Expert Opinion & 2019 Projection

Posted on January 2, 2019

Few of you may know that in 2017-2018 a new program was created through the passing of the Tax Cuts and Jobs Act for the purpose of driving economic development into underserved communities. The Opportunity Zones Program is good for everyone: developers and their investment partners get a nice tax deferment and previously blighted communities, as well as the underserved population in those neighborhoods, get the much-needed attention they deserve.

Every state has established “Qualified Opportunity Zones,” which are located in lower-income communities. Investments made into these communities are incentivized by allowing deferral of taxation on realized capital gains if reinvested or exclusion on the capital gain tax at sale if the asset is held for a certain amount of years. The benefits are twofold. First is, obviously, the financial value in deferring taxable gains into lucrative investments and second, which is of high importance to us at CGI, investments made in these areas make an impact and are socially responsible. CGI’s mission is to reward, delight and inspire our investors, consumers and local communities through the properties we acquire and transform. “We have prepared by acquiring and analyzing the Designated Qualified Opportunity Zones list and establishing and developing meaningful relationships in the most prime areas. We are not afraid but excited about the properties we can acquire, the communities we can build and the lives we can positively effect in 2019,” says Gidi Cohen, CGI CEO/Co-Founder.

In 2018, we saw tremendous job growth and this is having a huge impact on workforce housing affordability in major cities. The success of employment-driven housing choices continues to be fueled by the need to be in close proximity to work and mass transit options, as well as the appeal of being at the center of the action in major metropolitan areas. “Our projects in Koreatown have done particularly well attracting young professionals who are looking for exactly that.” says Cohen, “We are beginning to see other investment groups jump on the bandwagon of developing in these areas. The difference is that the value we add is more human – we create opportunities for life experiences, relationships and memories amongst our residents. People are no longer cohabitating with strangers, but with friends and neighbors.”

Cohen, along with other real estate experts, like those at Bloomberg, CBRE and JPMorgan RE Division all concur that the appetite for workforce housing will remain very strong in 2019 and that value-add investment will likely still dominate and remain largely successful. They have gone on to add that acquisitions of stabilized product will also be appealing for some investors, particularly those with longer-term hold horizons, which offers a nice backup option for profitable dispositions.

We are also excited about the short-term residences in our portfolio. The hotel sector is expected to experience a record-breaking year of occupancy levels in 2019, according to a forecast from CBRE Hotels America Research. Occupancy levels are expected to surge to 66.2% next year, driven by a 2.1% increase in demand.

Lastly, retail is expected to attract interest from investors in 2019, particularly those assets ripe for redevelopment and upgrades. “All of our retail components are mixed-use, ground-floor with multifamily above. We have found that mixed-use strongly attracts maturing millennials who desire to enter their next stage of life without leaving the lifestyle they created in their 20’s and early 30’s – the ability to walk and publicly transport everywhere, and constant access to nightlife, great restaurants, and entertainment,” shares Cohen. “From the outside, people see retail shops closing and filing for bankruptcy, but from our perspective, we see start-ups on the rise, as well as trendy owner-operator restaurants and bars hungry for brick and mortar space. It is bringing all the right people together that build the community that have cemented our success and personal happiness here at CGI.”

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