Capital Square Solves Flaw in Opportunity Zone Program as Third Opportunity Zone Fund Completes Stabilization, Secures Permanent Financing and Makes Special Distribution to Investors
RICHMOND, Va. (Sept. 26, 2023) – Capital Square, one of the nation’s leading sponsors of tax-advantaged real estate investments and a developer and manager of multifamily communities, announced today the completion of initial lease-up and stabilization of “GEM,” a 71-unit, luxury multifamily development owned by CSRA Opportunity Zone Fund III, LLC located in Richmond, Virginia’s Scott’s Addition qualified opportunity zone. In addition, Capital Square secured permanent financing on the property and has made a special distribution to investors in the fund. The special distribution is intended to provide investors with funds to pay their taxes due in 2026 under the opportunity zone legislation.
“By combining tax deferral and exclusion from the sale of any asset, the opportunity zone legislation is one of the most favorable tax provisions in the history of the U.S. tax code,” said Louis Rogers, founder and co-chief executive officer of Capital Square. “But there is a flaw in the opportunity zone legislation ─ the deferred taxes are due in 2026 but there is no source of payment. Capital Square has solved this issue by making special distributions to investors when the opportunity zone properties are permanently financed. And the icing on the cake ─ the special distributions have been made many years in advance of the 2026 tax due date.”
Opportunity zones were created as part of the Tax Cuts and Job Acts of 2017 to stimulate long-term private investments in low-income urban and rural communities nationwide. The opportunity zone legislation provides both tax deferral and exclusion (forgiveness) from the sale of any capital asset. The legislation has two parts: first, taxes on the asset sold by the investor are deferred until 2026 and, second, taxes on sale of the newly constructed building are excluded from taxation if held for at least 10 years.
Located at 3001 W. Leigh St., GEM is a ground-up development that includes a five-story, luxury multifamily community with 71 units, co-working space, gym, amenity deck, a dog washing station, market-leading unit fixtures and finishes. Additionally, the complementary ground-floor restaurant space is leased to Lillian Oyster Hall, a concept from the chefs at the award-winning Scott’s Addition restaurant Longoven. Construction on the property began in May 2021 and was completed in November 2022. With the project stabilized, Capital Square closed permanent financing with a long-term loan made by Affinius Capital (formerly known as USAA Real Co.).
“Richmond’s Scott’s Addition neighborhood has undergone a true transformation in recent years, thanks in part to Capital Square’s opportunity zone funds, which have financed significant new residential and retail development that have contributed to the revitalization of the area into one of the city’s most popular communities,” said Whit Huffman, co-chief executive officer. “The success of GEM and our other developments within the Scott’s Addition opportunity zone have helped to reinvigorate a previously underutilized and overlooked part of Richmond while providing significant benefits to the investors in these funds.”
GEM is the third and final development project that constitutes Capital Square’s Scott’s Collection, a group of boutique multifamily communities within Richmond’s thriving Scott’s Addition neighborhood. “INK,” the first of these projects, opened to residents in January of 2022 and achieved 100% occupancy shortly thereafter. “VIV,” the second of these projects, opened to residents in June of 2022 and achieved 95% occupancy within three months.
In addition to Scott’s Collection, Capital Square is constructing a 352-unit, Class A mixed-use multifamily community in Richmond’s Scott’s Addition qualified opportunity zone. Development of 2950 W. Marshall Street is being funded with proceeds from Capital Square’s seventh qualified opportunity zone fund, CSRA Opportunity Zone Fund VII, LLC, which is currently raising equity from accredited investors.
Capital Square also serves as the co-developer, in a joint venture with Greystar Real Estate Partners, of The Otis, a 350-unit multifamily community with ground floor retail space also located within Richmond’s Scott’s Addition opportunity zone. Construction of The Otis was completed earlier this year and is currently in lease-up.
According to an economic impact study recently completed by FTI Consulting, Capital Square’s Scott’s Addition-focused opportunity zone developments have generated significant economic and fiscal impacts, including the creation of approximately 1,500 construction jobs and 63 permanent full-time jobs. In turn, the developments have generated $9.7 million in annual state and local tax revenue during their construction phases and are projected to deliver $7.7 million in annual state and local tax revenues during their operational phases.
In total, Capital Square’s opportunity zone funds have initiated almost $600 million in development value to-date.
About Capital Square
Capital Square is a vertically integrated national real estate firm specializing in tax-advantaged real estate investments, including Delaware statutory trusts for Section 1031 exchanges, qualified opportunity zone funds for tax deferral and exclusion and a real estate investment trust (REIT). In recent years the company has become an active developer of mixed-use multifamily properties in the southeastern U.S., with eight current projects totaling approximately 2,000 apartment units with a total development cost in excess of $600 million. Since 2012, Capital Square has completed more than $7.5 billion in transaction volume. Capital Square’s related entities provide a range of services, including due diligence, acquisition, loan sourcing, property/asset management and disposition, for a growing number of high-net-worth investors, private equity firms, family offices and institutional investors. Since 2017, Capital Square has been recognized by Inc. 5000 as one of the fastest growing companies in the nation for seven consecutive years. In 2017, 2018 and 2020, the company was also ranked on Richmond BizSense’s list of fastest growing companies. Additionally, Capital Square was listed by Virginia Business on their “Best Places to Work in Virginia” report in 2019 and their “Fantastic 50” reports in 2019 and 2020. In 2023, Capital Square was recognized by the Richmond Times-Dispatch as one of the region’s “Top Work Places.” To learn more, visit www.CapitalSq.com.
Disclaimer: Securities offered through WealthForge Securities, LLC, Member FINRA/SIPC. Capital Square and WealthForge Securities, LLC are separate entities. There are material risks associated with investing in DST properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to see any securities. Please read the Private Placement Memorandum (PPM) in its entirety, paying careful attention to the risk section prior to investing. Private placements are speculative. Diversification does not guarantee profits or protect against losses.
