(Editor’s note: This post was updated at 8 a.m. on Thurs., Sept. 26. Due to reporter error, the original version of this post contained an inaccurate description of Marian Development Group’s role in tax credit financing. Marian Development works with different syndication groups, but is not itself a syndication group.)
The basic concept for the new Real Estate Venture Exchange is, it’s sort of financial speed dating, introducing projects – especially in real estate – searching for capital to accredited investors on the eternal hunt for yield.
But at the group’s second quarterly meeting at The IceHouse today, it became clearer there’s another dimension to REVE as a channel into Louisville’s inestimable future.
Gill Holland, who led the partnership that created the NuLu restaurant and retail corridor along East Market Street, was marquee speaker for REVE No. 2. And Holland did not disappoint the crowd of 117 deal makers, investors and real estate brokers at the luncheon event.
Holland gave his most detailed look yet at his quickly developing plans in Portland, an emerging West End neighborhood which he pointed out is roughly the same distance from West Main Street, downtown’s cultural center, as NuLu.
Holland didn’t give a formal pitch for his for-profit Portland Investment Initiative. Rather, he mentioned casually at the end that he believes if PII can raise $22 million, “that money in that neighborhood could make it the next Butchertown … bring it back to its vibrancy.”
Holland was one of three presenters. REVE co-founder Justin Brown, who works with his father Jake Brown and mother Cynthia Brown, principals in Marian Development Group, gave a pitch for the opportunities in low-cost housing using both Low Income Housing Tax Credits and Historic Tax Credits under the federal tax code.
Brown first explained the concept of tax credits, then how they bridge the financial gap, allowing communities to build – for example – high quality, low-income housing that enhances neighborhoods rather than “1960s barracks” style housing.
The most entertaining and scoop-rich pitch was by Chip Hamm, the attorney/investor in Doc Crow’s Southern Smoke House and Raw Bar and other Ton Brothers restaurants. (Longtime restaurant executive and master sommelier Brett Davis also is a partner.) Hamm pitched investors on a plan by DC Management Corp. to take the Doc Crow’s concept to Brentwood, Tenn., as well as a steakhouse concept called Union Common to Nashville proper.
The partners plan to open three total restaurants including a top secret concept in Louisville he helpfully labeled “Voldemort” on his slide deck.
“We will open three next year,” Hamm said.
PII acquires 110,000 square feet of Portland warehouse space
Calling himself “a community builder rather than real estate developer, ” Holland included some big news in his 20-minute presentation.
PII just closed on the purchases of three warehouses at 15th and Lytle streets in what he terms the future “East Portland Warehouse District,” one of three pieces to the private, for-profit initiative.
The three warehouses give PII a total of 110,000 square feet – almost three acres – of warehouse space, Holland said. Those buildings won’t remain warehouses.
Holland showed the crowd a rendering of how he sees the East Portland Warehouse District; renovated buildings full of lofts, offices and retail in the style of fashionable New York warehouse districts such as Tribeca, surrounded by common areas with trees and cafes.
In addition to the warehouse district, Holland discussed the second of the three-pronged Portland initiative – an effort to buy as many as 40 shotgun houses along Bank Street in what he calls The Makers District.
The strategy is to persuade investors to buy the distressed houses for perhaps $15,000 each, then invest up to $60,000 to refurbish them. Those houses would be rented to artists, startup entrepreneurs and other people with modest incomes in the creative class.
“In the end, you’ve invested $75,000 in houses worth $25,000. But when they’re rented, they cash flow at a higher valuation … then 10 years from now when you cash out, you sell for more than the initial investment,” Holland said.
The third piece of the PII vision is what Holland calls the Portland Stroll District, an already thriving retail hub at 25th and Portland streets that includes a department store, hardware store, restaurants and other amenities.
“This looks like the small town I grew up in, though my town was nicer,” he said. But Holland pointed out his town had 2,500 residents while Portland has about 80,000 people. “It already has great existing bones, and good people and businesses in place,” he said. The goal is to raise awareness of the area and turn it back into “Mainstreet, America,” Holland said.
He stressed in his talk that he’s in Portland for the long haul. “Everyone asks me, ‘How much are you going to spend in Portland?’ I say, ‘I’m going to spend 10 years in Portland. What’s that worth?’ ”
Holland said he’s currently pitching several Louisville foundations to invest at least 1 percent of their assets in Portland. “I tell them, ‘You get a double return on your investment – a financial return in return on investment, and ROC … return on community.”
“I like making my friends and family wealthy”
Hamm, former real estate director for Yum! Brands, said the next stop for his Doc Crow’s partnership is Brentwood, Tenn., the wealthy enclave outside Nashville. He described the 6,000-square-foot location as a high-income, high-density location near offices and retail, an area that’s very different from downtown Louisville.
“We want this to be a test … to see if this is a replicable model,” quality food priced mid-range between high-end steakhouses and fast casual, he said.
The projected opening date for the Nashville operation is October 2014, he said. If it is successful, the next markets could be Lexington, St. Louis and Indianapolis. The partners won’t be going to Topeka, he joked. “I don’t want to go. But Tokyo … I don’t know. I like Tokyo.”
In his pitch for Doc Crow’s, Hamm revealed that the Main Street restaurant just east of KFC Yum! Center had first-year gross sales of $2.3 million, adding he projects just over $3 million for 2013.
His breakdown included the fact the restaurant had paid off its preferred investors, who put in $700,000. Those initial investors included his best friend and his sister, Hamm said. Later in the pitch, he said of his investors, “we want to get these people rewarded and redeemed. I like making my friends and family wealthy.”
Marian Group helps break the cycle of poverty
For Marian Group to build housing and other projects, Justin Brown said the firm needs investors just to secure the projects. “Pursuit costs” range from $20,000 to $100,000, he said.
Once a deal is closed, those investors get a percentage of the developer fee.
Should investors be interested in an ownership stake, Marian Group will take on investors for up to 20 percent of the equity, with investors getting a representative portion of the cash flow, then a share of the payout upon the sale of the property, Brown said.
The federal government issues tax credits to encourage projects they want to see done, but the private sector may not be willing or able to do. Tax credits give investors a dollar-for-dollar write-off for up to 70 percent of property value.
Marian Development is a development and investment group. The firm is awarded tax credits for a project, selling them to syndication groups. That money becomes part of the equity in the project.
That capital “bridges the gap” between the market value of high-quality, low-income housing or other projects and the actual construction costs, Brown said.
Marian Group deals also may incorporate historic tax credits to repurpose existing buildings.
As an example, Marian Group converted the former Maupin Elementary School in the West End into Parkland Scholar House. It’s one of several Family Scholar House buildings that house single student-parents around Louisville, part of the Scholar House’s mission to break the cycle of poverty by helping parents get educations.
Other Marian Group projects include Central Park Lofts, Spalding Suites and renovations of several apartment complexes.
About the Real Estate Venture Exchange: REVE is a regional marketplace which will bring people looking to do commercial real estate transactions together with individual investors that may have equity capital to invest, and representatives from lending institutions, or other sources of debt capital.
Founders are Justin Brown, Marian Development Group; Ken Dicken, Dicken Enterprises; Jennifer Griffin, Go Fetch Marketing & Design; Tony Holland, Poe Companies; Amar Khadey, Stephen Lukinovich, Mountjoy Chilton Medley; Brian McChesney, Grandbridge Real Estate Capital; Terry McWilliams, president, Mozaic Investor Relations Inc.; Joseph B. Miller, Frost Brown Todd; and Robert L. Ogden, Ogden Associates.