I had the pleasure of sitting down with Bill Arent, to discuss what the city of Las Vegas was doing with regard to opportunity zones within the city. Bill is the Director of the city of Las Vegas Department of Economic and Urban Development. In this podcast, Bill and I discuss how the city went from, pre opportunity zone redevelopment plans and incorporated the new tax incentives offered by the Tax Cuts and Jobs Act of 2017 into their new plans to revitalize under capitalized portions of the city. We also discussed some of the projects that are in the works and other issues relating to opportunity zones.
You can listen to the podcast here or download it to your favorite podcast player. If you prefer to read the interview, a partially edited version of the podcast transcript is provided below.
IN THE BEGINNING
Howard F Kline [00:01:16] Let’s start in the beginning with regard to the city of Las Vegas and opportunity zones.
Bill Arent [00:01:22] Well, we saw it as a great opportunity again, no pun intended, but we have a lot of the older parts of the city and the Las Vegas Valley. When you think of Las Vegas, you don’t think of old. But we have some of the oldest parts of the valley where we have infrastructure that was built in the 40s and 50s. We’ve dug up wooden sewer mains and things like that. We’re trying to revitalize and redevelop downtown Las Vegas.
Bill Arent [00:01:49] We have about a 4000-acre area that is our city’s redevelopment area. And so, when Opportunity Zones came along, we thought it was a great idea to be able to kind of overlay some of the things we were already doing with these new incentives. We worked really closely with the state and the governor’s office and we were successful. We actually nominated 26 areas, 26 census tracts in the city. Twenty-two were selected, so we have over a third of the state’s opportunity zones right here in our city, most of them in the core downtown.
Howard F Kline [00:02:23] Why did you choose the core area?
[00:02:31] Well, it’s really the areas that were struggling over the years for new investment but are also starting to see an upturn in new investments. We looked at it as part science, part art where we pick the areas that have been disadvantaged or a sense of disinvestment that are also up and coming neighborhoods. Most of those are in the core downtown. We picked some of the areas just west of downtown and some areas just east of downtown. We have some great areas where we’re starting to see some new apartment projects and some new hotel projects. Most of the interest we’ve seen since we announced our zones have been really in two major segments, apartments, multifamily and hotel. We’ve talked to other investors who are trying to do other investment, but what we’ve seen in the city of Las Vegas is a lot of interest in those two sectors, particularly apartments and multifamily.
MULTI-FAMILY IS THE DRIVING DEVELOPMENT
Howard F Kline [00:03:30] Let’s talk a little bit about apartments and multi-family. Do you have any idea why there’s been such a focus on multi-family in these areas? If that’s high on the city’s list of development and why?
Bill Arent [00:03:47] I think a couple reasons. Nationwide multi-family is a great investment. There’s a lack of supply for quality rental housing in a lot of markets.
The other thing I think you’re seeing in the trend is a lot of people are looking to urban living and urban lifestyles where you have what I call the both ends of the bell curve. You have millennials or younger members of our workforce where they’re not ready to own a home and they want that urban living. And then you have people which are downsizing where their kids are out of the home, or maybe it’s a couple without kids and they wanted to have an urban lifestyle. Las Vegas has not traditionally had that. We’re starting to see more and more of that. We’ve had some projects built, going into the recession and then the recession really kind of cut the legs out from under us. This is really rebirth. A lot of interest in downtown.
We see a lot of large institutional investors interested in multi-family. And the way we think of opportunity zones is it doesn’t make a bad investment good. It makes a good investment great. Across the board, we’ve talking to over half dozen multifamily housing developers from across the country. Locally, regionally and nationally about trying to find a project site center downtown.
WORKFORCE & AFFORDABLE HOUSING
Howard F Kline [00:05:11] Where does workforce or affordable housing come into play in these opportunity zones and do you see a predominance of workforce and affordable housing. Are you seeing more class A multi-family?
Bill Arent [00:05:27] I think initially we’re seeing more class A. In answer to your question about the city’s goals, we do have kind of mixed goals. Primarily, we have two goals. One is more class A. We have some of the oldest housing stock around. We also have a lot of class C. Therefore, getting more class A apartments in downtown is a priority of the city.
We have over 600 units in active construction right now in Symphony Park from two different partners, Aspen Heights at Austin, Texas and Southern Lands out of Nashville. Both of those projects, interestingly, are taking advantage of opportunity zones. We have a third project on the drawing board in Symphony Park. Combined that’s over a thousand units for Symphony Park.
We want to see workforce housing and mixed income housing, too. It’s our premise that if we get more luxury apartments in the core of our downtown, we’ll also see more mixed income development interest in the transitional neighborhoods which aren’t established or not in the core of downtown. We’re hoping to see more mixed income projects where we have affordable rents for a portion of the units.
The other thing we’re starting to see and I’m actually headed to Chicago this week to visit and tour a developer there that’s building highly amenitized micro-units where we’re starting to see a synthetic affordability where the gross rent may be affordable where the developers can offer a higher quality project and just have smaller units. Instead of offering a traditional 800 to 1000 square foot apartment that you might see in the suburbs, it may be a 400 or 500 square foot unit that are very highly amenitized with restaurants, with shopping and on demand services. A hotel in concept, if you will. We’re beginning to see that across the country and maybe Las Vegas is getting to that later than other more mature markets, like a Portland or Seattle.
Howard F Kline [00:07:53] Shared amenities.
Bill Arent [00:07:55] Shared amenities.
Howard F Kline [00:07:57] I recently interviewed Darryl Carter, the CEO of Avanath about low-income and workforce housing in opportunity zones. Avanath has been doing workforce and low-income housing for 20 years and currently owns and manages over 2 billion dollars, worth of inventory. They have 15 projects that are currently in opportunity zones. I remember asking him a question, about nine years ago, about these micro-units. At the time, I thought of, what are now called micro-units, simply as affordable housing. I wasn’t aware that affordable housing had a different meaning. He made it clear to me that micro-units were not the type of affordable housing that he was involved in. I picture micro-units as a more grown-up version of dormitories, which is not the term that people want to use, but you can have a small room with a small kitchen and a bathroom, a shower, and then all of these other amenities can be shared. And that makes a lot of sense, particularly in a city like New York, where you’re lucky if your kitchen is not in your bathroom.
Bill Arent [00:09:17] Right.
Howard F Kline [00:09:18] I you have 200 square feet, you’re doing well. I think that’s a good idea. The other thing that Darryl had recently mentioned to me in our interview was the idea of mixed income. They have found that in workforce housing, mixed income, not necessarily a class A with all of the amenities, but a nice place to live with mixed income works very well. It tends to raise the living standard of those who have lower incomes and doesn’t seem to depress those with middle incomes. Do you have any thoughts on that? You’re the urban planner.
Bill Arent [00:10:02] I think that’s exactly right. From our vantage point, mixed income mixed-income works in the right communities. Mixed-income becomes real viable from a financial perspective, particularly if you’re seeing strong rents on the market projects. We’re starting to see rents in downtown at a two dollar per square foot or higher rate whereas the valley-wide market rent just the number 18 months, 24 months ago was probably closer to a dollar a foot, so we’re seeing really strong pricing from projects like Fremont 9, which is already building up and running. We’re starting to see that demand for a better product and people were willing to pay for it to have that urban lifestyle. That’s when the mixed income starts to work because they can get enough profit out of the true market rate units to have the subsidized units be able to have a subsidy from the developer and maybe a little bit help from the city. Those projects start to work. You see a lot of mixed income in more mature housing markets. I think we’re going to start to see that over the next couple of years.
WHAT ABOUT RETAIL AND OFFICE?
Howard F Kline [00:11:21] Where does retail and some industrial, I would imagine. Where do they come into play or office?
Bill Arent [00:11:33] Well, for opportunity zones. I think it’s going to come later. I think if you look at it again, it makes a good investment grade. Where we are strong right now in the valley even just looking beyond the city of Las Vegas. Multi-family and industrial, actually, industrial arguably is much stronger than multi-family right now. I think we’ll see some investment in those areas.
WHO IS SHOWING THE MOST INTEREST?
The other thing that we’re seeing, particularly in the opportunity zone front, are the large institutional investors having interest. We haven’t seen a lot of the smaller players deploying large amounts of capital in the valley.
There’s another apartment project by Meadows Mall that’s being developed by Silverstein Properties out in New York City. They’re looking at opportunity zones. There’s a project in the medical district called Revive, which is a combination, residential, retail potential, even some hotel units. They’re looking at opportunity zones. It’s really kind of the market and the institutional capital players that are driving what we’re seeing as far as large flow of opportunity zones in the Las Vegas.
To give you a sense of the scale of these projects, the two in Symphony Park, one was seventy-three million dollars, the total capital stack. The other was north of 80 million. These are pretty large projects. Institutional capital would be needed to make it work to begin with. Opportunity zone capital availability is helping driving an increase in the amount of equity available for these project sponsors to get them up off the ground and up and running.
WHAT DOES THE CITY WANT TO SEE IN OPPORTUNITY ZONES?
Howard F Kline [00:13:19] What’s your perfect vision for opportunity zones in the city of Las Vegas?
Bill Arent [00:13:25] I think we have a huge opportunity for moving more and more people to live in Las Vegas and in our downtown area. And I’d like to see over the next five years, three thousand new housing units being built in downtown. We’ve gotten off to a great start, but I think there’s more work to do. Having the availability, the capital to develop more product is really important.
One of the things that the city is doing is we’ve developed an online portal clv.oppzoneportal.com. The portal site includes, among other things, a plot analysis. We want to connect landowners, project sponsors and the funds and have, basically, a clearinghouse helping anyone interested in opportunity zones to connect the dots, including figuring out how to find the capital and that perfect site.
At the end of day, real estate is local. A lot of the funds we’re seeing are national in scope. But the real estate, is local. So how do they penetrate the local market, find the perfect location? That portal is available as a free charge to our clients. We already had those two sites that closed on the opportunity zone funding. They’re on our portal trying to attract more people to the portal to basically funnel a lot of that traffic in our city.
Howard F Kline [00:15:11] Zoning. How does zoning come into play in terms of opportunity zones?
ZONING
Bill Arent [00:15:18] Zoning is important.
One of the things that the city can do is try to make sure for investors and product sponsors that we don’t hold projects up. Having land use and zoning already in place, getting through our regulatory process with permitting and design review, we’re trying to make sure we prioritize those projects so they can get in and out of our system quickly.
FORM-BASED ZONING
One of the things the city is doing is moving to a form-based code to help with predictability so that if you’re designing within that box, if you will, of what is permitted in a particular zone, more and more. We’re trying to get more administrative reviews where you don’t have to go before the regulatory bodies as often. We’re launching form-based zoning, initially in the medical district as a pilot to make sure our projects can get in and out of our system. It appears to be a real benefit for our partners. We realize time is money, always, particularly with the opportunity zones having that threshold to complete your substantial renovation within a specific time frame of 30 months. That’s another great thing about Las Vegas, is that the statutory time frame is doable, even without any help from the city, whereas you go to neighboring states like California and just to get zoning. You’re doing well to get it done in 30 months.
Howard F Kline [00:16:45] Speaking to a former Californian, 40 some odd years, why don’t you take a moment and explain what form-based zoning is and how it differs from the more traditional use-based zoning?
Bill Arent [00:16:58] Yes, the focus is more on the form, rather than the use. You plan a building of a certain density, not use. One of the things we recently did is for our wood frame construction, you can go now to 75-feet. It was fifty-five feet. With the form-base, you designed the forms, so whether you’re building an office building or an apartment building, you can go seven stories, 75 feet, it allows you get a 75 feet. You build an office building up to 75 feet, you build an apartment building you build it to 75 feet.
Howard F Kline [00:17:44] That’s big.
Bill Arent [00:17:45] The big thing that we’re hearing from our partners is predictability. So they don’t want to have to start the process, wondering what’s going to happen at the end of the funnel when I get out of the process and I get to be able to build it 50, 60, 70 units to the acre amount, going to be able to build it 20, 30 units to the acre, because then there’ll be a tipping point where the project doesn’t pass on. It kills the project.
THE ISSUE OF GENTRIFICATION
Howard F Kline [00:18:17] Let’s talk a little bit about gentrification. That’s not the softball. That’s hardball.
Bill Arent [00:18:26] Sure.
Howard F Kline [00:18:26] What are your thoughts on gentrification? And is the city making any efforts to minimize the effects of gentrification? You’re talking about going to class A multi-family, which is likely going to cause some gentrification. What are your thoughts on that?
Bill Arent [00:18:50] I think it’s a tricky issue everywhere, maybe less of an issue here because some of the places we’re developing are raw land. In Symphony Park, the projects are being built on a former railroad site that had sat vacant for decades.
We’re just now starting to get into the neighborhoods where gentrification is going to become an issue. I think that’s where mixed-income housing becomes really important to look at policies and practices like first rights for residents to be able to move back into the properties after they’re built. This is an issue we’re tackling with one of our larger opportunities in the historic West Side at Marble Manor, which was a public housing authority property.
Marble Manor is up for a redevelopment project where they’re talking about knocking down units that were built a generation ago and look to build new mixed income housing, but do it in a way that is suitable for the neighborhood. I think suitability is a big issue. What’s suitable for a neighborhood? Gentrification is a process that market forces may push it on its own. What can the city do to alleviate that? I think we can do mixed income housing. I think we can have responsible development and it’s not going to be class A, high rise or class A apartments everywhere. I think there are opportunities to look at a more balanced approach as we get into some of the neighborhoods.
INFRASTRUCTURE
Howard F Kline [00:20:25] Infrastructure, what is the city doing or planning in terms of improving infrastructure in some of these opportunity zones that may not have the most modern infrastructure? Infrastructure would be cable, transportation. Probably those would be the basically communication and transportation would be the most major that I can think of for opportunity zones.
OPEN & PARK SPACE
Bill Arent [00:20:53] Infrastructure is a big part of our redevelopment program to begin with. In some areas, we’ve redone the streets and put in new landscaping. One of the big things that maybe other communities take for granted is just having quality open space and park space. We have a downtown masterplan vision that found that we were have the lowest amount of open space of just about any downtown out there, much lower than Phoenix, for instance. We are looking to try and fix that. We may not develop our own Central Park or our version of Central Park, but we can have nicer landscape features, green space, open space and a trail system.
TRANSPORTATION AND COMMUNICATION
One of the big visions is we’re having a turn to have a trail system downtown to basically link all of her neighborhoods, to have jogging, jogging paths, bicycle paths, and that that’s a big effort under way. As an example, Third Street between Bonneville and then extending south into the arts district, that’s going to be a new trail system to have essentially do the thing that all traffic engineers hate, where we narrow the street but widen the sidewalks and other amenities so that it becomes a more walkable, more welcoming environment. One of the reasons I love living in Las Vegas is we have a great climate, most of the year.
If you have a nice landscaped path where you can you can walk to the restaurants, having a shade canopy means everything. You can drop the temperature 20 degrees.
Transportation is really important. We’re working with the RTC on having a light-rail alternative coming down Maryland Parkway from the airport in the university and downtown. Telecommunications is also very important. We’re looking at upgrading the fiber downtown, connecting all of our neighborhoods, making sure that we have connected communities. That’s really important also.
HOW TO GET INVOLVED
Howard F Kline [00:23:15] If someone wanted to get involved and help, how would they go about doing that?
Bill Arent [00:23:21] Well, I think the first way to get involved and help is just to be informed. Certainly, engage us at the city of Las Vegas. We have some great constituency groups that update all of our partners on projects. We have a business association called the Downtown Vegas Alliance, which is a great way to plug in. We have other, very important business groups like the Las Vegas Metro Chamber and the Las Vegas Global Economic Alliance. Other practical way is if you have interests in opportunity zones, just reach out to us. We’re here to help. Again, I mentioned we have over a third of the state’s opportunity zones, so this is a big opportunity statewide. But we have the lion’s share in our city and in the heart of our downtown. We’re looking for projects big and small. While we certainly have some big projects on the drawing board there are also opportunity for smaller investors such as family wealth offices. We think our opportunity zones are as compelling as any in the country. The momentum swing is to have investment and development coming into downtown. And now with that added benefit, really the sky’s the limit for Las Vegas.
Howard F. Kline is a Nevada licensed real estate advisor with KW Commercial, located in Las Vegas Nevada. He is also a licensed California attorney for nearly 43 years, primarily focused on commercial real estate and has been a licensed California broker and a licensed New York real estate agent. Howard is the founder and host of CRE Radio & TV, an online commercial real estate magazine since 2010 and recently founded the Las Vegas Business Journal, an online, media rich, interactive business magazine. For more information, contact Howard at 702.706.4433 or at hkline@kwcommercial.com. Nevada RE License #0185884