Indianapolis-based The Annex Group recently announced the closing of an $18 million purpose-built, multifamily housing development in Ruston, La., that will serve the students of Louisiana Tech University. The deal was aided by the site’s location, which is inside an Opportunity Zone (OZ), a designation that has been generating a lot of media attention recently.
OZs were created by the Tax Cuts and Job Acts of 2017 and have been touted as a way to help give low-income communities a hand up by providing tax incentives to investors to encourage development. Taxes on capital gains can be deferred if the proceeds go into a fund that invests in an OZ. More than 8,700 OZs have been identified across the country since the bill became law. A high density of OZs can be found in Los Angeles, Honolulu, Chicago, Detroit, New York City, and San Juan, Puerto Rico.
Annex’s deal in Louisiana wasn’t created by an OZ designation, but it did help get the ball rolling. “Due to the limited amount of on-campus housing and the campus and community support, we’ve had Louisiana Tech University on our radar for some time,” says Kyle Bach, CEO and president of The Annex Group. “We secured the off-campus real estate before the OZ designations were put into effect.”
According to Bach, the deal got even sweeter when the governor of Louisiana added OZs to the list of areas eligible for the Louisiana Restoration Tax Abatement Program. The program provides an abatement from property taxes for up to 10 years for the expansion, restoration, improvement, or development of structures in designated areas.
The Annex Group project is a 118-unit (324 beds) purpose-built, multifamily housing complex called The Annex of Ruston. The development will include sought-after amenities such as a swimming pool, an exercise room, study lounges, secured parking, and more. The fully furnished apartments will rent individually by the bed for students, with one-bedroom units starting at $725 per bed. Even though the numbers crunched correctly for this project, Bach and his team had to jump through a number of hoops and climb a steep learning curve.
“Similar to most projects in the real estate realm, this investment took a lot of time and money,” he says. “Considering this is a new program, there was still a cloud of ambiguity surrounding multifamily housing. The Annex Group became one of the first companies to secure a student housing project funded with an OZ fund, which in turn presented significant challenges and cumbersome work in regard to legal and tax documentation.”
The project is being financed through a construction loan by KeyBank, with participating support from Gibsland Bank and Trust and an OZ equity investment from Crescent Investment Advisors. The Annex Group worked in collaboration with KTGY Architecture + Planning and HGA Engineering to develop the proposed structure. The nearby city of Ruston is also a key stakeholder.
“The Annex Group approached the city about building this development, but we had three requirements,” says Ruston mayor Ronny Walker. “It must be close to Louisiana Tech to allow for ease of access, it had to be along the Greenway to provide safe transportation options and access to the surrounding neighborhood, and it had to be in an underdeveloped area to serve as a catalyst for further economic development.”
With all the goodwill and coordinated effort behind it, the project is expected to be complete by August 2020. Bach points out that just because a potential project happens to be in an OZ, that by itself does not guarantee success. “First and foremost, it’s important to understand the market fundamentals and identify whether the market conditions can support the project regardless of the real estate investment class—multifamily, student, or retail,” he says. “Developers interested in leveraging OZs should examine if such locations are suitable for the development, then confirm whether or not the market is in favor of the investment.”
