Multifamily Investor Expo - Feb 15th
DIG Real Estate was a presenting partner at Alts Expo 2022, a one-day virtual event hosted by AltsDb. In this webinar, Brenner Daniels and Josh Daniels present a 56-unit mixed use development located in a Tigard, Oregon Opportunity Zone.
NOTE: This offering is now closed. A transcript of the webinar is available below.
- An overview of DIG Real Estate’s track record.
- The investment thesis for mixed use development in Tigard, OR.
- An overview of the tax benefits for Opportunity Zone investments.
- Summary of the investment terms for this opportunity.
- Key data points including the projected IRR and Equity Multiple.
- An overview of key financing details including debt and loan-to-cost.
- Live Q&A with webinar attendees.
Connect With DIG Real Estate
Jimmy: Starting with DIG Real Estate. So, if you gentlemen are ready, I will turn it over to you. The stage is yours for the next 10 minutes.
Josh: Thank you, Jimmy. It’s great to be here. My name’s Josh Daniels. I’m a principal with DIG Real Estate based in Oregon. We’re talking today about a suburban multifamily development in Tigard, Oregon near Portland. We’re raising $3 million in Opportunity Zone equity to round out the equity financing for this project. It’s for accredited investors only, requires a contribution of capital gains, and our presentation will be made available through a link in the chat.
Brenner: Thanks, Josh, and thanks, Jimmy. My name is Brenner Daniels. I am a principal at DIG Real Estate, and happy to be here today and really excited to talk about this opportunity in DIG. Josh and I really have complementary skill sets. My experience and history in the business is really more real estate-centric development, investment, and finance. Josh’s history and experience is really more in corporate governance, deal sponsorship, and private equity.
Moving on to the DIG track record, DIG sponsors have developed over 3,600 multifamily units in Oregon and Southwest Washington in a diversity of product types, including garden-style apartments, mid-rise, similar to what we’re developing in Tigard, as well as high-rise. And you can see some of those examples in this slide.
Josh: This chart shows DIG Real Estate’s post-COVID views on different commercial real estate product types. The X-axis shows financing availability while the y-axis shows expected returns. This strategic analysis has led us to concentrate on multifamily, in particular, and that’s the project that we’re presenting today.
Next slide, please. Our development in Tigard, Oregon is a path to net zero, fully electrified building. It’s going to be a carbon-free building with no natural gas in the building. We’re raising $3 million in Opportunity Zone equity, which comes in the form of capital gains contributed by investors and provides tax benefits, which we will outline shortly. This complements $6 million in equity that we’ve already raised for this project. We have received credit approval on a 10-year fixed rate financing at 5.8% from a regional bank.
The loan-to-cost on this financing is 64%, and the loan-to-stabilized value is 53% based on a recent appraisal by CBRE. We have a projected investor IRR of 13.1% per annum over the whole period with a stabilized yield of 5.75% growing to 8.4% in the 12 months prior to projected exit. Next slide, please.
Brenner: This property is located in the Tigard Triangle, very well located with Interstate 5 to the east, Interstate 217 to the west, and Highway 99 to the north. So, great accessibility throughout the Portland Metro area, especially the southern part of the Metro and the Western side. In the Tigard Triangle, there’s currently about 7,600 jobs and only 1,500 people that are living there, so there’s 5 times more jobs there than there are people living. That is quickly changing as the city of Tigard has put together a pedestrian forward plan. And in that plan, they have the entire triangle overlaid with vertical housing tax exemption.
Our project is the beneficiary of 10 years of property tax abatement at 80% on the improvements. And that’s after certificate of occupancy. We’re also obviously in an Opportunity Zone and then our project is an urban renewal area as well. So, all of those things tie together nicely for the redevelopment of our site and the greater area. Oops, sorry. There you go.
Josh: These are metrics on Tigard, Oregon as they compare the United States Tigard had very strong population growth, which has been three times the rate of U.S. population growth. The median income in Tigard is nearly $100,000, which is 50% higher than the U.S. average. The average home price in Tigard is $636,000, which is 78% higher than the U.S. average. Next slide, please.
Brenner: Okay. This slide obviously has a lot of information on it. This covers the market information on Tigard and then our submarket. And the few things that we wanted to highlight here are the development yield on our asset, and that will be 5.75% stabilized, which is in 2024 which relates very favorably to the in-place cap rate in the submarket of 3.9% per co-star for 4 and 5-star assets. There’s also been strong rent growth in the submarket, 10% in 2021 and 6.3% anticipated in 2022. And we anticipate strong rent growth and low vacancy going forward in the market given the dynamics.
This shows our rent comps and the properties that are supporting our rent analysis and assumptions in the proforma. As you can probably see from this brief view and then once you get a chance to take a closer look at the deck, we believe our rent assumptions are conservative and in line with current market comps.
Josh: This slide shows the comparison of the costs of home ownership in Tigard with renting at our property once it’s opened. Cost of homeownership are 208% of the $2,223 of projected rents to the project. Next slide, please. This profile is a three primary tax benefits for Opportunity Zone investments. The left is a deferral of capital gains until the 2026 tax year. The middle is a tax reduction, which is not currently enforced, but per the prior group may come back later in the future hopefully. And then the third is the most important, which is a tax exemption, 100% of federal taxes and many state capital gains taxes as well, assuming the investment’s held for 10 years from occupancy, which we intend to do. Next slide, please.
Brenner: Okay. This slide shows a projected investor cash flows. And as we have said previously, the projected investor IRR is 13.1%, noted LP equity multiple is 2.99%. And then the green box over on the right-hand side of the slide shows that it’s anticipated that nearly 40% of the initial investor capital will be returned by 2026 to accommodate tax payments in 2027 if those are not extended by Congress.
Josh: This slide overviews the investment structure. There’s an 8% preferred return for investors, a fee structure, which we view as attractive in market standard, the anticipated hold period until the second quarter of 2034 to realize the Opportunity Zone tax benefits, the capital stack in the lower right, which we think is quite attractive with low leverage and debt at 63.9% of the capital stack. And as mentioned, we’re raising the final $3 million of Opportunity Zone equity to close on our transaction as soon as possible. The next slide, please.
This profiles investment risks, as does the following slide. And an investment like this should be reviewed by tax and legal counsel. Next slide, please. This shows DIG Real Estate’s contact information. The best way to reach out to DIG Real Estate about this opportunity is by email to [email protected] And I think that wraps our presentation, Jimmy. We’d be happy to take any questions that viewers have at this time.
Jimmy: Yeah, perfect. So, I’ve got a couple of questions here for you actually. What distinguishes you, DIG, from other qualified opportunity funds?
Josh: I think the most prominent is that we are focused on a single asset investment, whereas many Opportunity Zone funds are larger collated investment funds in which they’re investing across multiple assets. So, if investors like this opportunity that we’ve outlined, they have the opportunity to strategically invest in specifically this asset as opposed to across multiple assets, which may be different and maybe not as attractive.
Jimmy: And let’s see, we had a couple of questions here from somebody who may have joined a little bit late it looks like. Can you just recap the Tigard market, and then is it a mixed-use asset or a multifamily asset?
Josh: It’s a mixed-use asset, Jimmy. So, there are four levels of multifamily from floors 2 through 5, and then there’s ground floor commercial, so makes it mixed-use.
Jimmy: Any office or just retail?
Josh: No office. We’re expecting the ground floor to be retail.
Jimmy: Gotcha. Maybe a Starbucks or something nice like that, right?
Jimmy: There you go. What have been some of the biggest challenges for you as a sponsor in terms of offering an Opportunity Zone product, Opportunity Zones being relatively new investment vehicle? Have you seen any resistance or pushback by investors or other potential capital sources?
Josh: I would say it’s mostly been education and evangelism, where as you know better than probably anybody watching, there’s been a learning curve for the Opportunity Zone program. And as people have learned about it, both investors and advisors and tax and legal specialists, there’s been more information out there but it’s still a niche product. So, we spend time evangelizing the opportunity zone program.
Jimmy: Yeah. A bit of a learning curve to overcome. One more question just came in, and then I’ll cut you guys loose. Does the debt rate reset after 10 years?
Josh: It does. And I don’t have the specifics on that right now, but we feel like 10 years is a very attractive fixed rate term.
Jimmy: Very good. Well, one more time, can you tell our viewers here today where they can go to learn more about you and DIG if they’re interested in reaching out and getting subscription docs or any questions they may have?
Josh: Sure. I think email is the best way, Jimmy. So, we’ve outlined our email address here. It’s [email protected] Our website is digrealestate.com. And we’ll respond to those emails timely and get additional information out to people.
Jimmy: Please do reach out to Josh and Brenner if you have any questions for them. Josh, Brenner, thank you so much for joining us today. We really appreciate it.
Brenner: Thanks for having us. It’s great to be here.
Josh: Thanks so much, Jimmy.