Pending Bipartisan Legislation Could Provide Catalyst For OZ Funds

Some large prominent institutions are touting that strategically located Class A multifamily apartments are poised for growth, and two of them recently put their money with their mouths are.

In June, Blackstone announced completion of the acquisition of Apartment Income REIT Corp. (“AIR Communities”) in an all-cash transaction valued at approximately $10 billion, including the assumption of debt. AIR Communities held a portfolio of 77 apartment communities comprising over 27,000 apartments units in 10 states, including Florida, and the District of Columbia.

Also in June, KKR announced the acquisition of a portfolio of 18 multifamily assets, consisting of over 5,200 recently-built Class A apartments in costal and sunbelt markets, including Florida, from a closed-end fund sponsored by Quarterra Multifamily for approximately $2.1 billion.

Congress might be highly polarized on many key agenda items, but it appears that there are at least 14 members who are mostly of one mind when looking to improve opportunity zone investing. As it is currently written, the bipartisan Opportunity Zones Transparency, Extension, and Improvement Act (the “Extension Act”), referred to the House Ways & Means Committee on September 27, 2023, would, among other things, improve reporting requirements related to opportunity zones, and push back the tax incentive’s deferral period by two years, from 2026 to 2028.

If enacted as proposed, Extension Act would not only extend the tax incentives for two years—through 2028—but would also re-activate the 10% basis step-up in basis for those investors that acquired their opportunity zone investments in 2023 or earlier, provided the investment is held for a period of 5 years, as well as expand reporting requirements, de-certify high-income opportunity zones, allow for fund of funds structures, and establish a State and Community Dynamism Fund support public and private investment, including capital for qualified opportunity zones. With the proposed legislation still at the committee level under review, the delay in passage will require a number of modifications regarding extension dates.

“Opportunity Zones have breathed new life into neighborhoods and Main Street businesses that have not seen private investment in years, all without spending a single taxpayer dollar,” U.S. Representative Mike Kelly said, when introducing the Extension Act in September 2023. “This legislation builds upon the successes of Opportunity Zones and now adds new guidelines to make sure this program can benefit more communities for years to come.”

We are hopeful that the passage of the Extension Act or similar legislation will breathe new life into a sector that saw steep fall off in equity raised for 2023. We think the combination of the spring 2023 regional banking crisis, 11 interest rates hikes between March 2022 and July 2023, and the market perception that higher-for-longer short-term interest rates are here to stay, has led to a tighter lending market which has played an influential role in the bearish investor sentiment toward commercial real estate as an asset class.

According to market research by accounting firm Novogradac & Company LLP, only $3.53 billion of new equity capital was raised by qualified opportunity funds (“QOFs”) in 2023; a result which we think coincides with some of the challenging macro conditions described above. In addition, according to CBRE, U.S. commercial real estate investment volume fell by 52% year over year in 2023 and, According to S&P Global Market Intelligence, total M&A transaction volume fell 32% year over year in 2023. With the most recent inflation data showing a softening in trend, there is rising sentiment that the Fed will have room to cut Fed Funds at least once this year followed by three to four cuts in 2025. Based on this forward-looking scenario for monetary policy, one can argue that the pace of commercial real estate transactions and valuations is likely to improve.

Against a challenging market for interest rates and commercial lending, we believe the management team at Belpointe PREP, LLC (“Belpointe OZ”) (NYSE American: “OZ”) has delivered necessary funding to maintain the construction schedules of Sarasota-based project “Aster & Links” and St. Petersburg-based project “Viv.” Aster & Links has already Received 20+ residential leases with no concessions or discounts and we believe is well on its way to full occupancy in the first of its two towers. Viv is approximately 50% complete and is currently expected to be ready to check in new residents in 2025.

Investors and future tenants can now preview and lease the available units and floorplans on the updated Aster & Links website, which displays the luxurious layouts with living spaces ranging from 865 to 2,820 sq. feet, featuring one-bed/one-bath to four-bed/three-and-a-half-bath units and a wide array of options to fit the needs and wants of all future tenants.

As of June 3, 2024, Belpointe OZ, the only publicly traded QOF, announced its unaudited quarterly net asset value (“NAV”) as of March 31, 2024 of $361.66 million, or $99.59 per Class A unit. As of July 12, 2024, Belpointe OZ’s Class A units trade at discount of just under 40% of NAV. In our view, investors seeking a discounted real estate investment opportunity should consider exploiting the disparity between the current market price of Belpointe OZ’s (NYSE American: “OZ”) Class A units and its NAV, notwithstanding the tax benefits that Belpointe OZ, as a QOF, has to offer.

It is our view that the market for Belpointe OZ’s Class A units fails to adequately price in the fact that Belpointe OZ owns Aster & Link, a major asset that could be stabilized and potentially generating cashflow within the next 18 months. What’s more, investors do not need capital gains to take advantage of the current NAV-to-Class A unit price disparity. We believe that investors seeking hard real estate assets with income-producing potential, trading at a steep discount to NAV and located within one of the fastest growing states in the U.S., should give thought to adding Belpointe OZ’s Class A units to a diversified portfolio of investments.

However, it’s important to remember, without investing capital gains investors will not qualify for any of the Opportunity Zone program tax benefits. But with the stock market gains being what they are year-to-date, we believe locking in capital gains and sheltering those gains through the purchase of Belpointe OZ's Class A units is a strategy that is worthy of consideration.

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.

©2024 Belpointe PREP, LLC. All rights reserved.