Everything from affordable housing across from Austin-East Magnet High School to the massive redevelopment of the old Standard Knitting Mills facility and even a couple of business parks were discussed during last week’s “New Developments in Opportunity Zones (OZ)” forum in Knoxville.
A standing-room only crowd filled the Southern Railway Station for the start of last Thursday’s event. As Jim Biggs, Executive Director of the Knoxville Entrepreneur Center (KEC), noted in his master of ceremonies comments, the venue was chosen in part because it is located in an OZ. KEC joined with the Tennessee Department of Economic and Community Development (ECD), and the Knoxville Chamber in hosting the session.
A very diverse mix of attendees heard everything from very brief overviews of projects to very in-depth discussions such as the presentation by Brantley Bassinger, Principal and Director of Development and Acquisitions for Mallory & Evans Development LLC, who discussed the redevelopment of the old Kern’s Bakery property just across the Henley Street Bridge.
“We were probably one of the first Opportunity Zone companies to be founded in the country,” he told attendees as he described what he called the “special project” in South Knoxville. “It will be a catalyst for the area. It’s a really neat concept.”
Bassinger expects the apartments that are being constructed to open by early fall with the remainder of the development to be completed shortly thereafter. “We are intentionally slow (on the food hall concept) to get the right mix of tenants. We will (also) be the most technologically advanced community in the region,” having two gigabit Internet service.
The residential component is financed through OZ-related funds, while the other parts of the redevelopment come through a combination of Historic Tax Credits, Community Reinvestment Act funds, and New Market Tax Credits.
On the other end of the spectrum in terms of project details is redevelopment of the massive and long vacant Standard Knitting Mill building in East Knoxville. Peter Davis, Director of Acquisitions and Development for WRS Inc. which just closed on the property in the past two weeks following more than a year of evaluation and discussions.
He described what has already been reported as a mixed-use development, but quickly noted that the company’s plans are still evolving. Later in the day, Davis joined City of Knoxville officials for what turned-out to be another standing room only discussion and listening session at the Magnolia Avenue campus of Pellissippi State Community College (see brief follow-on article here).
The University of Tennessee’s Research Park (UTRP) at Cherokee Farm falls within an OZ, and two individuals discussed plans for that site. Rickey McCallum, a UTRP Vice President, discussed the new three-story, 81,000 square foot building on which construction will begin in early 2020. The facility will house an orthopedic outpatient surgery center as well as 25,000 square feet square feet of research space. In addition, plans are being developed for a fourth building that will include 30,000 square feet of high bay space focused on composites research along with a similar amount of speculative office space targeted at companies that want to engage in research and other partnerships with UT.
Grady Vanderhoofven, President and Chief Executive Officer of Three Roots Capital, joined McCallum for this portion of the program to discuss a variety of financing mechanisms, including the federal OZ program, that can be used to ensure funding for these sorts of projects. The organization, which provides both debt and equity financing, is partnering with First Horizon on the orthopedic building.
Kenny Fikes, Managing Director of Sydney Capital LLC and a member of Mayor-elect Indya Kincannon’s Transition Team, is leading the affordable housing project. Saying that Sydney Capital was the first OZ fund launched in the country in April 2018, Fikes described his plans to build five duplex housing units where his biggest challenge has been to match the goal of affordability with the revenues needed to meet debt requirements.
That said, he added, “Knoxville’s been really progressive and pretty aggressive” in the use of programs like the OZ program.
Other presenters included Todd Napier, President and Chief Executive Officer of The Development Corporation of Knox County, who discussed the Eastbridge Business Park that falls in one of the local OZs; ECD’s Lamont Price; and Chris Coffman of Louisville, KY, a Tax Attorney with Frost Brown Todd.
Noting that the federal OZ initiative is “a relatively simple program in theory,” Coffman said many of the challenges have come with final regulations still pending more than two years after Congress passed and the President signed the legislation allowing a deferral of an estimated $6.5 trillion in unrealized capital gains that could be put to work through investments in OZ-designated areas.
“You are permitted to rely on the proposed regs as long as you comply with them in their entirety,” he advised.