Landowners Get Unexpected Windfall As OZ Investors Call After Their Properties

Opportunity zones were never part of the calculation when Eben Hardie purchased 27 acres in suburban Atlanta for a spec warehouse project last year.

Now, his Hardie Real Estate Group, along with its joint venture partner Seabrook Capital Partners, has an new avenue for potential investment in the project: the federal government's newly created opportunity zone program. Investors seeking to offset capital gains taxes until 2026 can invest them into funds, and drive investment toward roughly 8,000 designated opportunity zones across the U.S.

“In our case, I would expect that we will probably end up selling it to some entity that ends up being an OZ fund investor,” Hardie said.

Bisnow is delving into this program and its implications for Atlanta commercial real estate during its Atlanta Capital Markets and Opportunity Zones event on March 21.

While the Internal Revenue Service is still ironing out various regulations associated with the program, the cloudiness has not prevented some developers and investors from venturing out to areas that, in some cases, have not seen any meaningful development in decades.

Hardie purchased a site that was home to a former steel fabricating plant near the intersection of Jimmy Carter Boulevard and Buford Highway in Gwinnett County – a largely affluent part of Metro Atlanta. But this one area is part of an area that is largely commercial and industrial, and it is in transition.

The defunct factory was ripe for industrial as a property that could accommodate nearly 500K SF of warehouses. Hardie said he is targeting logistics firms hungry for last-mile facilities close to Atlanta's population center. 

Suddenly being in an opportunity zone is an unexpected boon, not just for Hardie, but for other commercial real estate developers in Metro Atlanta.

Carter has been leading a consortium of developers in the redevelopment of properties next to the former Turner Field stadium called Summerhill. The group already has a number of developments underway, including a student housing project with Texas-based Aspen Heights Partners. The Atlanta developer itself has plans on moving its headquarters to Summerhill in the future.

“We always believed in Summerhill,” Carter Executive Vice President David Nelson said. "What's interesting is that half of our property is not in an OZ, and half is in an OZ, so it's kind of been a nice bonus that we always thought was strong to begin with."

Even though Carter has been working on Summerhill for some three years, the developer found out last year that half of its property west of Hank Aaron Drive suddenly slotted into an opportunity zone. And that has opened up new investment prospects for Carter's planned, 312-unit apartment project.

“We are talking to OZ investors about it … as well as traditional private equity investors,” Nelson said. “We have seen just from our project, there is a very strong interest from individuals and funds around the OZ."

Cherry Bekaert partner Wes Hudson said many Atlanta property owners are finding themselves in similar situations: with a new avenue of opportunity to transform ailing real estate, or finally turn barren parcels into new developments.

“There's a lot of opportunity and a lot of interest in Atlanta, in particular West Midtown, Downtown and the Old Fourth Ward,” Hudson said.

But not all opportunity zones are created equal in the eyes of potential investors. The zones along the fringes of already established or redeveloping areas of the city are gaining the most interest.

Some of that has to do with the investors themselves, Hudson said. Many investors in opportunity zone funds are not professional real estate developers, and they can be gun-shy on the risks that development can pose. So those investors are naturally flocking to more sure-thing projects or to projects with developers with strong track records.

“You had a little bit of a disconnect between the investor and the developer,” he said. “The investor is a real skeptic.”

For years, The Strategic Group partner Steve Rothschild had been placing investors into various tax credited projects, such as historic district tax credits, affordable housing and even the Georgia film tax credit program. But in March of last year, Rothschild began gearing up two new funds that would focus on opportunity zone investments.

As of January, those funds have begun attracting investment capital and shopping for projects, including Strategic's joint venture with Rivermont Capital, a $150M fund that specializes in public-private projects in opportunity zones.

The fund has already invested in two: a TruBrand Hotel in Manchester, New Hampshire, where the city is developing and managing an underground parking deck; and in North Carolina, where Rothschild is funding the development of market-rate apartments next to a Class-A baseball team stadium in Kannapolis.

“We're seeing appreciated stock investors, we're seeing real estate investors who are not going to do a 1031 exchange, we're seeing a tremendous amount of [former business owners fresh off] of business sales,” Rothschild said. "That's a biggie."

Rothschild said the popularity of opportunity zone investments will likely grow throughout the year, especially as awareness and firm regulations come to fruition.

“We're seeing really viable deals in Atlanta and throughout the Southeast,” he said. "I think the developers are just trying to get their arms around it, and the capital are trying to get their arms around it as well. It's a big timing game."

Hear more about Atlanta's opportunity zones from Rothschild, Hudson, Pollack Shores CEO Steven Shores and Epic Community Impact Fund President Jerry McGaughy at Atlanta Capital Markets and Opportunity Zones event, 7:30 a.m., Thursday, March 21, at the Four Seasons Hotel Atlanta.

UPDATE, MARCH 14, 2:45 P.M. ET: This story has been updated to include the identity of Hardie Real Estate Group's partner in the Peachtree Corners Logistics Center project.