New York is seeing its first flurry of Opportunity Zone deals as the new government program aimed at targeting economic development in depressed neighborhoods takes effect.
Brooklyn-based Hello Living announced it has struck a deal to pay $55 million for a site at 4650 Broadway in Inwood where it will build a 272 -unit apartment building.
According to a representative for Hello Living, the company entered contract with FBE Limited to buy 4650 Broadway in Inwood for $55 million, more than doubling the $26 million paid by FBE in April.
The company is now in the process of setting up a Qualified Opportunity Fund to raise equity for the purchase from tax-deferred capital gains.
“We are thrilled to embark on our first project in the sought-after borough of Manhattan,” Hello Living founder and CEO Eli Karp said. “Hello Living is known for its trailblazing developments throughout Brooklyn, and we could not be more excited to apply the same vision to Hello Broadway in order to serve the future residents and business owners at 4650 Broadway.”
The project will include 272 residential units, 30 percent of which will be affordable housing and of the 370,000 buildable feet, nearly 50,000 s/f is slated for retail.
Prior to Hello Living’s purchase, the site was the subject of a rezoning battle brought about by previous owners Acadia Realty Trust who intended to turn the site into a 15-story apartment building. Though that effort was eventually felled by the City Council, Inwood was rezoned this August with the goal of bringing more affordable housing, commercial and retail opportunities to the neighborhood.
The Opportunity Zone program is a product of the recent Tax Cuts and Jobs Act passed by Congress in 2017. It aims to funnel money into to typically under-funded neighborhoods.
The program allows investors to realize capital gains while deferring and ultimately lowering their tax payments by investing their liquidated money — which would otherwise be tied up in assets — into designated Opportunity Funds.
Interest in the tax benefits offered through Opportunity Zones has continued to grow, attracting investment firms including Viceroy Equities which started a fund this month dubbed B’KOZ Opportunity Zone Fund, helmed by city Planning Commissioner Joseph Douek.
According to Viceroy, the fund will invest in development projects in Brooklyn located in Opportunity Zones.
Industry leader Don Peebles, founder and CEO of the Peebles Corporation, started his own Qualified Opportunity Fund in October which intends to invest in low-income areas across the country.
In New York State alone, government officials have created 514 designated “tracts” or specific geographic areas that qualify as Opportunity Zones with a little more than 300 of them in New York City.
Heritage Equity Partners purchased a property in Sunset Park, Brooklyn earlier this year that end up being in an Opportunity Zone.
Toby Moskovits, the company’s founder and president, said the status was an added bonus at 875 Fourth Avenue that she’s still figuring out how to best approach.
Moskovits said her firm is still looking at the best way to take advantage of the program and the best way assemble a fund to develop the former gas station into multifamily housing.
Having invested in emerging neighborhoods in the past, Moskovits said she does not expect the Opportunity Zone program to be a cure-all. While equity investors will be easier to come by, she said her company will need to evaluate how to fill out the rest of the project’s capital stack.
“One of the challenges is finding the right kind of debt financing because the benefits on the equity side don’t apply to debt,” she said. “Developers are going to have to think a little bit outside the box when going into these areas that aren’t always obvious investment opportunities, where comps don’t exist yet.”