You can watch the full presentation recording here. The below is a transcription of some of the highlights.
We are targeting a $50 million equity raise for our third fund, continuing our focus on multi-family housing (~80-90% of equity in each fund) and outdoor hospitality projects (10-20%) across Colorado. To date, we are approximately 25% subscribed, which is ahead of our schedule.
Proven Colorado Investment Experience:
“Since 2013, as a team we’ve invested, outside of opportunity zones, more than $50 million dollars into projects in Colorado. We often say, if you can name a town in Western Colorado we’ve probably bought and sold something there. That’s what has given us the understanding of these markets to compel us to go out and execute what is currently now another $50M in equity projects primarily in these same areas.”
“We have worked very diligently to build a reputation and strong understanding of the market. It’s those relationships with long standing partners and community stakeholders that gives us that first and last look at transactions. People come to us first to understand how to use opportunity zones in their community.”
The Colorado Market Opportunity:
“Prior to the designation of opportunity zones, we were active participants in the growth occurring throughout Colorado. The Western slope of Colorado is forecast to grow 67.2% between 2015 and 2050, with some communities seeing as much as 40% growth between 2020 and 2035. This supports very strong demand across our focus communities.”
“The access to outdoor activities, high quality of life is very compelling. We are looking at this inflow of residents seeking outdoor recreation and affordability. We think, not only is this going to continue to expand the main drivers for housing, but also it’s going to provide a boost to outdoor focused hospitality.”
The Great American Migration:
“As Colorado continues to invest in it’s rural broadband infrastructure we have become a more viable option for remote workers and companies seeking new homes.”
While we have been long time believers in this growth, it’s become clear during the pandemic that our region will benefit from the migration of 14-12 million Americans who intend to move.
We are specifically focused on thoughtfully handling the needs of communities as CO continues to grow. 82% of gateway communities (defined as communities adjacent to major outdoor recreation amenities) say that the lack of housing and housing availability is moderately to extremely problematic for their community. These are the kinds of communities that we are focused on.
Fund III Open to Investors:
For our Fund III portfolio we expect to invest in 4-5 multifamily projects and about 3-4 outdoor hospitality projects. These projects are slated to be located in places such as Estes Park, Idaho Springs, Gunnison, Buena Vista, and Grand Junction.
“We are targeting our multifamily housing to ensure that the markets we serve have very clear demand drivers. I want to see that there are infrastructure elements that will facilitate the inbound population such as healthcare, and education.”
“Our investments have become an attribute supporting the growth and sustainability of many communities. Specifically we are supplying a high quality / affordably priced category of middle income housing for the workforce. Not low income, which is targeted with subsidized housing, or high end resort income, which is targeted by typical market rate developers. We sit right in the middle where people come down to us or up to us depending on where they are in their economic journey.”
Multifamily Residential - Estes Park - Acquired
94 units of multifamily housing located on a 5.9 acre site immediately adjacent to hiking and mountain biking trails. This site will also include a childcare facility which we believe will be extremely impactful.
Multifamily Residential - Idaho Springs - Under Contact and In Diligence
We are under contract on this facility and in the diligence phase for this project. Located in downtown Idaho Springs, we are under contract to purchase GoldDigger Stadium to support more rental inventory.
Multifamily Residential - Gunnison - Under Contract and In Diligence
Here, at the base of Crested Butte, like many resort towns, workforce populations are extremely pressed to find housing. We are under contract to purchase land adjacent to Western Colorado University. The university is growing with a $80M investment to create a leading engineering department and the regional airport makes traveling through Denver simple.
Fund III - Outdoor Hospitality
The pro-forma of these sites is very attractive and they typically cash flow much faster. We are confident our acquired developments in Buena Vista and Florence Hot Springs will be cash flowing this year.
“The reason we like outdoor hospitality as an investment is because it provides a near return cash flow. These investments can often be very catalytic for a nearly dormant area. They are also very symbiotic with our housing projects in the region.”
March 31st Opportunity Zone Investment Deadline Extension:
We were pleasantly surprised to see another IRS extension of the OZ investment deadline. This includes gains that date all the way back to October 2019. If you have questions about your gains, please reach out to us to learn more.
OZ Fund Investment Timeline and Forecast:
For a summary of our terms and return expectations, please request access to our data room. These are discussed in the recording as well, but not published in this transcription.
Q: Do you see any challenges exiting properties in 10-12yrs when presumably most OZ funds are looking to do the same, at the same time?
A: Given the relative size of the total investments across the US in the OZ (relatively small), the timing of these (staggered over 5-7 years) we don’t expect this to be a bubble and we are also underwriting to cash on cash expectations that would actually make these attractive to hold if needed.
Q: How are you dealing with historic construction costs, including lumber prices that are currently at all-time highs?
A: We’re dealing with construction costs in a number of ways. We want to be as prudent as we possibly can. With our GC’s for Grand Junction [The Eddy] we’ve locked in our lumber prices so they can’t inflate. If pricing doesn’t normalize, we are starting negotiations with a lumber mill in Colorado to see if they can provide us with lower cost lumber right here in the state. For some of our newer projects, including Gunnison, we’re also exploring using a modular manufacturer that will also bring down costs in production. We also monitor our site-work costs to keep our basis down. Our current budgets are holding and we also expect to be able to manage the next cycle of developments. Our pro-formas are also loaded with $1-2M worth of contingency to handle something like this as well.
Q: Why not more outdoor hospitality investments given the attractive near-term cash flow generation characteristics?
A: We want to be able to invest capital at scale across Colorado. These projects are much harder to scale, requiring much less equity than housing projects. We are really excited about the cash flow and future appreciation of these projects, however.
Q: Will there be future interest in projects in eastern Colorado?
A: Likely, one of the projects we are considering is in Limon, Colorado.
Q: While the partnership gains window is extended for 2019 how is this looking for partnership gains in 2020?
A: Any gains in 2020 qualify for this extension. If you have individual gains that are coming in now, those gains are going to be on a 180 day clock. If you have partnership gains you have 180 days from when your K1 would be due.
Q: How much money do you expect to return by 2026?
A: We expect no money to be distributed in the next two years. In 2023 is when some of the larger projects begin stabilizing and we expect cash flow to begin. 2024-2026 we expect cash flow to be in the 7-9% range.
Q: Knowing rural Colorado slightly, I'm curious how you address a possible lack of workforce for your projects, i.e. property managers, construction on an ongoing basis, electricians, etc.?
A: We are working with large GCs that have subcontractor stables across the state. That said, it is a key criteria that we vet with our GCs given the tight labor market.
Q: Is there any legislation risk to the OZ fund rules, benefits, etc?
A: We don’t believe there is any legislative risk to investors that are coming in under the current rules. All of the legislation that is currently being proposed is about reporting requirements and grandfather’s in any projects that are already underway.
Q: Why do you not have capital calls?
A: Mostly this is for investors who need to place their gains by a certain deadline. We want to be able to raise the funds without an expectation that there will be a capital call at an unknown date in the future. Also, all of our projects are leveraged so all of the capital gets placed first.
Q: Do you provide audited statements each year?
Q: Would you consider a single family rental community or is that outside of the “essencial housing” thesis you have?
A: We would consider it. We’ve done 1 single family home as a test, but the real theme for us is housing that meets the needs of the community. If the best way to do that was single family, we would do that, but generally multifamily housing projects are more economical.
*This is not an offer to sell securities of any investment fund or a solicitation of offers to buy any such securities. Securities of each of our OZ Funds managed by Four Points Funding, LLC are offered to selected investors only by means of a complete offering memorandum and related subscription materials which contain significant additional information about the terms of an investment in the Fund.