Avanath, OAG Target Opportunity Zones with New Fund

The joint venture has launched a Qualified Opportunity Zone Fund with a target raise of $300 million for those interested in affordable and workforce housing investments.
Daryl Carter, chairman of Avanath Development. Image courtesy of Avanath Development

Avanath Development LLC, a multifamily development company focused on market rate and affordable housing, and Opportunity Assets Group LLC are launching a Qualified Opportunity Zone Fund with a target goal of $300 million.

“This fund has been created for long-term investors looking to invest in affordable/workforce housing with a proven sponsor and designated, actionable assets,” Daryl Carter, chairman of Avanath Development and founder, chairman & CEO of Avanath Capital Management LLC, a California-based multifamily investment firm, said in a prepared statement. “It will acquire a targeted portfolio of quality affordable/workforce housing which are mostly cash-flowing properties in need of expansion and/or renovation to be managed by Avanath Development’s affiliate, Avanath Realty.”

The fund’s debut comes about a month after Avanath Capital Management launched Avanath Development to focus on new multifamily development opportunities. Jun Sakumoto was promoted from Avanath’s COO to president of the new entity. 

“We believe that the affordable housing sector provides excellent and sustainable risk-adjusted returns with high barriers to entry and strong downside protection,” Carter said in prepared remarks.

Avanath Development has identified four initial properties that are already within opportunity zones and would benefit from substantial improvements or additional construction. Three are already in Avanath’s existing portfolio—Arbors at Cary, in Cary, N.C., a 248-unit property acquired in February 2015; Woodside in Ontario, Calif., a 144-unit property acquired in December 2014 and Ravenna in Orlando, Fla., a 228-unit property acquired in January 2015. The fourth, North End Landings, will be a new development in Detroit.

“The project is near Wayne State University. We have plans to develop up to 270 multifamily units,” Carter told Multi-Housing News.

He noted the strategic partnership between Avanath Development and OAG was created to offer investors a proven owner and operator that can mitigate long-term real estate and market risks in low-income areas as well as navigate the tax provisions of the federal Opportunity Zone (OZ) program.

“Avanath Development LLC’s affiliates have a strong track record of owning and operating workforce/affordable housing in low-income areas, with $1.7 billion in assets under management comprising 79 properties across 12 states. Our investment affiliate is recognized as a top-tier investment manager by major institutional investors. And, our company is part of a vertically integrated firm with its own property-management arm and has extensive experience overseeing construction, property and asset management for affordable apartment communities in low-income areas,” Carter stated.

He noted that OAG, headed by founding Principal Douglas Wolf, has extensive tax expertise and a significant track record in the structuring of tax-benefited real estate assets.

“OAG intends to navigate the OZ program to realize its intended tax benefits and to mitigate any tax risks to the fund and its investors’ long-term tax benefits,” Wolf said in a prepared statement.

Because some key issues of the opportunity zone program are still being determined by the IRS, Wolf said it is important for OZ funds to have a fund manager with deep tax expertise.

The new fund offers a seven-year deferral and 15-percent reduction of tax on realized capital gain, whether short term or long term, and the complete elimination of new capital gains on OZ investments held for at least 10 years.

OZ Investment Opportunities

Avanath Development isn’t the only multifamily firm tackling the new opportunity zone program. In late March, Pollack Shores Real Estate Group also announced an opportunity zone initiative and earlier in the month, Stillwater Capital said it was developing two new apartment communities in designated opportunity zones in Austin, Texas.

The Stillwater Capital developments feature a 259-unit apartment complex under construction in the Leander section of Austin and a 222-unit community planned for the Riverside neighborhood.

Pollack Shores also has two developments underway opportunity zones – a 319-unit Class A apartment community in Atlanta and 231-unit multifamily property in Charleston, S.C., but is planning several others across the Sun Belt region.