StoneCreek Partners announced today that it has expanded its comprehensive service offerings to include Qualified Opportunity Zone consulting and implementation services.
As part of its SCP Advisors’ national consulting practice, StoneCreek Partners has begun work with clients looking to implement new projects utilizing the new U.S. Opportunity Zone legislation.
“We look forward to working with private and public clients, as well as local community groups, in identifying and implementing projects that work with the emerging Opportunity Zone legislation,” said Donald Bredberg, managing director for StoneCreek Partners, “we offer a unique capability and long expertise with feasibility matters, as well as in having hands-on experience as property developers.”
The Federal Tax Cuts and Jobs Act (“TCJA”) created qualified “opportunity zones” in December 2017 to encourage tax-favored investment in distressed communities throughout the U.S.
Under the new law, investors may be able to defer tax on almost all capital gains they invest after Dec. 31, for years ending 2018 through 2026. The Treasury Dept. has published guidance as to how Opportunity Zone tax-advantaged projects may proceed, and this guidance is likely to continue to evolve. On February 14th, an upcoming public hearing will be convened to invite comments and otherwise address the Treasury’s guidance as published.
Over the years, StoneCreek (https://stonecreekllc.com) has worked with a variety of private- and public-sector organizations (and their respective legal, accounting, and financial advisors) such as investors, developers, facility operators, real estate partnerships, private equity and hedge funds, as well as cities, counties, and public agencies.
As opportunity zone consultants, SCP is providing select Opportunity Zone services:
- Owner Representation – Project management on behalf of owners in evaluating, structuring, and pursuing specific Opportunity Zone projects, whether private-sector investors and advisors, or public-sector organizations where they are directly involved in a particular aspect of Project implementation.
- Transactions – Facilitation of site (or facility) acquisition and disposition in connection with Opportunity Zone investment.
- Feasibility Studies – Analysis of feasibility for specific proposed Opportunity Zone projects, including market and financial analysis, and ROI evaluation from the perspective of potential Opportunity Zone investors. Even where investments are tax-advantaged such as with Opportunity Zones, it is essential for projects to be confirmed for their pre-tax feasibility.
- Project Pipelines – For public-sector organizations, providing areawide analysis of economic development potential, and identification of a portfolio of pipeline projects that are suitable for Opportunity Zone investment. For particular Opportunity Zone areas, this analysis will be a combination of screening, industry sector strengths and weakness, underlying regional and local economies, and local community project advocacy. There are a number of specific project attributes that must be met to meet requirements of the Opportunity Zone legislation.
- Project Advocacy – Representation of long-dormant local projects, and local investment hopes, to the qualified investor community. The Opportunity Zone Program ignites the possibility of long-desired economic development and investment, which are specific to local low-income and disadvantaged communities. Although this is the stated primary goal for this new tax legislation, it may take some expertise and advocacy to bring dormant initiatives to the top of investor pipelines.
- Community Synergies – Consideration of community-wide economic development objectives and cross-program synergies that may exist, by and between Opportunity Zones and these other desirable local programs and outcomes.
- Project Team Organization – Team-building for potential Opportunity Zone projects that may require enhanced development and operations capabilities, for implementation.
StoneCreek Partners is an owner representation, real estate consulting, and development company. SCP was founded in 1984, a successor to JH Bredberg Engineering; currently led by chief executive Donald Bredberg.
For more information, please contact StoneCreek Partners at (805) 770-1277, extension 11.
Acquisition program representative for U.S., for Nissho Iwai American Corp. (now Sojitz Corp.)
StoneCreek Partners was retained by Nissho Iwai American Corp. (NIAC, now Sojitz) as owner’s representative for their North American acquisitions program. The retainer relationship included solicitation and screening of investment proposals, initial investment suitability and feasibility evaluations for NIAC, and in select instances, preliminary deal structuring and due diligence support for prospective acquisitions.
Two select examples of additional detailed due diligence support were Calhoun Beach Club and Condominiums situated along the shoreline of Lake Calhoun in downtown Minneapolis, Minnesota, and, Newport-Banning Ranch located in Newport Beach, California. Sojitz was formed in 2004 by the merger of NIAC and Nichimen Corporation.
Our SCP Advisors group of StoneCreek Partners has prepared hundreds of feasibility studies, for shopping centers, office/industrial, hotels, and an array of specialty-purpose assets. Over the years, as we apply the traditional feasibility methodologies my refrain for our team is, “where’s the juice?”
At inception as we take on a new feasibility assignment, it is helpful to know a project owner’s real intent in commissioning the analysis. Sometimes a project sponsor is already convinced of a project’s viability, so a “feasibility report” is intended for a capital raise, or, to refine some aspect of a project’s program. In other instances, a project owner in the midst of master planning or developing, becomes interested in alternative future project components. There are numerous other reasons. The “feasibility sensibility” is really a continuous concern that directly or implicitly drives the design, development, and operation of any particular project (assuming “other people’s money” is not the only capital involved).
No matter the asset class we like to keep asking where the customer demand will really come from, or in short hand, where is "the juice" that will drive the project?
Closely related to an owner’s real intent for feasibility analysis, is determining the best metrics to use. Is an owner’s focus on cash flow, dividends to equity, and debt coverage? Or is the expectation of “trophy” appreciation an actual attribute of the asset class? As an example, over the years we have been involved with several to-be-built California coastal resorts. In each case, the land values and entitlement costs made for expectations of lean returns on investment (cash on cash). But, as an asset class, since the days of development of the state’s first coastal hotels there has been a demonstrated record of superior appreciation cycles. So for this type of investment, it would seem that feasibility analysis should include increased analytics and metris that specifically addresses appreciation expectations particular to this asset class. Having asset managed numerous Ritz-Carlton and other luxury hotels and resorts, the focus on an owner’s appreciation metric is quite necessary, since owner’s often see year-to-year net cash flow captured primarily by the hotel management company.
In our practice, no matter the asset class we like to keep asking where the demand generation will really come from, or in short hand, where is “the juice” that will drive the project? Some examples:
- Office and Industrial -With general-purpose office, flex-tech, and industrial space, the evidence of the feasibility juice is the dynamics of subletting in a particular market, with the direct feasibility juice being the viability of a market’s larger tenants (employers). It is not difficult to identify the industry growth prospects of major tenant categories in a marketplace, and integrate these prospects with employment growth, supply/demand analysis, leasing velocity, and absorption projections. In the Bay Area (San Francisco – Jose) at this time, with so many tech firms looking to grow and invest outside of the Silicon Valley’s high cost of living, does historical absorption of office and industrial space (in the Bay Area) really have anything to do future demand? The tech industries seem to have significant growth prospects, but where?
- Attractions – I use “attractions” here to refer to the asset class that includes “consumer leisure-time experiences” from outdoor adventure parks, to aquariums, museums, theme parks, and such. So where’s the feasibility juice? The typical analysis is to review trade area populations, drive-times, and season-part / day-part type factors to derive attendance (participation) through capture rates derived from other markets and projects. This benchmarking is a helpful reference. But to get at the feasibility juice for this asset class, the more direct analysis is to determine for these same trade areas what the “competition is for a consumer’s time” and what this “guest’s trip motivation” may be for visiting a target (subject) project. On a Saturday morning, a parent interesting in a family outing for the day, will consider a trip to the movies, a mall, batting cages, you name it. An aquarium or theme park competes to some extent with all other leisure-time facilities in an area, depending on the trip motivation, but capturing only a share of all a consumer’s out-of-home trips.
- Shopping Centers / Retail Malls – If you’ve been involved with retail market analysis, you’re familiar with Reilly’s law of retail gravitation. The foundational work for the retail industry published in 1931 promulgated the methodology for retail trade area analysis that followed. Although “at retail” formats have been in continuous evolution since those days (organized retail centers, enclosed suburban malls, pedestrian malls, festival marketplaces, power centers, to name a few), the impact of online shopping has spurred perhaps the most rapid repurposing we’ve seen to-date. With the repurposing of existing malls to accommodate retail-entertainment concepts, and new malls with all-new anchoring tactics, the current era demands hybrid methods of underwriting retail investment. The analysis of cinemas and their impact on shopping environments was one thing, but with the possible tenanting strategies proving out today an analysis closer to mixed-use project studies is what’s required.
- Film Studios – New film studio development and expansion continues, even as digital production has allowed highly dispersed production teams. Film studios are an unusually difficult asset class since there usually no long-term leases, secured strategic partnerships, or other revenue sources of an assured long-term nature. The juice driving feasibility for this asset class is the direct financial and tax incentives offered by local, state, even national government bodies to filmmakers. So the focus here is on the expectation for continuance by such government bodies of such incentives.
- Hotels and Resorts – Some thoughts about hotels and resorts are offered in the foregoing. There are a lot of nuances with lodging since so much depends on the purpose for the accommodations. Within FIT (free and independent travelers), business, group, and other travelers, each is a separate area for drill-down. I started my career at KPMG and Laventhol & Horwath before that, where the group of us helped to create the standards for feasibility evaluations of hotels and resorts. Since those times, while I remain interested in the ADR’s, occupancies, and the like of competitive facilities, I am more interested in how the specific offering at a subject property will attract specific guest-types; essentially, how specifically will the property compete for its share. And, since we often work in areas of great potential but little track record, we are constantly scouring outside of a subject property’s region for analogous projects where we can reasonably draw some performance analytics to help the underwriting.
There are additional feasibility factors of course. Barriers to entry in particular markets is a vital part of the analysis, including land values, entitlement challenges, community opposition, and the like. But the search for the juice, I think it all starts there.
NEXT ARTICLE: Project feasibility analysis is best when no matter the purpose it is used more as a risk assessment method, where future scenarios are explored that can quantitatively and qualitatively test a project financially.
Executive-in-charge of acquisitions program for family office – Newfield Enterprises International. Much of the effort involved acting as a due diligence consultant in managing the deal pipeline and evaluating prospective acquisitions and strategic partners.
Acted as a master-planned community consultant to JMB Realty in connection with ongoing build-out of this major Orange County planned residential golf community. Focused residential product and financial analysis in support of ongoing builder sales program, at this resort-style master-planned golf community in Orange County, California. Financial analysis in support of residential product concepting, subdivision build-out, for Owner’s land development team involved with planning and developing this master-planned Orange County community.
Working with project team members including land planning, civil engineering, entitlement representatives, and in-house client project management and financial staff, the various financial analysis included builder residual calculations to support land sale negotiations to third-party home builders.
Coto de Caza is one of Orange County’s leading master-planned communities. The MPC includes golf courses, equestrian facilities, horse trails, and extensive pathways and hiking trails for residents, all in one of Orange County’s more rural settings.