Nov 24, 2019
I had the pleasure of sitting down with Bill Arent, to discusswhat the city of Las Vegas was doing with regard to opportunityzones within the city. Bill is the Director of the city of LasVegas Department of Economic and Urban Development. In thispodcast, Bill and I discuss how the city went from, pre opportunityzone redevelopment plans and incorporated the new tax incentivesoffered by the Tax Cuts and Jobs Act of 2017 into their new plansto revitalize under capitalized portions of the city. We alsodiscussed some of the projects that are in the works and otherissues relating to opportunity zones.
A partially edited version of the podcast transcript is providedbelow.
Howard F Kline [00:01:16] Let's start in thebeginning with regard to the city of Las Vegas and opportunityzones.
Bill Arent [00:01:22] Well, we saw it as agreat opportunity again, no pun intended, but we have a lot of theolder parts of the city and the Las Vegas Valley. When you think ofLas Vegas, you don't think of old. But we have some of the oldestparts of the valley where we have infrastructure that was built inthe 40s and 50s. We've dug up wooden sewer mains and things likethat. We're trying to revitalize and redevelop downtown LasVegas.
Bill Arent [00:01:49] We have about a 4000-acrearea that is our city's redevelopment area. And so, whenOpportunity Zones came along, we thought it was a great idea to beable to kind of overlay some of the things we were already doingwith these new incentives. We worked really closely with the stateand the governor's office and we were successful. We actuallynominated 26 areas, 26 census tracts in the city. Twenty-two wereselected, so we have over a third of the state’s opportunity zonesright here in our city, most of them in the core downtown.
Howard F Kline [00:02:23] Why did you choosethe core area?
[00:02:31] Well, it's really the areas that were struggling overthe years for new investment but are also starting to see an upturnin new investments. We looked at it as part science, part art wherewe pick the areas that have been disadvantaged or a sense ofdisinvestment that are also up and coming neighborhoods. Most ofthose are in the core downtown. We picked some of the areas justwest of downtown and some areas just east of downtown. We have somegreat areas where we're starting to see some new apartment projectsand some new hotel projects. Most of the interest we've seen sincewe announced our zones have been really in two major segments,apartments, multifamily and hotel. We’ve talked to other investorswho are trying to do other investment, but what we've seen in thecity of Las Vegas is a lot of interest in those two sectors,particularly apartments and multifamily.
Howard F Kline [00:03:30] Let's talk a littlebit about apartments and multi-family. Do you have any idea whythere's been such a focus on multi-family in these areas? If that'shigh 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 ofsupply for quality rental housing in a lot of markets.
The other thing I think you're seeing in the trend is a lot ofpeople are looking to urban living and urban lifestyles where youhave what I call the both ends of the bell curve. You havemillennials or younger members of our workforce where they're notready to own a home and they want that urban living. And then youhave people which are downsizing where their kids are out of thehome, or maybe it's a couple without kids and they wanted to havean urban lifestyle. Las Vegas has not traditionally had that. We'restarting to see more and more of that. We’ve had some projectsbuilt, going into the recession and then the recession really kindof cut the legs out from under us. This is really rebirth. A lot ofinterest in downtown.
We see a lot of large institutional investors interested inmulti-family. And the way we think of opportunity zones is itdoesn't make a bad investment good. It makes a good investmentgreat. Across the board, we've talking to over half dozenmultifamily housing developers from across the country. Locally,regionally and nationally about trying to find a project sitecenter downtown.
WORKFORCE & AFFORDABLE HOUSING
Howard F Kline [00:05:11] Where does workforceor affordable housing come into play in these opportunity zones anddo you see a predominance of workforce and affordable housing. Areyou seeing more class A multi-family?
Bill Arent [00:05:27] I think initially we'reseeing more class A. In answer to your question about the city'sgoals, we do have kind of mixed goals. Primarily, we have twogoals. One is more class A. We have some of the oldest housingstock around. We also have a lot of class C. Therefore, gettingmore class A apartments in downtown is a priority of the city.
We have over 600 units in active construction right now inSymphony 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 athird project on the drawing board in Symphony Park. Combinedthat'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 coreof our downtown, we’ll also see more mixed income developmentinterest in the transitional neighborhoods which aren't establishedor not in the core of downtown. We’re hoping to see more mixedincome projects where we have affordable rents for a portion of theunits.
The other thing we're starting to see and I'm actually headed toChicago this week to visit and tour a developer there that'sbuilding highly amenitized micro-units where we're starting to seea synthetic affordability where the gross rent may be affordablewhere the developers can offer a higher quality project and justhave smaller units. Instead of offering a traditional 800 to 1000square foot apartment that you might see in the suburbs, it may bea 400 or 500 square foot unit that are very highly amenitized withrestaurants, with shopping and on demand services. A hotel inconcept, if you will. We're beginning to see that across thecountry and maybe Las Vegas is getting to that later than othermore 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 recentlyinterviewed Darryl Carter, the CEO of Avanath about low-income andworkforce housing in opportunity zones. Avanath has been doingworkforce and low-income housing for 20 years and currently ownsand manages over 2 billion dollars, worth of inventory. They have15 projects that are currently in opportunity zones. I rememberasking him a question, about nine years ago, about thesemicro-units. At the time, I thought of, what are now calledmicro-units, simply as affordable housing. I wasn’t aware thataffordable housing had a different meaning. He made it clearto me that micro-units were not the type of affordable housing thathe was involved in. I picture micro-units as a more grown-upversion of dormitories, which is not the term that people want touse, but you can have a small room with a small kitchen and abathroom, a shower, and then all of these other amenities can beshared. And that makes a lot of sense, particularly in a city likeNew York, where you're lucky if your kitchen is not in yourbathroom.
Bill Arent [00:09:17] Right.
Howard F Kline [00:09:18] I you have 200 squarefeet, you're doing well. I think that's a good idea. The otherthing that Darryl had recently mentioned to me in our interview wasthe idea of mixed income. They have found that in workforcehousing, mixed income, not necessarily a class A with all of theamenities, but a nice place to live with mixed income works verywell. It tends to raise the living standard of those who have lowerincomes and doesn't seem to depress those with middle incomes. Doyou have any thoughts on that? You're the urban planner.
Bill Arent [00:10:02] I think that's exactlyright. From our vantage point, mixed income mixed-income works inthe right communities. Mixed-income becomes real viable from afinancial perspective, particularly if you're seeing strong rentson the market projects. We're starting to see rents in downtown ata two dollar per square foot or higher rate whereas the valley-widemarket rent just the number 18 months, 24 months ago was probablycloser to a dollar a foot, so we're seeing really strong pricingfrom projects like Fremont 9, which is already building up andrunning. We're starting to see that demand for a better product andpeople were willing to pay for it to have that urban lifestyle.That's when the mixed income starts to work because they can getenough profit out of the true market rate units to have thesubsidized units be able to have a subsidy from the developer andmaybe a little bit help from the city. Those projects start towork. 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 ofyears.
WHAT ABOUT RETAIL AND OFFICE?
Howard F Kline [00:11:21] Where does retail andsome industrial, I would imagine. Where do they come into play oroffice?
Bill Arent [00:11:33] Well, for opportunityzones. I think it's going to come later. I think if you look at itagain, it makes a good investment grade. Where we are strong rightnow in the valley even just looking beyond the city of Las Vegas.Multi-family and industrial, actually, industrial arguably is muchstronger than multi-family right now. I think we'll see someinvestment in those areas.
WHO IS SHOWING THE MOST INTEREST?
The other thing that we're seeing, particularly in theopportunity zone front, are the large institutional investorshaving interest. We haven't seen a lot of the smaller playersdeploying large amounts of capital in the valley.
There's another apartment project by Meadows Mall that's beingdeveloped by Silverstein Properties out in New York City. They'relooking at opportunity zones. There's a project in the medicaldistrict called Revive, which is a combination, residential, retailpotential, even some hotel units. They're looking at opportunityzones. It's really kind of the market and the institutional capitalplayers that are driving what we're seeing as far as large flow ofopportunity zones in the Las Vegas.
To give you a sense of the scale of these projects, the two inSymphony Park, one was seventy-three million dollars, the totalcapital stack. The other was north of 80 million. These are prettylarge projects. Institutional capital would be needed to make itwork to begin with. Opportunity zone capital availability ishelping driving an increase in the amount of equity available forthese project sponsors to get them up off the ground and up andrunning.
WHAT DOES THE CITY WANT TO SEE IN OPPORTUNITY ZONES?
Howard F Kline [00:13:19] What's your perfectvision for opportunity zones in the city of Las Vegas?
Bill Arent [00:13:25] I think we have a hugeopportunity for moving more and more people to live in Las Vegasand in our downtown area. And I'd like to see over the next fiveyears, three thousand new housing units being built in downtown.We’ve gotten off to a great start, but I think there's more work todo. Having the availability, the capital to develop more product isreally important.
One of the things that the city is doing is we've developed anonline portal clv.oppzoneportal.com. Theportal site includes, among other things, a plot analysis. We wantto connect landowners, project sponsors and the funds and have,basically, a clearinghouse helping anyone interested in opportunityzones to connect the dots, including figuring out how to find thecapital and that perfect site.
At the end of day, real estate is local. A lot of the fundswe're seeing are national in scope. But the real estate, is local.So how do they penetrate the local market, find the perfectlocation? That portal is available as a free charge to our clients.We already had those two sites that closed on the opportunity zonefunding. They're on our portal trying to attract more people to theportal to basically funnel a lot of that traffic in our city.
Howard F Kline [00:15:11] Zoning. How doeszoning 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 forinvestors and product sponsors that we don't hold projects up.Having land use and zoning already in place, getting through ourregulatory process with permitting and design review, we're tryingto make sure we prioritize those projects so they can get in andout of our system quickly.
FORM-BASED ZONING
One of the things the city is doing is moving to a form-basedcode to help with predictability so that if you're designing withinthat box, if you will, of what is permitted in a particular zone,more and more. We're trying to get more administrative reviewswhere you don't have to go before the regulatory bodies as often.We're launching form-based zoning, initially in the medicaldistrict as a pilot to make sure our projects can get in and out ofour system. It appears to be a real benefit for our partners. Werealize time is money, always, particularly with the opportunityzones having that threshold to complete your substantial renovationwithin a specific time frame of 30 months. That’s another greatthing about Las Vegas, is that the statutory time frame is doable,even without any help from the city, whereas you go to neighboringstates like California and just to get zoning. You're doing well toget it done in 30 months.
Howard F Kline [00:16:45] Speaking to a formerCalifornian, 40 some odd years, why don't you take a moment andexplain what form-based zoning is and how it differs from the moretraditional use-based zoning?
Bill Arent [00:16:58] Yes, the focus is more onthe form, rather than the use. You plan a building of a certaindensity, not use. One of the things we recently did is for our woodframe construction, you can go now to 75-feet. It was fifty-fivefeet. With the form-base, you designed the forms, so whether you'rebuilding an office building or an apartment building, you cango seven stories, 75 feet, it allows you get a 75 feet. You buildan office building up to 75 feet, you build an apartment buildingyou build it to 75 feet.
Howard F Kline [00:17:44] That's big.
Bill Arent [00:17:45] The big thing that we'rehearing from our partners is predictability. So they don't want tohave to start the process, wondering what's going to happen at theend of the funnel when I get out of the process and I get to beable to build it 50, 60, 70 units to the acre amount, going to beable to build it 20, 30 units to the acre, because then there'll bea tipping point where the project doesn't pass on. It kills theproject.
THE ISSUE OF GENTRIFICATION
Howard F Kline [00:18:17] Let's talk a littlebit about gentrification. That's not the softball. That'shardball.
Bill Arent [00:18:26] Sure.
Howard F Kline [00:18:26] What are yourthoughts on gentrification? And is the city making any efforts tominimize the effects of gentrification? You’re talking about goingto class A multi-family, which is likely going to cause somegentrification. What are your thoughts on that?
Bill Arent [00:18:50] I think it's a trickyissue everywhere, maybe less of an issue here because some of theplaces we're developing are raw land. In Symphony Park, theprojects are being built on a former railroad site that had satvacant for decades.
We're just now starting to get into the neighborhoods wheregentrification is going to become an issue. I think that's wheremixed-income housing becomes really important to look at policiesand practices like first rights for residents to be able to moveback into the properties after they're built. This is an issuewe're tackling with one of our larger opportunities in the historicWest Side at Marble Manor, which was a public housing authorityproperty.
Marble Manor is up for a redevelopment project where they'retalking about knocking down units that were built a generation agoand look to build new mixed income housing, but do it in a way thatis suitable for the neighborhood. I think suitability is a bigissue. What's suitable for a neighborhood? Gentrification is aprocess that market forces may push it on its own. What can thecity do to alleviate that? I think we can do mixed income housing.I think we can have responsible development and it's not going tobe class A, high rise or class A apartments everywhere. I thinkthere are opportunities to look at a more balanced approach as weget into some of the neighborhoods.
INFRASTRUCTURE
Howard F Kline [00:20:25] Infrastructure, whatis the city doing or planning in terms of improving infrastructurein some of these opportunity zones that may not have the mostmodern infrastructure? Infrastructure would be cable,transportation. Probably those would be the basically communicationand transportation would be the most major that I can think of foropportunity zones.
OPEN & PARK SPACE
Bill Arent [00:20:53] Infrastructure is a bigpart of our redevelopment program to begin with. In some areas,we’ve redone the streets and put in new landscaping. One of the bigthings that maybe other communities take for granted is just havingquality open space and park space. We have a downtown masterplanvision that found that we were have the lowest amount of open spaceof just about any downtown out there, much lower than Phoenix, forinstance. We are looking to try and fix that. We may not developour own Central Park or our version of Central Park, but we canhave nicer landscape features, green space, open space and a trailsystem.
TRANSPORTATION AND COMMUNICATION
One of the big visions is we're having a turn to have a trailsystem downtown to basically link all of her neighborhoods, to havejogging, jogging paths, bicycle paths, and that that's a big effortunder way. As an example, Third Street between Bonneville and thenextending south into the arts district, that's going to be a newtrail system to have essentially do the thing that all trafficengineers hate, where we narrow the street but widen the sidewalksand other amenities so that it becomes a more walkable, morewelcoming environment. One of the reasons I love living in LasVegas is we have a great climate, most of the year.
If you have a nice landscaped path where you can you can walk tothe restaurants, having a shade canopy means everything. You candrop the temperature 20 degrees.
Transportation is really important. We're working with the RTCon having a light-rail alternative coming down Maryland Parkwayfrom the airport in the university and downtown.Telecommunications is also very important. We’re looking atupgrading the fiber downtown, connecting all of our neighborhoods,making sure that we have connected communities. That's reallyimportant also.
HOW TO GET INVOLVED
Howard F Kline [00:23:15] If someone wanted toget involved and help, how would they go about doing that?
Bill Arent [00:23:21] Well, I think the firstway to get involved and help is just to be informed. Certainly,engage us at the city of Las Vegas. We have some great constituencygroups that update all of our partners on projects. We have abusiness association called the Downtown Vegas Alliance, which is agreat way to plug in. We have other, very important business groupslike the Las Vegas Metro Chamber and the Las Vegas Global EconomicAlliance. Other practical way is if you have interests inopportunity 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'sshare in our city and in the heart of our downtown. We're lookingfor projects big and small. While we certainly have some bigprojects on the drawing board there are also opportunity forsmaller investors such as family wealth offices. We think ouropportunity zones are as compelling as any in the country. Themomentum swing is to have investment and development coming intodowntown. And now with that added benefit, really the sky's thelimit for Las Vegas.
