As Fund Managers Wait For New OZ Rules, An Industrial Park In Martin County Sits Ready To Go
Across the country, hundreds of thousands of properties fall within the 8,700 census tracts designated as opportunity zones, but most projects have years of preparation to do before they can capitalize on the program's full tax advantages.
However, a small fraction of OZ projects are set to launch and benefit investors right now, because they began the arduous journey of development long before the program was even proposed.
“We put our sweat and toil into this project for 10 years,” said Brian Powers, director of technology and energy at Florida Commerce Park, a 100-acre industrial park in Indiantown, Florida. “We worked through the financial downturn, through all the permitting, preparation and Phase 1 construction, then just woke up one morning to find ourselves in an opportunity zone.”
Indiantown sits on a crucial rail line and a four-lane highway that cut east to west across the state, and it falls squarely in one of 427 Florida census tracts where investors can receive tax benefits by using capital gains to fund projects that spur economic development and community growth.
While the managers of opportunity funds wait impatiently for further clarification from the IRS, the window to take full advantage of all the OZ program’s tax advantages is shrinking. Meanwhile, only a handful of projects are poised to maximize the tax benefits for fund investors.
“Developers often characterize their projects as permit-ready, but Florida Commerce Park is build-ready,” said Kevin Powers, who has overseen the entitlement process and Phase 1 of development at the park. “It took years to design and install road infrastructure, complete site work, utilities and drainage and receive final approvals for all Phase 1 construction, effectively de-risking the development timeline."
With all the permits and approvals in hand, Kevin said, Florida Commerce Park is approved for 1.3M SF of vertical development. He said the park could complete a full build-out within 30 months.
Potential OZ investors face two significant time constraints to take full advantage of the program’s benefits. First, to get the full capital gains abatement, they must hold onto a property for seven years — but since capital gains deferment ends in 2026, investors only have until the end of 2019 to reap that benefit.
Second, to be considered an OZ property, investors must deploy the majority of their capital to improve the property within a 30-month period. Brian said that this 30-month window is functionally much smaller than it seems.
“It can take years for permits to be issued,” Brian said. “So investors may have less than a year to actually start building or developing something. There are only a handful of OZ projects in Florida that are build-ready, and none probably this big.”
A large project may also be a plus for investors. Some opportunity funds have already raised over $3B — but opportunity zone properties are often small, and large funds will have to deal with many different levels of bureaucracy to move forward on each. Investing in a larger project like Florida Commerce Park could save them both labor and time.
“Many of the funds are probably dealing with $25M projects in the urban core, each of which has a separate permitting process,” Kevin said. “This is a $150M project, which can knock out the red tape of five smaller projects. We’re looking for a buyer who realizes how much that matters.”
Because Florida Commerce Park qualifies as an "original use" project, it gets to bypass the subjective tests that determine whether the changes being made to an OZ project constitute "substantial improvements."
"Having an 'original use' project substantially simplifies the capital deployment calculus," Kevin said.
He added that the purpose of the opportunity zone program was not to make bad projects look good, but to make good projects even more attractive. The industrial park had penciled out a decade ago, and conditions in both South Florida and the industrial market have substantially improved, Kevin said.
Largely thanks to e-commerce, the industrial sector has taken off as consumer demand fuels absorption of distribution, fulfillment and manufacturing space. And as demand for industrial space has skyrocketed in South Florida, investors have looked northward.
“There’s absolutely no room left in Miami-Dade or Broward counties, and we’re the obvious next choice,” Florida Commerce Park Head of Sales and Marketing David Powers said.
The industrial park is a 30-minute drive to the port of Palm Beach via the recently improved “Bee-Line Highway,” a perfectly straight section of four-lane road. The Park is also served by 4,000 feet of rail line run by CSX. It is within easy reach of the ports of Tampa, Fort Lauderdale and Miami, but David pointed out that being 20 miles inland protects the Park from the hurricanes and flooding that threaten many of the industrial assets along the coast.
He added that since the village of Indiantown incorporated in December 2017, the community has been eager to see the town grow. While many opportunity zones have been faulted for being in tracts that are already gentrified or gentrifying, Brian said Indiantown represents exactly the kind of place that the OZ program was meant to help.
“Ultimately, the opportunity zone program was proposed to facilitate responsible, sustainable investment in the communities that need it most,” he said. “The area is already booming, and this town is excited for change.”
This feature was produced by Bisnow Branded Content in collaboration with Florida Commerce Park. Bisnow news staff was not involved in the production of this content.