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Rethink, Adapt, Evolve:
Real Estate Development in a Post-Covid Economy

The Covid-19 pandemic wreaked havoc on the U.S. and global economy, resulting in the steepest—and perhaps quickest—recession in history. As we write, the United States is by no means out-of-the-woods and many challenges still lie ahead. For the business and real estate community, however, many of these challenges are already here. The way we work, build, and do business are all poised for major changes. Now is the time for business leaders and developers to rethink, adapt, and evolve.

With respect to Capital Hall Partners’ current Qualified Opportunity Zone (QOZ) projects, we find ourselves in the very fortunate position of being able to adapt quickly to the new normal. Some of the critical ‘future-of-business’ trends currently underway play into our favor, serving as tailwinds—not headwinds—to the direction we are headed.

Two prime examples are in the Greater Boston Area, where we are developing the Gateway Innovation Center and Brickyard @ Assembly projects. There is serendipity in the fact that we are developing two Life Science campuses right now, given the profound spotlight currently shining on the Biotechnology and Life Science sectors. But the reality for us is that we saw major potential in the sector well before the first cases of Covid-19 appeared in the world, and we view the Greater Boston Area as the mecca for work in this critical field. As demand for scientific research and development rises in the wake of the pandemic, we believe this market will experience more job growth, more wage growth, and higher demand for housing, office, laboratory, and data center space.

Job Growth

We are very enthusiastic about having a foothold in this market. The Greater Boston area hosts the largest concentration of life sciences and biotech companies in the world, with blue-chip companies like Biogen, Pfizer, Sanofi-Aventis, and world-class medical campuses like Harvard Medical School and Brigham & Women’s Hospital all calling the Life Sciences Corridor home. Our Boston Gateway QOZ and Brickyard QOZ projects put us squarely in this thriving area—the Capital Hall Partners’ sites sit within a commercial planning area zoned for life science/lab, residential, and office (amenity retail), with density permitting development of 1.6 million square feet and 650,000 square feet, respectively.

Our Phoenix QOZ project, called the HUB, may appear at first glance to have greater challenges ahead. The HUB is a functionally obsolete warehouse being redeveloped into an office, which has a much different post-pandemic outlook than biotech office buildings or data centers. Many major companies (particularly in the tech sector) are rolling-out reconfigured work-from-home policies, giving employees greater flexibility and arguably reducing reliance on traditional office spaces.

Because the HUB is not a traditional office space, and because the pandemic arrived during an early phase of development, we essentially have a “blank canvas” to rethink, adapt, and evolve our design, addressing the needs of the moment. This blank canvas provides us with an exciting opportunity. We can build a de facto lab to pioneer new designs and layouts, to experiment and learn, and ultimately set a course for leading future projects.

Capital Hall Partners’ mission is to develop projects that are environmentally sustainable, socially responsible, and physically responsive. By staying true to this mission, the HUB is in a position to adapt quickly and effectively to the “new normal.”

Rethinking and Adapting The HUB

The HUB is a single-story building.  This is a key advantage because it reduces the complexities of sharing corporate healthcare policies with multiple companies, including screening, cleaning, and other common safe practices. There are no stairs or elevators that need to be adapted for physical distancing. The blank canvas also enables higher employee density without renovating or blocking off large areas of the floor plate. The expansive structural grid will create fewer obstacles in the workstation layout, providing the opportunity for more flexible work areas and corridors wide enough for two-way travel.

Social Distancing

We are currently working with designers and furniture manufacturers to configure the work areas to provide maximum densities without sacrificing separation. The openness of the building space allows us to develop a plan that prioritizes physical distancing. The HUB can be planned to address Desk Settings, Bench Settings, Collaborative Settings, Individual Work-Point Settings, and Neighborhoods without sacrificing employee density. Future flex spaces are designed to be converted, enhancing collaboration in a safe way. There is no need to install plexiglass dividers to address separation as the HUB will design and configure movable whiteboard spaces that are functional and amendable.

Social Distance

Disinfecting

With sanitizing and cleanliness two of the top priorities for individuals returning to work, we will encourage our tenants to plan, communicate, and enforce cleaning regimens to support services and employees. The HUB will incorporate touchless technology into future tenant improvements. This technology will include ingress/egress doors, doors into restrooms and other common areas, plumbing fixtures (sink faucets, toilets, urinals, and towel dispensers), and lighting and mechanical system controls. We are currently exploring the viability of nano-coatings that are anti-microbial, anti-viral, and anti-fungal. These coatings claim to reduce surface contamination and are self-cleaning.

Outdoor Workspaces

The ability to work and meet outdoors is a hallmark of the HUB, which features a covered 14,000-square foot outdoor workspace. Early research indicates the risk of community transmission outdoors is relatively low, particularly if physical distancing is being maintained.

The HUB’s outdoor workspace will be landscaped to create additional shade and a comfortable environment, providing tenants the ability to use this area for outdoor conferencing, teamwork, and collaboration.  The area is overlaid by photovoltaic panels that will generate electricity for the building and sell the balance back to the grid.

Outdoor Workspaces

Isolation

An unfortunate reality of the current moment is that most, if not all, office buildings will need to provide ‘isolation’ rooms for employees exhibiting symptoms or feeling ill. The HUB can accommodate these feature rooms equipped with materials conducive to disinfectant cleaning, as well as having special ventilation and/or negative air pressure to further reduce exposure to others in the area. Since the HUB is designed to accommodate individual packaged HVAC units, the ventilation can be planned for this specific use rather than an expensive adaptation.

HVAC Systems

According to the Centers for Disease Control, many viruses—including the novel coronavirus—tend to spread rapidly indoors through close personal contact, but also via circulation from building ventilation systems.

The design and engineering of HUB’s mechanical system will become important in establishing and maintaining a healthy building. One way to dilute airborne contaminants is to increase air exchanges and increase filtration. The HUB’s plan provides for several locations and sizes of individual package HVAC units, allowing for an increase in the fresh air intake. This feature, combined with the large roll-up doors, will help achieve this goal. The HVAC system is designed and engineered to incorporate a high level of filtration such as high MERV or HEPA filters.

The HUB is also designed with limited entry points. This layout was originally planned for safety and security, but can now be used to set up a thermal scanner before an employee enters the workspace. While the thermal scanner won’t be able to detect Covid-19, the non-contact scanner can detect fever-level body temperatures.

Finally, pandemic-related matters aside, the HUB has a distinct location advantage. Tempe is the strongest submarket in a Greater Phoenix market, which boasted record absorption of over 3 million square feet in Q3 2019, record construction numbers, and healthy pre-leasing activity. Since 2010, Greater Phoenix vacancy has dropped 40 percent, and the outlook for 2020 and beyond remains strong based on a large influx of companies moving into the market. Tempe maintains a vacancy rate of 4.9 percent, significantly ahead of the second lowest submarket (the Southeast Valley at 11.7 percent). Tempe also posted the largest asking rate increase quarter over quarter, according to a CBRE Q1 2020 report.

The HUB is in the center of five major freeways, one mile south of Arizona State University (named #1 in Innovation for five consecutive years), Tempe Town Lake, and the Mill Avenue Entertainment District. Four miles to the southeast is Sky Harbor International Airport, which ranked as America’s Second Friendliest Airport in 2019, the 44th busiest airport in the world, and 13th busiest in the United States. The confluence of these market and location strengths should benefit the HUB as the economy recovers.

Conclusion

The pandemic is reshaping business and society in many ways, but we would also argue that many of these changes were already well underway. Demand for data centers, multi-family housing, biotechnology breakthroughs, and environmentally sustainable, socially responsible, and physically responsive workspaces has been on the rise for some time. The pandemic is merely accelerating these trends.

The Capital Hall Partners’ approach fits neatly into this new normal. The pandemic has not forced us to alter our mission, and in fact has done just the opposite—it has confirmed we are on the right path, applying the right processes, and building in the right markets. The current environment is chock-full of opportunities and challenges, which in our view gives urgency of the need to rethink, adapt, and evolve.

For readers and investors who want to learn more about our projects in Qualified Opportunity Zones, the terms of investment, and/or who have questions about how Qualified Opportunity Zones work, please reach out to us at info@caphall.com. We’d be happy to talk with you.


 

Capital Hall Partners is a privately held real estate investment and development firm. We have over 50 years of experience over multiple real estate cycles, with a current focus on value-oriented investments in Qualified Opportunity Zones in the Los Angeles, Phoenix, & Boston areas. Our commitment to investors is to preserve capital, deliver attractive risk-adjusted returns, be trustworthy and transparent.

If you would like to learn more about Capital Hall Partners, Qualified Opportunity Zones, or how to invest, please contact us today at info@caphall.com or by calling 310-264-1504.


This is presented only for informational and educational purposes and is not intended to interpret laws or regulations. This is based upon information generally available to the public from sources believed to be reliable, but no representation or warranty representation, express or implied, has been made as to the accuracy or completeness of the information contained herein and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or other instruments. Additionally, this is not intended to represent advice or a recommendation of any kind, as it does not consider the specific investment objectives, financial situation, applicable risk factors, and/or particular needs of any individual client or investor and should not be relied upon as the basis for investment decisions.

A Land of Opportunity – The Greater Phoenix Area

2019 was a landmark year for Capital Hall Partners, marking our first full year of engagement in Qualified Opportunity Zones (QOZs) following the 2017 Tax Cuts and Jobs Act. We now have 5 active investments in the QOZ space: 3 in the Greater Boston Area and 2 in Phoenix. Our enthusiasm behind these projects could not be higher—we see Boston and Phoenix as two of the most exciting job creation hubs in the country.

Our latest QOZ investment is in Phoenix, where we are under contract to acquire a 100,000- square foot building aptly named PHXTECH. We are targeting an $8 million fundraise for the project with approximately $4 million raised to-date and a closing date of April 22, 2020. Please contact us directly at info@caphall.com for investment inquiries and for more detailed information.

The Greater Phoenix area is brimming with economic opportunity. Over the last 70+ years, the city has developed a diversified tech ecosystem, home to high-tech manufacturing, R&D, software companies and next-generation technologies. Tech hubs elsewhere in the country are generally known for exorbitant cost of living and restrictively high wages, but Phoenix stands out for having neither—being known instead for a deep talent pool, low labor costs, and some of the best housing affordability in the country.

A Land of Opportunity

Demographics also play a key role in the Greater Phoenix area’s relative attractiveness. Metropolitan Phoenix is home to more than 4.8 million people (2018 data), a number expected to nearly double to 9.3 million by 2040.

These figures make Phoenix the third largest labor pool in the west, producing talent in high-demand industries including emerging technology, aerospace, semiconductors, healthcare and biomedical. Arizona State University outputs the most educated and technically-skilled workforce in Arizona, and over 86% of this skilled workforce has resided in greater Phoenix since 2010. The confluence of these factors attributes to the region having a median age of 36, one of the lowest in the nation.

Some of the biggest corporations in the world have taken note, with major players like Microsoft, Morgan Stanley, Silicon Valley Bank, KPMG, MetLife, State Farm, and JPMorgan opening large offices in the area.

Within the tech sector in particular, private capital investment in Greater Phoenix is on the rise. Over the last 10 years, the industry has seen 280 deals accounting for approximately $2.03 billion in total funding. In 2019 alone, tech start-ups raised $430 million, marking a 25% jump over the previous high of $344 million set in 2016. According to a report released by the Greater Phoenix Economic Council and CBRE, “the steady growth trend is attributable to a thriving ecosystem of quality startups in Greater Phoenix bolstered by a collaborative entrepreneurial culture. Emerging tech companies choose Greater Phoenix to establish their footprints, test their technologies and scale.

Greater Phoenix Tech Capital Funding

It follows that the Greater Phoenix area is an emerging market for office space that caters to a younger, technology-oriented crowd. In our view, this assigns higher value to redesigning and rebuilding traditional office spaces into multi-tenant creative office suites, with sustainable and environmentally conscious features like solar paneling and thoughtful landscaping. Tech workers and younger workers want flexibility, sustainability, a sense of community, and productivity that comes with creative, shares office spaces (co-working spaces).

How Our PHXTECH Project Fits into the Phoenix Growth Story

Capital Hall Partners envisions the redevelopment PHXTECH (our QOZ project) to be the first domino to fall in an underutilized submarket rife with opportunity. The submarket is known as the Sky Harbor Office Market, situated on 9.4 acres in close proximity to the Phoenix Sky Harbor International Airport. PHXTECH’s zip code is home to 858 employers and nearly 50,000 jobs. .

Sky Harbor Office Market

The Sky Harbor submarket is quickly filling with new and expanding tenants, pushing vacancy rates down 9.3% year-over-year and inching rental rates up. Overall vacancy in the Sky Harbor submarket in 2018 fell from 32.7% to 23.4%, and is now hovering around 20%. In 2018, rents climbed from $19.63 to $21.95 per-square-foot, luring many businesses that are priced-out of the highly desirable Tempe market.

The micro-market where PHXTECH is located, Southbank, is a master planned business park. The vast majority of tenants in Southbank have focused on economics—not desirability—when leasing space. This is due in part to lack of available improved options. With the large bulk of buildings stuck in old, 2nd generation improvements and little ownership desire to offer modern buildouts and amenities, Southbank is often viewed (based upon current availability) as a basic call center office with little value proposition.

This backdrop creates an excellent opportunity within Southbank to redevelop commercial real estate that leads the market and offers tenants the opportunity to lease a fresh, progressive building. That’s our goal with PHXTECH.

The Capital Hall Partners team will revamp the existing data center building into multi-tenant creative office suites, with a renewed façade, solar-covered parking, updated and refreshed landscape and hardscape, outdoor workspace, new exterior windows and doors, and 150 new parking spaces. The improvements are projected to take approximately 4 to 6 months to complete.

We will hold the building for a 10-year period and lease it to multi-tenants at market rate over a thirty-six-month period. Half the battle is already won: Fidelity Information Services, the publicly-held credit tenant, will continue occupying approximately 50% of the building with a short-term (18-24 months with a 6-month extension) at a competitive market rate. We are now actively working to identify tenants with expiring leases, new tenants in the market, and tenants looking to expand their operations.

Learn More About the PHXTECH QOZ Opportunity

Capital Hall Partners has over $1 billion in real estate investments and developments underway across the country, with over 50 years combined real estate experience in investment, development, and asset management. Investing in Qualified Opportunity Zones offers us a way to support job creation and growth in local communities, while also upgrading the real estate profile of the city/community with modern and sustainable buildings.

We’re excited to be active in the Greater Phoenix market. We view Phoenix as one of the best urban growth stories in the country, and we believe the PHXTECH project plays nicely into the budding strengths of the city’s dynamic economy.

For readers and investors who want to learn more about the project, the terms of investment, or who have questions about how Qualified Opportunity Zones work, please reach out to us at info@caphall.com. We’d be happy to talk with you.


 

Capital Hall Partners is a privately-held real estate investment and development firm. We have over 50 years of experience over multiple real estate cycles, with a current focus on value-oriented investments in Qualified Opportunity Zones in the Los Angeles, Phoenix, & Boston areas. Our commitment to investors is to preserve capital, deliver attractive risk-adjusted returns, be trustworthy and transparent.

If you would like to learn more about Capital Hall Partners, Qualified Opportunity Zones, or how to invest, please contact us today at info@caphall.com or by calling 310-264-1504.


This is presented only for informational and educational purposes and is not intended to interpret laws or regulations. This is based upon information generally available to the public from sources believed to be reliable, but no representation or warranty representation, express or implied, has been made as to the accuracy or completeness of the information contained herein and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or other instruments. Additionally, this is not intended to represent advice or a recommendation of any kind, as it does not consider the specific investment objectives, financial situation, applicable risk factors, and/or particular needs of any individual client or investor and should not be relied upon as the basis for investment decisions.

“Smart” Real Estate Investing in the Greater Boston Area

The Greater Boston Area is home to top-tier universities, exceptional scientific talent, and extensive supporting infrastructure.  It also hosts the largest concentration of life sciences and biotech companies in the world. You might say it’s a "smart" place for real estate development.

Of the top five "talent clusters" in the United States, Boston produces the highest number of PhD graduates in the Life Sciences discipline, with the number consistently increasing every year. The number of PhD graduates in Boston has increased by 32% since 2010, whereas San Francisco, for example, has seen its number decrease by 6%. The universities producing these PhD’s in Boston are among the finest in the world.

Total Life Science PhD Graduates

The PhD’s tend to stick around and build careers in the Greater Boston Area. Boston, Somerville, Cambridge, Quincy, Braintree, and surrounding areas contain over 730 companies in the Life Sciences industry. Blue-chip companies like Biogen, Pfizer, and Sanofi-Aventis, and world-class medical campuses like Harvard Medical School and Brigham & Women’s Hospital all call the Life Sciences Corridor home.

Vacancy rates currently sit at less than 10%, as a proliferation of companies ensures ample demand for working space. That commodity remains at a premium, but supply shortages can be remedied through redevelopment via Qualified Opportunity Zones (QOZs).

QOZs provide a unique opportunity to meet growing demand for additional space. The life science market is currently growing at a rate of 4.5% year-over-year in the Boston metro area. The demand is there—meaning the supply of office space, housing, and retail is ripe to catch up.

The Capital Hall Partners’ team has extensive experience not only in real estate development in the Greater Boston markets, but also in managing QOZ opportunities. Our sights are now set to Boston.

The Opportunity

Capital Hall Partners is developing Gateway – a 3.7-acre mixed-use life science campus located within a QOZ in Somerville. The site sits within a commercial planning area zoned for life science/office, residential, and office (amenity retail), with density permitting development of 600,000 to 1,300,000 square feet.

Innovation Gateway

The Gateway site is in an ideal location along McGrath Highway, one quarter of a mile from a +30-acre mixed-use Cambridge Crossing development. This development is a mixed-use life science oriented campus which recently leased 900,000 square feet at a $99 NNN rate, and sits approximately half a mile from Cambridge’s Kendall Square Life Science Center.  Total capitalization for buildout of Gateway is estimated at $500,000,000 to $1 billion.

Burgeoning Interest in the Greater Boston Area

Greater Boston’s QOZ sector is experiencing unprecedented investor interest.  Case-in-point: the 4.7-acre Garvey site in Everett, one of the fastest-growing communities in Massachusetts with a residential rental vacancy rate of 1%.

Located in a newly created redevelopment district with tremendous potential, the Garvey site is situated near mass transit, within 3 miles of both Logan Airport and Boston Financial Center, and roughly 1.5 miles from the newly opened Wynn Encore Casino—which employs 5,000 workers.

Capital Hall Partners plans to develop a 650-unit workforce and multifamily residential (MF) complex at Garvey in two phases, utilizing wood-frame construction.


Conclusion

The Greater Boston Area holds tremendous value for real estate development, as new facilities can serve to support a rapidly growing and impactful sector of the U.S. economy: biotechnology and life sciences. Real estate development in the area can not only support growing companies and bring more jobs to the community, it can also support broader economic development and housing for the existing community, 'lifting all boats' in the process.

The end goal for Capital Hall Partners, and for the broader Qualified Opportunity Zone program, is to use new (and in the case of Capital Hall Partners, sustainable) developments to uplift the local economy with greater opportunities. We’re seeking profit with social purpose.

Join us as we pursue these goals in Boston.


 

Capital Hall Partners is a privately-held real estate investment and development firm. We have over 50 years of experience over multiple real estate cycles, with a current focus on value-oriented investments in Qualified Opportunity Zones in the Los Angeles, Phoenix, & Boston areas. Our commitment to investors is to preserve capital, deliver attractive risk-adjusted returns, be trustworthy and transparent.

If you would like to learn more about Capital Hall Partners, Qualified Opportunity Zones, or our work in Boston, please contact us today at info@caphall.com .


This is presented only for informational and educational purposes and is not intended to interpret laws or regulations. This is based upon information generally available to the public from sources believed to be reliable, but no representation or warranty representation, express or implied, has been made as to the accuracy or completeness of the information contained herein and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or other instruments. Additionally, this is not intended to represent advice or a recommendation of any kind, as it does not consider the specific investment objectives, financial situation, applicable risk factors, and/or particular needs of any individual client or investor and should not be relied upon as the basis for investment decisions.

What a QOZ Real Estate Deal Looks Like

In May 2019, Capital Hall Partners (headquartered in Los Angeles, CA) closed its first Qualified Opportunity Zone (QOZ) transaction: the purchase of a 50,000-square foot zoned General Industrial District (GID) building, situated on 4.32 acres in southwest Tempe, AZ with a $10MM total capitalization.

As the first QOZ project in the Tempe area and specifically within this census tract, the opportunity offers an exciting path for addressing a series of needs in a rapidly growing region. The project, being rebranded as “The Hub,” is well-suited for redevelopment based on its prominent location, tall ceilings, building infrastructure, and a large site that can accommodate parking requirements requested by market users.

The project’s mission is to stimulate new economic development and redevelopment of Tempe and surrounding areas, while incorporating sustainable design and construction into an attractive facility.

Capital Hall Partners will redevelop the property by transforming the existing industrial building into a creative office environment. This will include a complete renovation of the exterior, featuring new doors and windows arranged to allow natural light into the interior, while offsetting the heat gain from direct sun. A shade screen structure will wrap the building to shadow the windows and create exterior patios around the perimeter.

The area beneath the shade screen structure, known as the ‘The Commons,’ is located on the north side of the building and serves as the primary entry. It will be covered with photovoltaic panels arranged in a pattern to provide a balance of light and shadow. Engineers estimate the solar array will generate enough power to off-set utility use by up to 75%.

The Commons will feature three primary zones: ‘The Plaza,’ ‘The Lounge,’ and ‘The Lawn.’ The Plaza will serve as the main point of entry to the building and features modular pavers and a variety of low-water-use lush plants. The Lounge serves as the exterior dining and conference room, and The Lawn will feature synthetic turf to soften the space and cool the building and plaza environment.

The building interiors will be reconstructed using high efficiency HVAC, electrical, and plumbing systems. The interior architecture will be tenant dependent, but will feature open ceilings highlighting the existing building structure.

Finally, the efficiently redesigned parking area will accommodate nearly 300 vehicles and will feature shade trees, modular pavers, asphalt drives, and a pervious surface parking area intended to reduce the heat island and allow for more adequate storm-water management.

Design plans have been submitted to the City of Tempe with construction scheduled in the third quarter of 2019, with exterior construction estimated to be completed by the second quarter of 2020. The business plan is to lease the building to a single user or multiple tenants.

An Architectural Rendering of the New Office Space

The Phoenix Metropolitan Area Represents a Burgeoning Economic Opportunity

The Phoenix Metropolitan Area which is the 11th largest metropolis in the nation by population and home to over 4.7 million people as of 2018.  Phoenix-proper is the sixth-most populous city in the United States (and the most populous state capital in the nation), with an estimated 1,626,000 residents as of 2018.  As of April 2019, Maricopa County has been named the fastest growing county in the United States for three consecutive years, according to the U.S. Census Bureau.

As its population has grown, Metro Phoenix has developed into Arizona’s primary business center and a key nationwide economic hub.  Lower costs of living, robust infrastructure, strong quality of life, and a growing, qualified talent supply have attracted an influx of new residents and businesses to the city.  Phoenix is now home to the third-largest labor pool in the West.

The Metro Phoenix job market is healthy and continuing to improve, adding over 82,400 jobs year-over-year through December 2018, welcoming 42 businesses and three corporate headquarters, while maintaining a 3.9% unemployment rate over the same period. According to the Bureau of Labor Statistics, the Phoenix metropolitan area added 25,000 office sector jobs through the fourth quarter 2018 (encompassing business & professional services, information/ technology and financial activities). Employment is projected to grow by 10% (compared to 6% nationally) over the next decade.

This skilled, diverse workforce is fueled by a network of globally recognized universities and community colleges, including Arizona State University, University of Arizona, Grand Canyon University, Northern Arizona University, and the Maricopa Community Colleges.  These institutions, along with others throughout the region, provide a pipeline of exceedingly qualified talent to supply high-demand industries like technology, aerospace, healthcare, and biomedical.  The end result is a young (median age 36) and extremely competitive workforce, available for some of the lowest labor costs nationwide.

How Tempe Fits into This Unique Economic Opportunity

Tempe has benefited from its central location in the Greater Phoenix Metropolitan area.  With a strong workforce and talent pipeline, Tempe has become a top-tier destination for major corporations like State Farm, Union Bank, Northern Trust Bank, Silicon Valley Bank, ADP, Wells Fargo, and JP Morgan. It has also emerged as one of Arizona’s preeminent technology centers, further cementing its status through citywide initiatives focusing on sustainability, quality of life, open data, performance metrics, and inclusivity.

Top Tempe Employers

Tempe is home to Arizona State University, whose nearly 110,000 students and community of residents, researchers, and business leaders make up the most educated and technically skilled workforce in Arizona.

Other Economic Hightlights

Tempe’s Economic Potential from a Real Estate Perspective

Robust employment growth, a readily available supply of qualified talent, cost advantages, and a high quality of life has significantly increased demand for office space throughout Metropolitan Phoenix, and Tempe in particular.

Metro-wide, there is currently 1.6 million square feet of office space under construction, placing Phoenix in the top 10 of American cities with new office construction.  The slow and steady timing of expected new office inventory, relatively tight vacancy in Tempe (measured at 8.3% at the end of the second quarter of 2019), and a high barrier to entry suggests constrained supply with rising demand—leading to higher rents and continued velocity of leasing activity.

We believe the Qualified Opportunity Zone (QOZ) property closed by Capital Hall Partners offers tremendous advantages for employers and employees alike.  Its proximity to Arizona State University, easy access to all the major freeways and Sky Harbor International Airport give “The Hub” direct channels to the Greater Pheonix area and easy access to other tech hubs (including short flights to California).California).

“The Hub's” Advantageous Location

The Bottom Line:

Capital Hall Partners’ commitment to the Phoenix and Tempe markets demonstrates our firm’s mission to create and develop sustainable communities—driving both social and economic impact.  We anticipate this project will fuel local job creation in one of the most up-and-coming job markets in the economy.

Capital Hall Partners’ Qualified Opportunity Zones transactions remain in the top 10% of all 8,700 designated Opportunity Zones in the United States.


 

Capital Hall Partners is a privately-held real estate investment and development firm. We have over 50 years of experience over multiple real estate cycles, with a current focus on value-oriented investments in Qualified Opportunity Zones in the Los Angeles, Phoenix, & Boston areas. Our commitment to investors is to preserve capital, deliver attractive risk-adjusted returns, be trustworthy and transparent.


This is presented only for informational and educational purposes and is not intended to interpret laws or regulations.  This is based upon information generally available to the public from sources believed to be reliable, but no representation or warranty representation, express or implied, has been made as to the accuracy or completeness of the information contained herein and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or other instruments.  Additionally, this is not intended to represent advice or a recommendation of any kind, as it does not consider the specific investment objectives, financial situation, applicable risk factors, and/or particular needs of any individual client or investor and should not be relied upon as the basis for investment decisions.

Understanding Opportunity Zones: A Primer

The 2017 Tax Cuts and Jobs Act was the most wide-reaching tax overhaul in years. Most headlines centered around the slashing of the corporate tax rate from 35% to 21%, and S&P 500 companies felt the profit boost immediately – posting double-digit growth in 2018.

But for investors who researched deeper into the provisions of the Tax Cuts and Jobs Act, it became clear that Real Estate was also an asset class with new, favorable tax treatments.

One particular provision in the law—a bipartisan collaboration called the Investing in Opportunity Act—generated few initial headlines but drew the attention of experienced real estate investors. The provision, called the Opportunity Zone (OZ) Program, incentivizes long-term investment in communities of economic need through Qualified Opportunity Zone Funds (QOF). Opportunity zones have the potential not only to help revitalize communities in need, but also to offer preferential tax treatments to investors with a desire to pursue (tax advantaged) returns while also making a positive social impact.

 

Let’s Start with the Basics: What is an Opportunity Zone?

The IRS defines an opportunity zone as a census tract designated to be “an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.”

Once selected by state governors, opportunity zones can receive private capital investments through Qualified Opportunity Funds. These investment vehicles – whether created as corporations or partnerships – invest capital gains from prior investments in the state-designated Qualified Opportunity Zones of their choosing. In exchange, investors have the unique ability to defer and reduce capital gains tax payments until April 2027 for any investment held through December 31, 2026.

The concept evolved out of a 2015 paper from the Economic Innovation Group (EIG), a “bipartisan public policy organization that combines innovative research and data-driven advocacy to address America’s most pressing economic challenges.” The paper, called “Unlocking Private Capital to Facilitate Growth,” argues that private sector investment is a critical tool for revitalizing distressed economic areas in the United States, which continue to struggle in the aftermath of the Great Recession. Doing so, says its authors, will ultimately spur job creation and economic opportunity in areas of need.

 

How Can Investors Participate Directly in Opportunity Zones?

The 2017 Tax Cuts and Jobs Act created substantial incentive for investors to commit capital to opportunity zones. Under the new law, investors can harvest capital gains from existing investments, whether stocks, real estate, or another source, with those gains becoming eligible for preferential tax treatment if invested in a Qualified Opportunity Fund within 180 days from the time of gain recognition.

Once invested, tax on prior gains is deferrable until the earlier of two dates: when an investor sells, or exchanges, the QOF investment; or December 31, 2026. The deferment structure is tiered into 5-year, 7-year, and 10-year periods, with benefits becoming increasingly more attractive the longer the length of the investment:

Investors can also receive non-taxable cash distributions from any refinancing during the hold period.

Fundrise TimelineSource: Fundrise

In the hypothetical example below, which uses a 20% capital gain tax rate for the purpose of simplification, a capital gain of $10 million is invested in a traditional real estate investment (left column) vs. an opportunity zone investment (right column). The tax deferrals preserve profit in the OZ program, which generates $6,300,000 over 10 years versus the $4,400,000 profit from the non-OZ real estate deal. QOFs give investors the possibility of achieving attractive, risk-adjusted economic returns enhanced by up to 40% relative to traditional real estate investments.

Traditional Real Estate Investment

Traditional Real Estate Investment

Real Estate Opportunities Zones Investment

Real Estate Opportunities Zones Investment

* 20% capital gain tax rate applied for the purpose of mathematical simplification.

Finally, QOFs promote socially responsible investing and give investors the chance to make a real impact on communities in need of an economic boost. Capital scarcity is a significant issue in certain areas, both urban and rural. The Economic Innovation Group’s research, which inspired the creation of opportunity zones, found “that 50 million Americans live in economically distressed communities,” which contain “1.4 million fewer jobs in 2016 than they did in 2007” – a clear indication of the gap separating areas of need and communities that were able to recover in the aftermath of the Great Recession.

Distress Score

The result is a nation increasingly reliant on certain geographic areas to create new businesses and jobs while other areas continue to languish. QOFs not only have the potential to create this vital infrastructure in opportunity zones—they can also add auxiliary benefits like improved education, developing additional affordable workforce housing, advancing health care access, expanding nutritional options, and improving the prospects for people in more than 8,700 communities across the United States.

 

Next Step: How to Approach Opportunity Zones

While opportunity zones offer tremendous promise, they present additional layers of complexity relative to traditional real estate investments. The OZ program demands close attention to detail, as well as thorough familiarity with tax law. Capital Hall Partners believes these complexities necessitate a conservative, thoughtful approach to reduce risk and enhance returns – an approach born from years of experience managing complex development projects.

QOF investments are limited to certain types of property: they must be made in either new construction or major renovations or reuse—and renovations must show substantial improvement within 30 months of construction. Substantial improvement requires a QOF invest an amount equal to the building’s basis of the property plus $1 USD, not including land value. We strictly adhere to a disciplined underwriting process to preserve capital, deliver returns, and maintain compliance with these provisions.

Capital Hall Partners focuses QOF investment dollars on properties with great potential regardless of their potential tax benefit. This means prioritizing capital preservation and investing in properties that achieve attractive risk-adjusted returns prior to tax-benefit enhancements: multi-family units, industrial “last-mile” e-commerce distribution, and creative and adaptive reuse projects including industrial conversion.

Our QOF investments greatly reduce or eliminate the use of leverage prior to stabilization of the property, allowing for maximum tax benefit capital as quickly as possible. By placing low levels of leverage during development and higher levels once properties stabilize, we can maximize the QOF tax benefits to investors.

 

The Bottom Line:

Opportunity zones represent a major opportunity for positive social impact through sustainable, long-term investment – a chance for the private sector to contribute capital to low-income neighborhoods and/or communities already demonstrating growth. Combined with attractive tax benefits, QOFs offer tremendous benefits for investors when managed with an experienced, thoughtful, and prudent approach—which is precisely what we strive to provide at Capital Hall Partners.


This is presented only for informational and educational purposes and is not intended to interpret laws or regulations. This is based upon information generally available to the public from sources believed to be reliable, but no representation or warranty representation, express or implied, has been made as to the accuracy or completeness of the information contained herein and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or other instruments. Additionally, this is not intended to represent advice or a recommendation of any kind, as it does not consider the specific investment objectives, financial situation, applicable risk factors, and/or particular needs of any individual client or investor and should not be relied upon as the basis for investment decisions.