Turmoil in Bank Sector Simplifies Multifamily Housing Investing

Not that long ago, it was feasible for individuals and small partnerships to get into the business of new construction or acquisition of Class A, full-featured apartment projects on their own, with the help of community and regional banks. Now, it appears that this prospect has been dramatically reduced or effectively removed altogether from certain markets following the high-profile bank collapses.

I think the recent run on bank deposits will very likely lead to radical changes in the landscape for lending criteria and capital ratios. Community and regional banks—perhaps the most active in helping local real estate entrepreneurs buy existing multi-family communities or break ground on new projects—are, in my opinion, most susceptible to being pinched. The loan-to-value ratios for lines of credit have most likely tightened up and became way more constrictive to exercise leverage.

In my opinion, in light of these events, the ground for commercial real estate investing has shifted, and larger development companies with greater resources and experience in multi-family housing projects may have just gained an advantage in terms of who gets the attention of the banking sector.

Smaller players in the commercial real estate market are most likely to face difficulties in acquiring capital from small to medium-sized banks. I think, business just became incredibly more difficult, and we are still in the early innings of the current liquidity crisis unfolding. What’s more, what about projects with lines of credit that run the risk of being redrawn to lower the risk profile at the lending institution? In my experience, when banks batten down the hatches, the fallout can have a dramatic impact on access to much needed capital that was initially agreed upon but has now been pulled from the table.

Local developers and small-scale acquirers of existing real estate will now probably have to jump through more hoops to obtain their goals and objectives for returns on investment. If loan-to-value ratios for borrowers jump from 40% to 80%, it can have a significant adverse effect on returns on investments. I think, a lot of project managers now need to go back to the drawing board to rework their pro forma numbers for projects yet to come online and determine whether their bank relationship is under serious review.

The good news in all of this bank sector chaos is that bond yields are falling, and decisively so during this period of turmoil. The flight to safety in the Treasury market is likely having a positive impact on negotiating lending rates for companies with strong balance sheets.

Given this potentially constrictive environment for investing in income-producing real estate, investors, RIAs, CPAs and tax planners might well consider the optionality of “push button” investing in multifamily residential Class-A full-featured apartment complexes—the center of focus for Belpointe PREP, LLC (“Belpointe OZ”)—through owning Belpointe OZ’s (NYSE American: “OZ”) Class A units. Belpointe OZ is the only publicly traded Qualified Opportunity Zone Fund (“QOF”) where one can buy and sell Belpointe OZ’s Class A units through any brokerage account with a few clicks of a mouse and alleviate themselves of an arduous onboarding document process of other private QOFs. It’s that easy.

Belpointe OZ has multi-family property exposure in Sarasota and St. Petersburg, Florida, Nashville, Tennessee and Mansfield, Connecticut, adjacent to the University of Connecticut. In addition, our executive management team is searching for stabilized acquisitions of other QOFs within Opportunity Zones. More on stabilized asset acquisitions below:

With the April 18th tax deadline having just passes, a lot of people are probably still concerned with tax planning—maybe because they’ve filed an extension or plan to amend their 2022 taxes or maybe because they’ve had to send Uncle Sam a big check and want to avoid doing so next year. For those that sold real estate, a business, stocks, collectibles, or other assets that generated realized gains in 2022, you may still be able to offset those gains by purchasing Class A units in Belpointe OZ (NYSE American: “OZ”) and taking advantage of the 180-day look-back window that allows capital gains realized from late-October through December 31, 2022, to be offset and not recognized until December 31, 2026.

In the meantime, the potential growth and income from those invested capital gains can be compounding free of taxation as long as the investor holds their interest in Belpointe OZ for at least 10 years, and through December 31, 2047, when the program concludes. With all the uncertainty swirling within financial markets, investors and advisors may want to opt for sheltering gains going out for the better part of four years, instead of plowing those precious 2022 capital gains back into equities that may still face some stiff headwinds. . Think about it, because the time to defer capital gains for the latter part of 2022 is running out.

1031 Like-kind Exchange Vs. Qualified Opportunity Zone Investing

These considerations include those that are in the throes of a like-kind exchange, under the Internal Revenue Code Section 1031, where some of the variables might have changed. It may be challenging to find a like-kind property, or financing costs with higher borrowing rates may be prohibitive, or the notion of buying a new property at still elevated prices in hot markets may be unattractive, or the plan to do something else with the proceeds aside from reinvesting in real estate may take precedent. Investors who have capital gains from the recent sale of real estate and desire to lighten the load while staying in the investment property sector in a more passive manner as opposed to taking on an active role should assess all options presented to them.

Stabilized Asset Acquisition Strategy

This is where I think the opportunity to invest with Belpointe OZ (NYSE American: “OZ”) comes into focus. Belpointe OZ is continuously seeking to acquire stabilized QOFs in those cities where we believe population growth and diversified job growth are experiencing uptrends. Out of the many Opportunity Zones that we have reviewed (and there are more than 8,700 of them designated by the government), we believe that there are less than 100 which are investment worthy. Our development team is comprised of executives with combined decades of experience in bringing projects online in the Class-A multi-family apartment sector. We believe in our QOF acquisition strategy for the following reasons:

Belpointe OZ is the only publicly traded QOF structure, which allows it to acquire other QOFs and their opportunity zone assets without triggering an inclusion event. This, in turn, allows Belpointe OZ to preserve the Opportunity Zone tax benefits for the acquisition target investors and ultimately provide Belpointe OZ’s unitholders with newly built Opportunity Zone assets that are stabilized and focused on generating positive cash flow with minimal construction risk.

Win #1: Sponsors of the acquired QOFs. Typically, a development project takes approximately 2 years to complete. Afterwards, QOFs and their sponsors are required to hold completed assets for additional 8 years to meet the minimum 10-year holding period required to receive the full Opportunity Zone tax benefits. Conversely, Belpointe OZ’s unique ability to acquire other QOFs without triggering an inclusion event for the acquisition target’s investors provides sponsors with the flexibility to exit their investment vehicles up to 8 years earlier than previously planned. This provides sponsors the option to receive their carried interest profits up to 8 years faster than expected.

Win #2: Investors of the acquired QOFs. Investors benefit from the ability of Belpointe OZ to acquire their QOF because they may be able to recognize gains from their investments without losing any of their Opportunity Zones tax benefits. Additionally, there are a number of other benefits that Belpointe OZ provides for its unitholders, such as: greater diversification, liquidity, lower fees, unitholders’ investment exit control, and up to 20% tax deduction benefit on income that exceeds depreciation (via Internal Revenue Code Section 199A).

Win #3: Existing Belpointe OZ unitholders. Belpointe OZ’s existing unitholders also benefit when Belpointe OZ acquires other QOFs, as such acquisitions may increase Belpointe OZ’s cash flow from operations and possibly decrease risk by improving investment diversification and eliminating construction and development risks.

In sum, I see this year as one of preparing properties for lease up in 2024, such as our Class-A full-featured multi-family project in Sarasota, and seeking to acquire stabilized assets to deliver potential future capital appreciation and a stream of dividend income.

Want more information? There’s a wealth of detail on our website at investors.belpointeoz.com where investors and advisors alike can learn about Belpointe OZ and some of its key features.

Have questions about how Belpointe OZ (NYSE American: “OZ”) can provide opportunities for investment appreciation and income and help you or your clients to defer or eliminate capital gains tax obligations?

Call me, Cody Laidlaw, at (203) 883-1944. I can answer your questions and direct you to resources that will provide you with information about the nuts and bolts of QOFs and Opportunity Zone investing, so you can start planning today.

Cody H. Laidlaw
Editor-in-Chief
Belpointe OZ
255 Glenville Road
Greenwich, CT 06831
T: (203) 883-1944
E: IR@belpointeoz.com

P.S. Investing in Belpointe OZ (NYSE American: “OZ”) is as simple as buying any other publicly traded equity. If you purchase Belpointe OZ’s Class A units in the open market, there is no subscription agreement or investor certification required; you can simply purchase Class A units through any brokerage account. Belpointe OZ offers the same Opportunity Zone benefits as any private structure. To properly defer your reinvested capital gains, your accountant will need to file IRS Forms 8949 and 8997 with your tax returns. You will need Belpointe OZ’s EIN which can be found here: Belpointe OZ EIN

P.P.S  Want more information? There’s a wealth of detail on our website at investors.belpointeoz.com where investors and advisors alike can learn about Belpointe OZ and some of its key features.

Disclosure: Cody H. Laidlaw is the Chief Investor Relations Officer. Cody is also an investment advisor representative with Seaside Advisory Services, Inc. (d/b/a Seaside Financial & Insurance Services), a SEC registered investment adviser offering advisory accounts and services, and holds a long position in Belpointe PREP, LLC’s Class A units.

Important Information and Qualifications

Belpointe PREP, LLC (“Belpointe PREP”) has filed a registration statement (including a prospectus) with the U.S. Securities and Exchange Commission (SEC) for the offer and sale of up to $750,000,000 of Class A units representing limited liability interests in Belpointe PREP. You should read Belpointe PREP’s most recent prospectus and the other documents that it has filed with the SEC for more complete information about Belpointe PREP and the offering

Investing in Belpointe PREP’s Class A units involves a high degree of risk, including a complete loss of investment. Prior to making an investment decision, you should carefully consider Belpointe PREP’s investment objectives and strategy, risk factors, fees and expenses and any tax consequences that may results from an investment in Belpointe PREP’s Class A units. To view Belpointe PREP’s most recent prospectus containing this and other important information visit sec.gov or belpointeoz.com. Alternatively, you may request Belpointe PREP send you the prospectus by calling (203) 883-1944 or emailing claidlaw@belpointe.com. Read the prospectus in its entirety before making an investment decision.

This communication, including any links embedded herein, may not be distributed in any jurisdiction where it is unlawful to do so. Nothing in this communication is or should be construed as an offer to sell or solicitation of an offer to buy Belpointe PREP’s Class A units in any jurisdiction where it is unlawful to do so.

Neither Belpointe PREP nor any of its affiliates provide investment or tax advice and do not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should consult their own investment and tax advisers concerning the U.S. federal, state and local income tax consequences, as well as any tax consequences under the laws of any other taxing jurisdiction, in relation to their personal tax circumstances, which may vary for prospective investors in different tax situations.

This communication may contain estimates, projections and other forward-looking statements, typically identified by words and phrases such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” or the negative of such words and other comparable terminology. However, the absence of these words does not mean that a statement is not forward-looking. Any forward-looking statements expressing an expectation or belief as to future events is expressed in good faith and believed to be reasonable at the time such forward-looking statement is made. However, these statements are not guarantees of future events and involve risks, uncertainties and other factors beyond Belpointe PREP’s control. Therefore, we caution you against relying on any of these forward-looking statements. Actual outcomes and results may differ materially from what is expressed in any forward-looking statement. Except as required by applicable law, including federal securities laws, Belpointe PREP does not intend to update any of the forward-looking statements to conform them to actual results or revised expectations.

©2023 Belpointe PREP, LLC. All rights reserved.