Tips for mitigating risks associated with Opportunity Zone investments, including diversification strategies and due diligence processes.

Guests: Liam Krahe & David Cohen, South Florida QOZ Fund

Featured On This Episode

About The Opportunity Zones Podcast

Hosted by OpportunityDb founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

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Show Transcript

Jimmy: Welcome to the “Opportunity Zones Podcast.” I’m Jimmy Atkinson, and today I’m joined by Liam Krahe and David Cohen, the two co-founders of the South Florida QOZ Fund, located in Miami, Florida. Gentlemen, thanks for joining the show. How are you doing today?

David: Doing great. Thanks so much for having us. We’re looking forward to chatting with you.

Liam: Thanks, Jimmy. Great to be with you today.

Jimmy: Yeah. David, Liam, great to be with you today as well. Gentlemen, some of my audience might be familiar with the South Florida QOZ Fund or the SF QOZ Fund. You did present at OZ Pitch Day a short while back, on our June 2024 OZ Pitch Day. Liam, you’re a member of our OZ Insiders mastermind group, and it was great seeing you in Chicago a few months back, at our members’ dinner. So, as I mentioned, some of my audience may already be familiar with you, may have heard the name SF QOZ Fund, familiar with what you’re doing. But for anybody who may have missed the last OZ Pitch Day, or who’s just new to my platform or new to Opportunity Zones in general, can you tell me a little bit about your background, and the project you’re developing in Miami under the SF QOZ Fund?

David: Sure. So, our background is in the attorney realm. We’re both attorneys in the real estate realm, and also in the securities realm. And through a lot of work with clients, we do over 300 deals a year, and through a lot of work with our clients, we came to learn that many of them had taxable gains. And so, they would come to us and ask for solutions in connection with how to solve their gain issues, and also how to invest in great opportunities, particularly in South Florida. And so what Liam and I did was we came together and we found a solution for them, and we partnered with top-in-class developers, McCaffrey Interests, and Grand View Development, to put together an awesome project in the Arts and Entertainment District in Miami. It’s an assemblage of 10 contiguous undeveloped parcels. The Arts and Entertainment District is booming, and we feel fortunate that it’s in an Opportunity Zone. And I know we’ll talk about that later, Jimmy, regarding Miami and the market, and why it’s a great place to be if you’re in an Opportunity Zone, because there are many Opportunity Zones in Miami that are in vibrant areas that are growing. The site was sourced off-market, and so, yeah, we’re definitely looking forward to chatting with you more about that. But just wanted to give you the background and the foundation on us, and how this fund evolved.

Jimmy: Yeah, that’s helpful. It’s great background. I do wanna talk a lot more about your deal, and the Miami market a little more broadly, throughout the course of the day’s episode. Liam, what about you? What’s your background? And do you wanna fill in anything that David may have missed about the fund?

Liam: Yeah. Thanks, Jimmy. As David mentioned, I’m an attorney as well. By trade, that’s my background. I focus primarily in real estate and securities law, representing clients throughout the country, as well as internationally. I am based in South Florida, in Miami. I grew up in Pittsburgh, but based in South Florida. And so, just grateful to be a part of the team with David, and able to carry this project forward. So, looking forward to discussing it in more detail later.

Jimmy: Yeah, we will. We’ll discuss it in plenty of detail. But to start us off, I wanted to talk more broadly about real estate, the current state of the market. Then we’ll dive into your fund. So, let’s start off by, I wanna ask you gentlemen, what’s your real estate worldview right now? What do you view as the current state of the real estate market? And where do you see it going, both nationally and in Miami? And is Miami different in a lot of ways? Is it experiencing different trends than the national trends? What are your thoughts on national real estate trends versus what’s happening in Miami right now?

Liam: Yeah. So, I could give a little insight on that, and then David could jump in as well to, if I miss anything. But really, what we’re seeing is definitely a slowdown on transaction volume across the board. The marketplace is, it’s different than it was, obviously, 12 months ago or 24 months ago. And a lot of that has to do with interest rates and the cost of capital. Interest rates have forced a lot of developers to reconsider or reevaluate their strategy, or execution strategy in their development projects. It’s forced developers to get more creative in how they underwrite their deals. The days of a 2% and 3% interest rate environment is gone, and now, the development world is being upset, so to speak. A lot of developers who were, or thought they were developers, are not developers anymore, because they are now being forced to make decisions that they didn’t necessarily consider when they went into this in 2020 or 2019, when, again, interest rates were much lower.

And so, from a market outlook standpoint, Miami is different in a lot of ways than other markets. We’re seeing a ton of capital continue to pour into South Florida. But as a whole, institutional investing has dropped significantly. I just recently read a Trepp report that said that 50% of institutional debt, or lending, is down in South Florida, which has really pushed the lending market to the regional lenders, to fill that gap, and also to private credit. We’re seeing a ton of activity right now with private credit. Unfortunately, from a development standpoint, that’s gonna be more expensive, in a lot of ways, than it would be from your traditional bank financing. So, it’s resulted in a challenging market, but we’re seeing, hopefully, some light at the end of the tunnel here, with the recent announcement, and potentially a rate cut in the next 30 to 60 days. So, I think if that happens, there will be some movement in the marketplace, and I think we’ll start to see deals start to flow again, hopefully.

But we’re optimistic about the South Florida market. We love the South Florida market. We think there will be continued growth. In fact, we’re seeing that, and in a lot of ways, it’s healthy. It’s not the same aggressive migration from the Northeast into South Florida. The pace has changed, but we’re still continuing to see growth. And we don’t see that changing. A lot of the companies that announced they’re moving to Miami in the past 24 months are now just moving their workforces to Miami, so that will continue to drive demand for housing and multifamily rentals. And then the regulatory environment in South Florida is conducive to development and to continued growth. You’re not seeing the rent restrictions that you would see in New York or in LA. And so that’s attractive to a lot of investors. So, I’ll turn it over to David, if he wants to add anything, but that’s just my general outlook on the market. I am optimistic, and I do think things will loosen up here.

David: Yeah, I definitely concur with Liam’s thoughts regarding the market, as far as nationwide is concerned, and I definitely am optimistic that things are gonna change, particularly after the election. In the interim, I think Liam and I feel fortunate, and one of the reasons why we have a fund that’s based in Miami, is that South Florida does still continue to develop, and I think it’s largely attributed to what Liam had said, but also, I think that there’s an element of the fact that there are Opportunity Zones in Miami, that are amazing areas, and that, in other areas of the country, you don’t necessarily see these types of areas be an Opportunity Zone. So, I think it’s sort of the combination of the reasons why the Miami market is vibrant, based on the growth that’s happening in Miami, but also the fact that Opportunity Zones are still awesome opportunities in Miami because of the growth and because of the areas that are considered Opportunity Zones, based on the census. So, that’s the only thing that I would follow up on, from Liam’s.

Jimmy: No, that’s great. Great comprehensive overview of the real estate marketplace. I should note that we’re recording this episode on August 1st, 2024. We just had a meeting of the FOMC yesterday, I believe, where they made the decision to keep rates steady, as was expected, but the general consensus seems to be, and the Fed just hinted at this, is that we’re likely to get a rate cut in September, which would be our first rate cut in a very long time. They steadily ramped up rates starting about two years ago, a little over two years ago, and rates have been in the range of fives, approximately, for the last, I think, about full 12 to 13 months now. So, a interest rate drop would be very welcome news for investors. I’m curious, how much of an interest rate drop do you expect to see between now and the end of the year? Do you think we’ll see a 25 or 50 basis point reduction, or maybe something different? And what would it take to move the needle, and unlock some capital that may be sitting on the sidelines waiting for interest rates to drop? Is 25 enough? Does it need to be 50? Does it need to be a full point? I’m just curious how much of a rate drop are you expecting? How much of a rate drop will actually move the needle? And then, David, you just mentioned things might change after the election. Do you feel investors are waiting for a particular outcome, or are they just waiting for clarity that election results, no matter which way the election falls, will unlock a lot of capital on the sideline?

Liam: Yeah. So, I can take the first part, about the interest rate, and then, David, you can jump in there about the election. So, the rate cut, from what we’re hearing in the marketplace, 50% will move the needle. Or, I’m sorry, a 50 basis point reduction will move the needle. Twenty-five percent will be good, but I think people are looking for the 50-basis-point reduction. So, that’s what we’re hearing. I think we’ll see some relief if that happens. More capital will come off the sideline. But certainly, from an institutional standpoint, institutional equity is on the sideline right now. Obviously, that’s different for OZs. OZ, you know, equity investment has a clock. Institutional equity doesn’t necessarily have a clock. And so, we’re seeing a lot of that institutional equity sit on the sideline because they’re competing with private credit right now, and they’re asking for returns of 13%, 15%, 16%, which, in a lot of deals, doesn’t work. And so, there’s certainly some opportunity for relief to come, I think, if we see that 50-basis-point reduction. David, I’ll turn it over to you now, for your insight on the election, but I think it all ties together there.

David: Yeah, I think all that does tie together. I also think that there is a general paralysis, that I’ve seen, around elections, whether it’s with this or whether it’s with other businesses of mine. I think that there’s a sentiment that’s been pretty consistent of wanting to know what happens in an election, even when it may not really adversely affect the party as much as they think that it might. And so, I think there’s a battle with that at this time. I don’t know that it’s definitively whether the election goes one way or the other, though I have heard the sentiment that if it’s a Republican win, it might be better for OZs, as far as an extension of the OZ term, as far as how long you can defer the gain. But really, what we’re seeing is simply a paralysis just based on the election, and I think that people believe that whether it’s one way or the other, that it’s gonna adversely or significantly change things for them in ways that, you know, personally, I’m not sure they will. But I think that it’s just a natural reaction that we’re seeing in the OZ market. But also, I’m seeing it in our other businesses as well, with clients. We often see a rush of clients, for instance, in an M&A law firm that I own, we’re seeing a rush of clients that wanna get deals done before the election, or wanna make sure that their closing date is after January 1, etc. So, I think, you know, I can’t explain it specifically. I just, I’m hearing the sentiment very consistently from many parties, whether they’re in the investor and OZ space or otherwise, that the election is something that they’re waiting for. And I would love to get more clarity on that.

Jimmy: Yeah. Well, I think maybe investors are just waiting for more clarity. I think investors don’t like uncertainty. And for whatever reason, they need to know who’s gonna be leading our nation come January of 2025…

David: It’s a great point.

Jimmy: …before they make any investment decisions. It’s not necessarily even that they need a certain result one way or another. That’s another matter we can discuss at a later point in time, on a later podcast maybe, but just having clarity around what the result is might unlock some capital, is kind of my thought there. I wanted to shift gears, and talk about Opportunity Zones in a little more detail now, in regards to your real estate development project. You’ve mentioned the interest rate environment has posed a challenge. The lack of uncertainty about the election has posed some challenges. It seems that transaction volume is way down. You noted, at the beginning of the episode, it’s down across the board. And so, what… You guys are undergoing a big development project in the Arts and Entertainment District in Miami, because a lot of your clients are looking for that type investment, but what have been some of the biggest challenges so far with actually advancing that project, and advancing your Opportunity Zone Fund? And have you found any solutions?

Liam: Yeah. So, you know, I mentioned the cost of capital. Well, I alluded to the cost of capital right now, or before, is certainly higher than it was 12 months ago or 24 months ago. Interest rates are higher. So, it’s more expensive to underwrite deals. Construction is up. The cost of construction is up, especially in South Florida. So, you have to get creative in your underwriting. And I think, for us, you know, relying on the experience of McCaffrey and Grand View, as seasoned developers who have extensive experience in taking transactions full cycle, ground-up, full cycle. And for us, it’s a multifamily project, which, you know, different asset classes are facing different challenges. Right now, you’re seeing a huge trend in Miami, shifting from multifamily to condos. That’s a big, big move right now. You’re seeing it across the board, where a deal was originally underwritten for multifamily, but now has shifted to condo. And the reason is because condo development, you can pre-sell the units, and secure deposits. In South Florida, or in Florida, you can use those deposits immediately. And so, you can underwrite your deal with a deposit, and secure financing for 50% of the construction costs.

So, we’re seeing developers get creative. We’re seeing people do different things. But for us, you know, our focus is on multifamily. We’re not shifting the objective. We still believe in the deal, we still believe in the market, and we still feel that it’s a great deal. Because, you know, for us, we were fortunate to actually, to receive a strong, you know, to be able to negotiate and to receive a strong land basis for our project. We could talk about that in detail later, but, you know, it really is a deal-by-deal analysis, when you’re looking at whether these work or not. And for us, you know, we’re fortunate we were able to get a great deal. I can’t say the same about others in the South Florida marketplace, but for us, we love our deal, and we think it’s certainly gonna be successful. So, David, I don’t know if there’s anything you wanna add to that, but those are really some of the major challenges we’re facing. But I think we are finding, we’ve found some creative solutions. So, I don’t know if there’s anything else you wanna add, but…

David: Yeah, I would say that another challenge that we faced in general was pre-project, in that because South Florida is so vibrant, and because it is growing so dramatically, that it was very difficult to find a deal for us that would underwrite. And I know that that is the case amongst other deals in South Florida as well. And we were very patient, and we looked at probably over 100 deals over the past year, just trying to make sure that the deal would properly underwrite, and that it checked all of our boxes. And finally, you know, through the help of our broker, we had found an off-market opportunity that did underwrite. But I think that was one of the challenges, and that’s one of the challenges that others have faced, is, you know, while South Florida is vibrant right now, unlike many areas of the country, what comes with that is the fact that people know it, and, you know, a lot of these deals don’t pencil. So, I think we feel very fortunate to have found one that pencils. We know that there are some others that pencil as well, as we have colleagues in the area that are also doing projects. But that has been one of the challenges that we have seen, in addition to what Liam conveyed.

Jimmy: Yeah, Miami is not … I was gonna say, Miami’s some hidden secret that nobody knows about, right? It’s pretty well-known, which I think could be a plus when it comes to marketing your project. But I’m sorry, Liam. I cut you off. You were about to say something.

Liam: No, one other thing I just wanted to add, too, is from, like, an OZ investment standpoint, one thing you’re seeing are these OZ Funds that can’t find projects, or because of the lack of projects that are available, or a lack of their specific fund strategy, the projects that are consistent with their fund strategy being unavailable, they’re shifting to alternative investments, or recalibrating that fund strategy to different asset classes, for instance, oil and gas, or cold storage, or things like that, that they’re trying to find ways to obviously, to invest the capital, and to make a return for their investors. So, it does pose another challenge for us, to find that equity, to continue to find solid partners. But, again, we believe in this market. We feel that it is positioned differently than other markets, and the OZ census tracts are, in our eyes, the best in the country, so…

Jimmy: Well, I’m curious, where’s the interest for this type of investment, ground-up development project in Miami? Where’s the interest for that type of investment coming from at this point in the market cycle, where it seems like it’s been a challenge to raise capital … a lot of capital locked on the sidelines, as we pointed out?

Liam: You’re talking, so, specifically, the question is, who is it? Or, like, who is the investor that’s attracted to this type of project?

Jimmy: Exactly. Exactly.

Liam: Okay.

Jimmy: And what has the appetite been, overall?

Liam: Yeah. So, I think that, from an investor standpoint, they see this as, again, coming in pre-entitlement, as opposed to entitled project, with site plan approval, and plans, and a GMP contract for construction in place. They’re entirely different risk, from an investment standpoint, two entirely different risks. What I think you’re seeing is that there’s still certainly an appetite to come in pre-entitlement, which is where we are. Because of the higher return that you would receive, the risk-adjusted return, as opposed to a fully-entitled, fully-site-plan-approved project, you’re obviously gonna have a lower risk, or lower return tied with that. And so, for us, we see this, if you’re looking across the landscape of the United States and in different markets, Miami, the value of the land pre-entitlement, and what it will ultimately be entitled, de-risks the investment substantially from an investor. And so, we are seeing a ton of attention and interest, still, in pre-entitled projects, but it’s still a challenge, across the board. I mean, you’re certainly facing challenges that you didn’t otherwise face a year ago or two years ago.

Jimmy: Right, right. Well, I’m also curious, how has investing changed over the lifecycle of the Opportunity Zone program? Are you encountering a much different type of investor here in the summer of 2024 than maybe you would have seen at the beginning of the program, in middle of 2018 or 2019 or 2020? How has investing changed through the last, I guess it’s been, basically now we’re about at the six-year anniversary of Opportunity Zone investing. How has it changed?

Liam: Yeah, we’re seeing a shift from the retail investors that you saw…well, you saw a ton of retail investing in 2017, 2018, 2019, in OZs across the country. Now, we’re seeing a shift from the retail investor to the ultra-high-net-worth, high-net-worth, institutional groups. And there’s a variety of reasons, but I think the main one is the deferral of that gain. Obviously, every day that goes by, it’s less attractive to a retail investor, just because that deferral period is beneficial to them. I think the main, from a institutional, and ultra-high-net-worth individual, they’re less concerned about the deferral, and more concerned about the step-up in basis, and the no tax and depreciation that they would receive after the 10-year period. They’re just better-capitalized to pay that, you know, the gain, and less concerned about a deferral than they are about the step-up in basis.

Jimmy: Okay, you mentioned appreciation and depreciation recapture. I’ve oftentimes referred to that in the past as one of the hidden benefits of investing in Opportunity Zones. At the beginning of the program, everybody was touting the three main capital gains, taxation benefits. One, the deferral period. Two, for a time, up through 2021, there was also an ability to reduce your gain liability on that initial gain investment. That has since expired. And then three, of course, is the big enchilada, I like to call it, the exclusion of all capital gain liability within that Opportunity Zone investment, so long as you hold it for 10 years. If you’ve been following me for any period of time, you’ve heard me espouse these benefits multiple times, right? But a fourth, hidden benefit that we don’t really talk about that often, or that I’ve only mentioned here and there, high-level, is depreciation, and the ability to avoid depreciation recapture on the back end. Now, Liam, you’re not a CPA. I’m not asking you to give anybody tax advice, but I am curious, how exactly does depreciation pass through from the fund to an LP in the fund? What type of LP is able to take advantage of depreciation? And then, for any people out there who aren’t in the know, or super tax-wonky, what, at a high level, is depreciation recapture even, and how big of a deal is it that investors are potentially able to avoid depreciation recapture? What does that actually do to their bottom line? How does it impact the overall returns of their investment?

Liam: A lot there. So, yes. First, I am not a CPA, so do not take anything that I’m going to say right now as tax advice. And there is also no legal advice as well, even though I am an attorney. This could be its own episode, so I’ll try to discuss it at a higher level, and then we could dig into it in more detail if you have additional questions or we wanna do a separate episode on this.

Jimmy: I think it’s fine to keep it high-level, for the purposes of this episode. And, yeah, I totally get it. This is not meant to be legal advice or tax advice, but please give us your high-level thoughts on exactly how does it work, and what impact does it have on returns at the end of the day, typically?

Liam: Right. So, just, as a, again, high-level, typically, what you would have is a real estate asset, and a building that’s constructed on that property. You would depreciate the value of the building, or of the components of the building, over their useful life. And there is a schedule for each component, and generally, you would have to depreciate it over a period of years. You are, however, able to accelerate the depreciation. There is a, every year, the amount in which you can accelerate is declining. There is legislation that was recently proposed to reset that depreciation schedule, but right now, it is still declining every year. So, the benefit of this is less and less as we move forward. However, right now, it’s still available. And so, what you could do, and what a lot of developers do… Again, the analysis, this whole discussion is really based on the time value of money standpoint. So, a dollar today is worth more than a dollar tomorrow, essentially. So, by investing it, by receiving some benefit, you can reinvest it in something else, and take advantage of that.

So, the idea is to… This can be done through what’s called a cost segregation study, where you will essentially break up the building, all of the components of the building, and assign a specific useful life to those components. You then can accelerate the depreciation. Instead of taking it on a straight-line basis, you can accelerate it all down, and take that depreciation in one year, in which you’ve accelerated that depreciation. You then can pass that through, depending upon how the fund is structured and your operating agreement. And, again, every fund is unique, but for us, we’re passing those losses. So, those are essentially losses that you would be able to pass through to the investors. Those investors can then use those losses to offset any gains that they may have from other investment. If they’re not used, they’re typically suspended and carried forward. It depends on the type of investor and who you are, and whether you qualify as a real estate professional, whether you’ll be able to use them to offset active gains, or, if you’re not a real estate professional, then they would be used to offset passive gains. But again, if you can’t use them, they would typically be suspended and carried forward. But every deal is different, and how they allocate losses and profits is really, it comes down to your operating agreement and what’s in your security documents. But, for us, we intend to pass those through, and allow investors to use those to offset some of their other gains they may have from either active investment or passive investment in other deals.

Jimmy: Okay, that’s helpful. So, you can offset some of your gains, or income, I think, as well?

Liam: Correct.

Jimmy: And you can apply it to either active or passive, depending on how everything’s structured.

Liam: Correct.

Jimmy: And consult with a CPA, to get advice on your specific situation. Don’t take this as gospel, necessarily. This is very high-level overview, but that’s helpful. And then, on the back end, when you go to sell that asset, typically, what happens in a non-OZ deal is that all…

Liam: In a non-OZ deal… Yeah, go ahead.

Jimmy: …the depreciation you’ve taken gets recaptured, right? But in this case…

Liam: Correct. You’ll pay a tax on it. Correct, exactly.

Jimmy: Right. But in this case, for an OZ deal, there’s no depreciation recapture that’s… You don’t owe the IRS any depreciation recapture taxation, essentially. Is that correct?

Liam: Correct. So, from a non-OZ standpoint, there’s a huge camp that says you should not do cost segregation, you should not accelerate depreciation, because at the end of the day, you’re gonna pay it back. But, again, if you apply a time value money analysis to it, most CPAs I think will agree that if you can take advantage of that, and benefit, and there is a benefit of it today, then do it. You will end up paying it back when you sell, but if it is an OZ deal, you obviously will not pay that recapture tax. That’s significant, and can change an entire underwriting of a deal, and really, I think, is a major distinguishing factor when you’re looking at deals and how you can take advantage of that to offset some of your other, other gains that you may have from your investments. So, it could be a really powerful tool, that is often not discussed.

Jimmy: Yeah, I agree. It’s a major factor, that can have an enormous impact on the bottom-line returns of the investment. What type of impact does it have on return, typically, in your estimation? I know it’s probably a range, depending on a variety of factors.

Liam: Yeah, each investor’s different. We do see, though, investors that are just investing in deals to receive some of these losses, to offset or rebalance some of their portfolios that they have, especially if they’re active, and they can take advantage of it on other…I say active, by active status as a real estate professional, to offset some of their gains that they have from other projects. There is a strategy in doing this and in trying to time it. And that’s, again, a whole other discussion to have, but it’s hard to quantify it in a specific number. But, I think, across the board, from an OZ standpoint, it’s a no-brainer, just because you’re not paying the tax on that. Again, if you’re not in an OZ, it may or may not make sense. If you’re in an OZ, it doesn’t make sense why you wouldn’t take it, or wouldn’t do that. And so, again, it’s just something that’s not typically discussed. You often hear the step-up in basis, the deferral of the gain. And it’s just, in our eyes, it’s an enormous benefit to an investor. So, something to look out for if you’re considering investing in an OZ.

Jimmy: Absolutely, absolutely, Liam. Well, let’s return, for the balance of our episode, to the Miami real estate market. You mentioned a couple times there’s a lot of great Opportunity Zone locations, census tracts within Miami. I’m curious, you know, give me some more thoughts about the state of the Miami real estate market when it comes to Opportunity Zone demand. Where are some of the ripest locations to be investing in? And tell me a little bit about your deal, and the state of your deal currently.

Liam: David, do you wanna take that one? I’ve been talking …

David: Yeah. No, no worries. Yeah.

Jimmy: Yeah, let’s hear from David. Go ahead, David.

David: Yeah, no worries. Yeah, I’ll talk about the different areas, and address the first one. So, obviously, from our standpoint, we view the Arts and Entertainment District… And when I talk about these areas, it doesn’t mean that the entire area is necessarily in an OZ, but there are, at least in part is part of an OZ. So, the Arts and Entertainment District, Wynwood, which many of those listeners have probably well heard of by now, Edgewater, which is also an emerging area, those, I would say that Wynwood, Arts and Entertainment District, and Edgewater are probably the primary areas that have Opportunity Zone opportunities right now. I think there have been other areas, such as the Design District, where, the Design District, I believe, last that I heard, it was the second-most expensive real estate in the country behind Beverly Hills. And that is an OZ, but obviously now, that’s come and gone. And as you mentioned quite well, Jimmy, earlier in this podcast, people know about Miami. It’s not a secret.

So, I think what’s happened is that some of these areas that are OZs have quickly developed and become very expensive, while others are still emerging, which is why we’re incredibly excited about the Arts and Entertainment District, because we feel that that is not just the next big thing, but we feel that it’s already on its way, and already could be considered that, in regards to its proximity to where you could go watch a Miami Heat game, the arena there. You can also go to a performing arts center. There’s multi-million-dollar condo going up right down the street, called the Casa Bella. So, there’s a lot of activity already happening in that area. And we feel that that’s just an awesome opportunity to seize, given what has happened with the other areas that have been Opportunity Zones that have been gobbled up pretty quickly and have gotten expensive.

Another area would be Little Haiti. Little Haiti is probably, I don’t wanna say behind. I mean, it’s still emerging, but I think that it’s not quite where Edgewater and Arts and Entertainment District and Wynwood are, but it’s definitely, there’s activity there. We looked there for our project. It really, I think, will be coming pretty soon here, so, I mean, those are the areas that we see as being prime opportunities, that are already developing. There are also some other areas in Miami that are in OZs, that are not there yet, and that I think there would be too much risk to even start. I think they might be comparable to some of the other areas of the country that, you know, the areas are still pretty blighted, and waiting for development. So, that’s kind of the overview of the general scope of what’s happening. I would say right now, our focus is really in the Arts and Entertainment District, because even areas like Wynwood are becoming, you know, things are being gobbled up pretty quickly there. And as we referenced previously in the podcast, it’s extremely hard to get a deal to underwrite in Miami because people know about these areas. So, that’s why we feel fortunate to be in the Arts and Entertainment District, in a deal that does underwrite.

Jimmy: Okay. I wanna actually put you on the spot here. I’m sharing my screen right now. So, if you’re listening to us on Spotify or on Apple Podcasts, switch over to YouTube. And I’m actually sharing our Opportunity Zone map at opportunitydb.com. I’m somewhat familiar with Miami, but I’m not from Florida. I’m from California. I live in Texas now. I’ve been to Miami a handful of times, but.. So, kind of walk me through some of those areas that you like. You mentioned Wynwood, Edgewater, which is to the north of downtown Miami, pretty close to the waterfront here, it looks like. Where is the Arts and Entertainment District? Is it down here near downtown, or…?

David: Yeah, the Arts and Entertainment District… And Liam, you might be able to point this out a bit better. I’m doing this podcast by phone, so the map is a little bit smaller for me.

Jimmy: Yeah, you’re looking at a phone screen. I think Liam’s at a real computer, so Liam, maybe you can help walk me through this here a little bit.

Liam: Yeah. So, right where your cursor… So, if you look at where the word “Overtown” is on the map…

Jimmy: Yes.

Liam: …it’s not in Overtown, so I need to be careful. It would be north of the Dolphin Expressway.

Jimmy: So, right here?

Liam: No, to the east.

Jimmy: To the east. Okay.

Liam: So, yeah. So, it’s an area that’s situated between… Yeah. Exactly. So, it’s an area situated between the Edgewater submarket, the Wynwood Submarket, and then the downtown CBD…

Jimmy: Got it.

Liam: …Commercial Business District. And so, it’s really, our project is, it’s located literally on 15th Street…

Jimmy: Okay.

Liam: …right where the OZ, right where it starts.

Jimmy: Yeah, right on the edge here, right? Right before…

Liam: Exactly.

Jimmy: On the other side of the street, it’s not an Opportunity Zone, but you’re on the north side of 15th, it sounds like?

Liam: Correct. Exactly. And you got views of Biscayne Bay. 15th Street turns into the Venetian Causeway, which is a scenic highway that goes directly into Miami Beach.

Jimmy: Yep. I’m tracking that right now.

Liam: And it’s a … beautiful, beautiful highway, or beautiful roadway, that takes you over to Miami Beach. So, direct access to Miami Beach, direct access to 395, which is one of the main highways that travels east and west, and access to the airport, will take you directly to the airport.

Jimmy: Here’s the airport here.

Liam: As well as access to 95, which is your main highway that runs north and south of Miami, so…

Jimmy: That’s this one here. Yeah.

Liam: Yeah. And then, what you probably can’t see on the map, but it’s important to note, because this area is a TOD, or a transportation-oriented development zone, is it’s located adjacent, directly adjacent to the Miami Metromover, which is a free public light rail system that essentially travels around the city, and stops in various locations, such as Brickell, Downtown. They’re planning to extend it north to, or through Edgewater, and into the Design District. But it’s a great way to travel, if you’re in Brickell, to get to a Heat game, or get downtown. And a lot of people use it for work, to access the different areas of Miami for free. So, it is used heavily, and it allows this site to be considered a transportation-oriented development site. Project, I should say.

Jimmy: Absolutely. Yeah, and we do have the Metromover station right here on the map.

Liam: Yeah. That’s it. Right there.

Jimmy: I was able to zoom in and find it, so… You guys are right in the thick of it, right here, right on the edge of that Opportunity Zone. And so that’s a little overview of Miami. I like sharing my screen, showing the map from time to time, because this is a place-based program, and sometimes it’s helpful to get the map out if some of our viewers are not 100% familiar with the geography of Miami, which I was not, and I know a little bit more now. So, thank you for allowing me to do that. And so, your project there, on 15th Street, right at that southern edge of that Opportunity Zone census tract, I believe you’re undergoing underwriting on it right now? What’s the state of that project currently, and how are you projecting that it will unfold over the coming months and years? And what is it, also? I don’t think we’ve actually touched on exactly what it is. We know it’s multifamily, but go into some detail on what exactly it is.

Liam: David, do you wanna take it?

David: Yeah. So, this is a ground-up multifamily development. It is, there’s gonna be 424 units. And this is… We signed the PSA with the seller approximately 40 days ago. And we have a 90-day due diligence period. We’re in the due diligence period right now. We’re continuing to raise capital for the project. The purchase price for the property is approximately $29 million. With costs included, we’re raising $34 million. And we’ve got approximately $22 million covered to this point. And so, there’s $12 million that we’re gonna continue to raise over the next period of about 50 days. And then we’ll have 45 days to close after the due diligence period. And then we plan to go vertical. We also… Well, we plan for construction to go vertical. We’re also… Another great thing about Miami is the Live Local Act. And the Live Local Act has allowed us, if certain elements of your project are considered affordable, and this is affordable in the sense of Miami, which is somebody who might earn maybe $80,000 or $90,000 a year, which still makes this viable, because this is a luxury product that we’re putting up, then you can actually get expedited permitting, and you can go vertical a lot quicker, usually 12 to 18 months. And so, our plan, just in summary, is to finish the raise, close within 45 days after this due diligence period, and then we plan to be vertical 12 to 18 months thereafter, given that we’re gonna be utilizing the benefits of Miami’s Live Local Act. And Liam, you can certainly touch on any other elements that I haven’t.

Liam: Yeah, the other interesting aspect of the project, and it’s really, it kind of, it drives the returns from an investment standpoint, is, as I mentioned before, it’s in a TOD, and without getting into the details of the zoning in Miami, but essentially, what utilizing that TOD designation does, and in addition to the Live Local Act, is we can reduce our parking below what is typically required. And parking in Miami is, I’m sure around the country, the same, but in Miami, it’s extremely expensive. It essentially allowed us to go from a $40 million parking structure to roughly a $28 million parking structure. So, reducing parking significantly improves the project underwriting, allows the project to essentially pencil, in a lot of ways, where deals are not penciling right now as a result of the parking requirements in South Florida, or in Miami. And so, again, without getting into all the details of it, we’re taking advantage of these different programs, to allow this project to underwrite, and for the returns to be significant for investors.

Jimmy: Very good. Well, gentlemen, we’re running out of time. I wanna thank you both for your insights today, and thanks again for taking some time out of your day to join me on the show. Before we wrap up, I’m curious if we have any investors or advisors whose ears may have perked up when you were talking about the Miami market, or maybe this particular project that you’re working on in this Opportunity Zone. Where can they go if they wanna learn more about you and the South Florida QOZ Fund?

Liam: They can reach our website, reach us at our website. We have a contact tab there, where you can shoot us an email. I could give you that now, or I don’t know if we’ll put it in the notes, but it’s sfqozfund.com. And there’s also, you can reach me by email as well, [email protected]. And David, it’s …

David: Yeah, and I’m [email protected] as well. We’re very responsive, and we have a data room that has an NDA in it, and would grant access to all of the materials of the project specifically.

Jimmy: Perfect. So, anybody out there who wants to learn more about David, Liam, or their project in the Arts and Entertainment District in Miami, please do reach out. You can visit their website, as they mentioned, sfqozfund.com. We will have show notes available for this episode as well, and I’ll make sure we link to that website, as well as all of the other resources that Liam and I discussed on today’s show, so please be sure to check out that show notes page. You can check it at opportunitydb.com/podcast. Also, please be sure to subscribe to us on YouTube or your favorite podcast listening platform, to always get the latest episodes. Liam, David, thank you again for joining me today. It’s been a pleasure.

David: Thanks so much for having us. I know we’re both fans of the show, and we listen all the time, so it’s a privilege to be on here, and also privilege to be part of the OZ Insiders, and OZ Pitch Day, and everything that you’re doing. It’s awesome, and we’ll continue to listen and follow.

Liam: Thanks, Jimmy. Appreciate your time.

Jimmy: Perfect. Thanks so much, gentlemen.