Herschell Hamilton is the co-founder and Chief Strategic Officer of BLOC Global Group. The company manages and develops complex real estate and building projects; provides commercial real estate transaction, advisory, and investment services.
In today’s episode we discuss “outsourced”, or fee development services, revitalization and economic development including tax incentives such as Opportunity Zone and Funds, energy tax credits, historic tax credits, how understanding the dynamics your market is key to being a successful real estate investor, and more!
Herschell has worked in real estate and infrastructure finance and underwriting for many years. He's also well aware of the wealth building power of real estate.
"You're buying a series of cash flows. You invest money, you operate the property so that it generates cash flow, those cash flows increase over a period of time and create a value in excess of what you purchased the property for. It's a beautiful way to grow value and at the same time, a beautiful way to participate in the preservation and building of communities."
The economic cycle ebbs and flows, but over the long term, housing provides good appreciation. Many other categories of real estate provide additional opportunity. All sectors have had or will have their day in the sun.
BLOC Global is basically a turnkey development solution. Herschell and his team take a project from an idea, to a design, through construction. They deal with multiple architecture and construction companies and manage the delivery of the construction project through completion.
BLOC Global originally worked with private sector clients and has since expanded to the public sector as well, including managing the intersection where the two mix.
Lately, cities have been actively involved in redevelopment. Reurbanization involves revitalizing older, historic neighborhoods and communities. There can be many moving parts, especially when local governments and politicians are involved in planning and consideration phases. Most importantly is the planning surrounding the local community stakeholders, looking to determine exactly how these areas can be best revitalized. An importance is generally placed on preserving the character and quality of the community.
The Role of Private Investors & Market Trends
Most of the money for these locality and government-sponsored/aided deals is put up by the private investor pools. These private investors, doing due diligence and identifying trends, have been watching the migration and employment patterns. Over the last 10-15 years, people have been migrating out of the Northeastern states and the Midwest to the sun belt states, Texas, and Florida.
More recently, investors are fleeing retail and commercial office space. Bars, restaurants, shops, and retail also look bleak.
"Examine the broader market to ensure you're investing in a sector that has future growth potential. Then look at the area, looking to cities with diverse economies and diverse drivers on jobs."
Tax Credits and Incentives
Tax credits and incentives have definitely fueled revitalization efforts, primarily because they either lower the cost of capital or provide tax incentives on the back end.
With historic tax credits on historic rehabs, the dollars are essentially grant dollars that allow you to write down the cost of property and redevelopment. New market tax credit was also instated to spark redevelopment and revitalization in cities. Low income housing tax credits, for multifamily, are sold to investors to provide equity to developers in mixed income housing.
Opportunity zones and opportunity zone funds also play a part. All combined, these credits and incentives have gone a long way in making projects viable around the country. They incentivize action in the private sector. The federal government wants something done and doesn't want to do it through the public sector, so they incentivize the private sector to do so.
Herschell has seen a fair amount of activity here. When the treasury first instated opportunity zones, it was very easy to set up a fund to be allocated to certain projects within that opportunity zone. Big investment banks have also set up massive opportunity zone funds.
"Opportunity zone funds are looking for profitable projects. A lot of people have the whole concept of opportunity zones twisted... You're taking capital gains that you've already achieved, and you're reinvesting those gains. If you hold them over a 7-10 year period, you essentially skirt paying taxes on those gains and additional gains that you make."
Therefore, opportunity zone funds aren't just there for the tax incentive. During that longer required holding period, investors are wanting projects that will be profitable for years to come. These projects must be profitable long term investments within the opportunity zone.
The zones were drawn, by design, in areas where it's challenging to develop.
"You have to find the right project to pair the opportunity zone capital with so that it makes sense for the investors and achieves their return objectives. It's a little more challenging than most people think, to find the right project to match that investor coming to the table."
"There needs to be a seeding of these designated opportunity zones. There have to be basic fundamentals that exist in the marketplace in order for the next projects to work. The Treasury should come up with some kind of 'Pioneering Fund' that provides significant benefits to people who want to take greater risk" in being the first mover to a market.
Smart City and Smart Grid
Smart cities are embedding technology within the infrastructure that serves as the backbone of a city. Electric utility companies have been running fiber optic cables overhead and underground. Those fiber optic cables provide a piece of infrastructure that telecommunications companies can log into. Examples include traffic cameras at intersections, neighborhood watch cameras for surveillance on roads and street corners, LED lights in public light fixtures to lower costs, monitoring of electricity usage by these appliances. Technologies can also be embedded in transportation infrastructure to improve the flow of traffic.
On the real estate side, "the next generation of buildings will not only be built with sustainable and renewable materials, on the inside of those buildings you'll have sensors and monitors".
Telecommunications companies are exchanging more data with individuals than ever before. 5G installation provides the exact tracking of your cell phone location. As you approach a smart building, your phone may prompt you and tell you what/who is in the building, if there are any businesses or retailers in the building that tie to interests that you have.
The smart city concept is all about embedding technology into the urban experience. The jury is still out on how these areas will develop alongside internet privacy and data security.
Learn more about Herschell and his work: https://www.blocglobal.com/