Why Shopoff Realty Isn’t Diving Into Opportunity Zone Funds
The firm is surveying other opportunity zone projects, but is focused on quality projects that pencil without the tax benefit.
Shopoff Realty Investments launched its first opportunity zone fund last month to capitalize the $545 million Dream Las Vegas hotel development in Las Vegas. The fund is a single-project venture, and it isn’t necessarily the first of many for Shopoff. The firm is surveying other opportunity zone projects, but is focused on quality projects that pencil without the capital gains tax benefit.
“We have a number of funds currently that are for development projects, but this is the only QOZ fund as of now,” Bill Shopoff, president and CEO, tells GlobeSt.com. “We are certainly open to future QOZ projects and funds, but that will depend on the opportunities we find.”
Many opportunity zone projects rely on the tax benefit to make the deal pencil, and a frenzy around the investment model has inflated some deals. “For the most part, we have found QOZ land assets to be overpriced, driven up by the potential QOZ tax benefits, in inferior locations, or just not generally a good investment from a risk versus reward perspective,” says Shopoff. “The quality of the investment, without tax considerations, drives our interest and underwriting. If we can find additional QOZ assets that meet our underwriting, exclusive of the potential tax benefits, then we would definitely consider another QOZ fund.”
The Dream Hotel project met Shopoff’s strategy and guidelines. Through the fund, Shopoff will develop a 19-story, 575,000-square-foot hotel with 450 rooms. The property will feature the full spectrum of amenities, including 42,000 square feet of gaming, food and beverage venues, a rooftop pool and day club, nightclub, retail shops and a full-service spa and fitness center. “Construction will start in the 3rd quarter of 2021 and is anticipated to be completed about two years later, with a public opening in the fourth quarter of 2023,” says Shopoff. “We are proud to have included in the process McCarthy, a world-renowned contractor that recently completed Circa and Allegiant Stadium, global architects DLR Group leading the design, and Bill Smith leading the project for Shopoff.”
While Shopoff’s strategy is focused on strong underwriting excluding the tax benefit, the firm will take advantage of the capital gain forgiveness. “Pursuant to the QOZ rules the fund will remain open and active for at least a total of ten years,” says Shopoff.