Our View on Why Rising Foreign And Domestic Risks Argue Well For Rental Income Assets
Financial markets are in turmoil, and trillions of dollars are sitting on the sidelines in money markets, CDs, and Treasuries. The events in Israel and the Gaza Strip could quickly escalate and the conflict could widen out to include Hezbollah and ultimately Iran. The war in Ukraine continues to draw Western involvement, placing further pressure on Putin which could result increasingly drastic measures on the part of the Russian army. All the while diplomatic relations between Russia, China and Saudi Arabia may raise the risk of even more global instability.
As if these concerns weren’t enough for investors to absorb and process, there is another elephant in the room that is looming large—the ballooning federal deficit and the erratic demand in Treasury auction markets. At the October 12th bond auction, demand for the 30-year Treasury bond was at its lowest level since 2021, with primary dealers having to purchase nearly 18.2% of the debt. However, the October 19th auction saw demand rebound, with primary dealers purchasing a historical average of 11% of 30-year Treasury bonds.
The September 2023 CPI data came in a bit hotter than expected with owners’ equivalent rent moving higher once again. The shelter index increased 7.2% year-over-year on a non-seasonally adjusted basis, accounting for over 70% of the total increase in all items less food and energy. This is one component that the Federal Reserve (“Fed”) seems to be really grappling with, as it makes up a large weighting of the overall inflation data. When shelter inflation is sticky, it keeps the housing market unaffordable for tens of millions of home seekers that want to live within desirable metropolitan areas. To do so in the current environment may mean making the decision to rent a full-featured apartment located in desirable urban centers.
Source: New Release, Bureau of Labor Statistics, U.S. Department of Labor, Consumer Price Index – September 2023 (Last accessed October 22, 2023).
To bring this rent component into more light, we think it probably means that the Fed will indeed keep interest rates elevated for longer, in our opinion at least until they see pressure come off the housing market with new supply coming online, which we believe is the long-term solution to the housing shortage. In the meantime, we think Belpointe PREP, LLC (“Belpointe OZ”) (NYSE American: OZ), the only qualified opportunity fund (“QOF”) listed on a national securities exchange, is in a great position to benefit in early 2024 from this housing dilemma, when its first two multi-family housing projects (currently under construction) located in downtown Sarasota and St. Petersburg, Florida, open their doors to new tenants.
Well-located urban Class-A multi-family communities can afford a high-quality living experience in luxury, full-featured apartment complexes, providing a path of affordability not just for home seekers but for professionals that may want optionality in their living conditions. As we see it, one of the great catalysts for finding well-situated new luxury apartment projects has been the advent of Opportunity Zones and the revitalization of distressed urban areas, some of which are in the hearts of vibrant cities with very bright futures.
As a case in point, Belpointe OZ’s Aster & Links project is situated at 1991 Main Street, located in the heart of downtown Sarasota, Florida, in close proximity to the world-famous St. Armand’s Circle and Longboat Key.
Momentum is building at Aster & Links, as Belpointe OZ recently announced the topping-off of its two luxury 10-story buildings. This event marks a significant milestone in the development’s construction journey and we believe that the Aster & Links development stands as a testament to Belpointe OZ’s commitment to delivering top-tier real estate projects that complement and enrich the local community.
The topping-off ceremony, held at the construction site, was attended by key stakeholders, project team members, and local officials. The event was a celebration of the collective hard work, dedication, and collaboration that has driven the project forward, ensuring that it remains on schedule and adheres to the highest standards of quality.
The Aster & Links website is now online. For more information, click the image below.
Aster & Links is expected to consist of 424 luxury apartment homes that range from one-bedroom, two-bedroom, three-bedroom apartments to four-bedroom townhome-style penthouses spread throughout two 10-story high-rise buildings, and over 900 parking spaces consisting of garage and surface parking. The development will offer full amenities such as a clubroom, fitness room, center courtyard with heated saltwater pool, and rooftop amenities, including a community room and a private dining area for private events as well as outdoor grills and seating.
Belpointe OZ is also making excellent headway on its Class A multi-family residential project in downtown St. Petersburg, Florida, at 1000 First Ave North (previously referred to as 902-1020 First Avenue North). Click on the link below to review Belpointe OZ’s current properties in the various phases of conception of the project, remodel, ground-up construction, and acquisition.
On September 1, 2023, Belpointe OZ announced its unaudited quarterly net asset value (“NAV”) as of the quarter ended June 30, 2023, of $351.6 million or $98.58 per Class A unit, as compared to the current market price of around $70 per unit as of October 20th, a meaningful discount to NAV. This
Belpointe OZ isn’t a REIT invested in office space, health care, mortgages, gaming, hotels, retail, commodities, data centers, industrial or self-storage. Belpointe OZ is a publicly traded partnership with both tax advantages and the potential for a long runway of dividend income and capital appreciation. It is our view that the market is not pricing Belpointe OZ’s business properly, something that might be said for hundreds of stocks at the moment, but none of which offer the same kind of tax shelter benefits as Belpointe OZ. And, for those why may have missed it, on October 18th Belpointe OZ issued a press release addressing the recent market volatility and decline in market price of its Class A units, and detailing what it believes to be the underlying reasons for these changes.
From a tax planning standpoint, we think laddering capital gains tax deferment throughout the year by taking advantage of the QOF regulation’s rolling 180-day look-back period, can be very advantageous come the year-end. Most forms of capital gains qualify for tax deferment—stocks, bonds, mutual funds, ETFs, real estate, the sale of a business, trademarks, patents, cryptocurrencies, precious metals, collectibles, livestock, cars, aircraft, marine craft, etc. In the meantime, the potential growth and income from capital gains reinvested into a QOF have an opportunity to be compounded free of taxation as long as the QOF investment is held for at least 10 years through December 31, 2047.
Another key point: there is no limit on how much in realized capital gains one can reinvest into a QOF. QOFs, like Belpointe OZ, offer investors looking to shelter capital gains a viable opportunity. As part of the program structure, most taxable gains invested in a QOF are not recognized (on the federal level and in many states) until December 31, 2026 (due with the filing of the 2026 return in 2027), or until an investor’s interest in the QOF is sold or exchanged, whichever occurs first. The potential to compound growth and income thereafter within QOFs on a tax-free basis expires December 31, 2047.
Belpointe OZ
255 Glenville Road
Greenwich, CT 06831
T: (203) 883-1944
E: IR@belpointeoz.com
The information in this communication is for illustrative, educational and informational purposes only and is subject to change. Nothing in this communication is or should be construed as an offer to sell or the solicitation of an offer to buy any securities. Offers may only be made by means of a prospectus.
Belpointe PREP, LLC (“Belpointe OZ”) has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Prior to making an investment decision, you should read Belpointe OZ’s prospectus and the other documents that it has filed with the SEC in their entirety, and carefully consider its investment objectives and strategy, risk factors, fees and expenses and any tax consequences that may results from an investment in the offering. Copies of these documents can be obtained free of charge from www.sec.gov or investors.belpointeoz.com or from any broker-dealer participating in the offering.
The information in this communication should not be relied upon as investment or tax advice. You should consult with your own investment and tax advisers concerning the federal, state and local income tax consequences of purchasing, owning or disposing of securities in the offering, and of Belpointe OZ’s election to qualify as a partnership and qualified opportunity fund for federal income tax purposes. There is no guarantee that Belpointe OZ will continue to qualify as a partnership or qualified opportunity fund.
Past performance is not an indicator or a guarantee of future performance. An investment in the offering to which this communication relates involves a high degree of risk, including a complete loss of your investment, and may not be suitable for all investors. The price of Belpointe OZ’s securities will fluctuate in market value and may trade above or below net asset value. Brokerage commissions and expenses will reduce returns.
The offering to which this communication relates is being made on a best-efforts basis on behalf of Belpointe OZ through Emerson Equity, LLC, Member FINRA, SIPC, as managing broker-dealer.
©2023 Belpointe PREP, LLC. All rights reserved.
