It Looks Like The Fed May Have Just Made Renting Luxury Apartments More Attractive
Although the Federal Reserve voted unanimously to keep the target range for the federal funds rate unchanged at 5.25%-5.50%, in our view it was likely the policy statement accompanying the rate decision that upended the bond market and, with it, the stock market. The thrust of what is called the Summary Of Economic Projections crafted at the Federal Open Market Committee (FOMC) meeting laid out two distinct directives—that policy rates will stay higher for longer and that the Fed is not expecting to reduce rates in 2024 as much as they had anticipated at the June FOMC meeting.
This repositioning of forward policy could imply that the Fed is in favor of one more quarter-point hike by year-end, followed by a decrease in 2024 of maybe 50 basis points rather than the decrease of 100 basis points that the market seems to have been trading off of. This shift in expectations seems to have taken both the bond and stock markets by surprise, and though the Fed has indicated that the path forward will all depend on the forward data, this latest modification of policy expectations seems to have triggered the selling off of equities as P/E multiples tend to contract when interest rates rise.
As we see it, one of the biggest questions for bond and stock investors arising out of the Fed’s revised policy stance is: how long will rates stay elevated before the Fed starts to ease them back towards its stated target of 2.0% on a sustainable basis. Some market participants continue to argue that the Fed needs to seriously consider the lag effects of the 525 basis points in hikes over the past 18 months. But just as they were surprised when inflation turned out to be more than simply transitory, they are now perplexed at the enduring strength of the U.S. economy.
In terms of what this might mean for the housing market in a microeconomic-sense, we think that this new higher-for-longer rates environment will only serve to exacerbate the ongoing tight supply in strong markets like Sarasota and St. Petersburg, Florida. We also think that limited supply will continue to benefit developers of luxury apartments, like Belpointe PREP, LLC (“Belpointe OZ”) (NYSE American: OZ), the only qualified opportunity fund (“QOF”) listed on a national securities exchange. As a result, we think Belpointe OZ will be in a prime position to benefit from the current interest rate environment when, in early 2024, its first two multi-family housing projects (currently under construction) located in downtown Sarasota and St. Petersburg open their doors to discerning tenants seeking a full-featured living experience with easy access to all that these two wonderful cities have to offer.
Momentum is building for the first project as Belpointe OZ announced the topping-off of the two luxury 10-story buildings, named Aster & Links, located at 1991 Main Street, Sarasota, Florida. This event marks a significant milestone in the development’s construction journey. We believe that the Aster & Links development, nestled in the heart of Sarasota, stands as a testament to Belpointe OZ’s commitment to delivering top-tier real estate projects that complement and enrich the local community.
In our view, Aster & Links will serve as contemporary landmarks, combining elegance and functionality. 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 and 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 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.
https://investors.belpointeoz.com/select-oz-development-sites/
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.
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 $85 per unit as of September 29, a meaningful discount to NAV. With many sectors of the market in correction mode, it might prove to be an excellent opportunity to book some profits, especially in market leaders that have enjoyed huge runs year-to-date, and to shelter those capital gains in a QOF, like Belpointe OZ where the construction of two large-scale multi-family residential projects in Sarasota and St. Petersburg, Florida, are making excellent progress towards completion in 2024.
Attention Broker-Dealers: Here’s An Attractive Proposition For You
On May 17th, Belpointe OZ announced the commencement of an offering to raise up to $750 million in capital. This latest offering affords broker-dealers the opportunity to participate in the selling group, and Belpointe OZ has retained Emerson Equity LLC as dealer manager for the offering. Interested broker-dealers may contact us at IR@BelpointeOZ.com or call 203-883-1944 for further information.
Further, in its effort to disrupt the U.S. real estate industry, Belpointe OZ is charging among the lowest fees in the market, including:
• No investors servicing fees;
• No disposition fees;
• 0.75% annual management fee; and
• 5% carried interest.
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 www.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.
