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  6. Smartland Launches First Cleveland-Based Opportunity Zone Fund to Invest in Local Value-Add Real Estate Projects

Smartland Launches First Cleveland-Based Opportunity Zone Fund to Invest in Local Value-Add Real Estate Projects

Smartland LLC, one of Northeast Ohio’s fastest-growing real estate investment firms, announced the launch of the Smartland Opportunity Zone Fund. Targeted to raise $22 million, the fund is believed to be the first Qualified Opportunity Zone (QOZ) fund focused on properties in the qualified areas of Cleveland as established through the Tax Cuts and Jobs Act of 2017.

The federal Opportunity Zone program is designed to encourage investment in 8,700 economically distressed communities across the country in order to create jobs, add quality affordable housing, and spur economic development. According to an estimate by the Economic Innovation Group, a public policy group that helped create the program, there are some $6 trillion of unrealized capital gains that could be directed into these left-behind tracts.

Cleveland QOZ MapUnder the program, investors may defer, reduce and eliminate capital gains taxes from unrelated investments. Investors who keep their reinvested capital gains in a QOZ fund for five years will pay no taxes on 10 percent of the gains. After seven years, 15 percent of the gains will not be taxed. For investors who hold their investments for 10 years, 15 percent of the gains from the original investment will not be taxed, and there will be no capital gains tax.

“We are excited to launch the Smartland Opportunity Zone Fund,” said Vadim Kleyner, founder and CEO of the Cleveland-based company. “Smartland is a real estate private equity firm that combines property management, marketing, architecture design, construction, and investor relations under one roof. We like ‘heavy-lifting’ projects where we can deploy our on-staff crews and apply our out-of-the-box, tech-savvy thinking to add value for tenants and investors. We believe our business model, our track record, and our in-depth knowledge of the Cleveland market uniquely qualify us as a sponsor of this opportunity zone fund.”

The firm has identified three properties for the fund (additional properties may be added):

  • A 40-unit multifamily conversion project in downtown Cleveland with the possibility of a two-story restaurant and outdoor rooftop patio. Total value: $8 million (acquisition and renovation).
  • A commercial/industrial building on three acres in the Cleveland suburb of Euclid that will be built out as an indoor sports complex. Total value: $7.5 million.
  • Existing structures and approximately 13,000 square feet of land in a redeveloping area east of downtown Cleveland that will be renovated into mixed-use warehouse and office space. Total value: $6 million.

“Not only do we know the Cleveland market well, but Cleveland is particularly from an opportunity zone standpoint,” said Kleyner. “For example, in multifamily, Cleveland has the third-highest percentage of in-place units in opportunity zones and the highest percentage of units in the pipeline in opportunity zones, according to a recent study. And Cleveland is being exceptionally proactive about attracting this type of investment.”Body Block Arcade

A great proof of concept for opportunity zone projects in Cleveland is Smartland’s recently opened Body Block Arcade apartment complex, strategically located in a QOZ a few miles east of downtown. The historic building has undergone extensive renovations, and its 40 1- and 2-bedroom units are now renting at double the previous rate, and we are 96 percent occupied. Upgrades include all-new kitchens and baths, a new dog park, 24-hr. video surveillance, and a revenue-generating electric vehicle station.

“According to a recent national survey of investors, opportunity zone funds are seen as a way to generate high returns,” said Kleyner. “Investors are primarily targeting diversified value-add and opportunistic funds rather than lower-risk core vehicles.”

“There is obviously risk in opportunity zone investments, but they have the potential to generate more than two times the after-tax profits compared to a standard taxable portfolio,” said Kleyner. “That is why investors should look for fund sponsors with experience in both the local markets and in these types of projects. For investors with recent capital gains that meet the tax code’s terms, Smartland Opportunity Zone Fund is the perfect fund.”