Introduction
Belpointe PREP, LLC (NYSE American: OZ), the first and only publicly traded qualified opportunity fund, has been leading the charge in revitalizing economically distressed areas across the United States. With a strategic focus on identifying, acquiring, developing, and managing commercial real estate within qualified opportunity zones, Belpointe OZ has carved out a unique niche in the real estate investment landscape.
Company Background
Founded on January 24, 2020, as a Delaware limited liability company, Belpointe OZ quickly established itself as a trailblazer in the opportunity zone space. The company qualified as a qualified opportunity fund beginning with its taxable year ended December 31, 2020, making it the first and only publicly traded qualified opportunity fund listed on a national securities exchange. In September 2021, Belpointe OZ raised its initial public offering, issuing 3.38 million Class A units and raising $192.91 million in net proceeds. These funds were used to begin acquiring and developing properties in opportunity zones across the United States.
Challenges and Growth
Over the next few years, Belpointe OZ faced several challenges as it worked to develop its portfolio of real estate assets. In 2022, the company recorded $469,000 in other non-operating expenses and incurred $7.09 million in operating expenses as it ramped up its operations. Construction delays and leasing challenges at some of its properties, including in Nashville, Tennessee, led to impairment charges of $4.06 million in 2023. Despite these challenges, Belpointe OZ continued to grow its portfolio, raising an additional $7.93 million through a follow-on public offering in 2023. By the end of 2023, the company had $382.12 million in total assets, including $353.54 million in investment properties. While the company's net income remained negative, reaching -$14.36 million in 2023, it was able to generate $23.59 million in cash and cash equivalents to fund its continued growth and development.
Investment Approach
One of Belpointe OZ's key strengths lies in its disciplined investment approach. The company meticulously evaluates each potential acquisition, conducting rigorous due diligence to ensure that the properties not only meet the stringent requirements of the Opportunity Zone program but also possess the potential for long-term growth and value appreciation. This attention to detail has enabled Belpointe OZ to build a portfolio of assets that have consistently outperformed industry benchmarks.
Portfolio Overview
As of the latest reporting period, Belpointe OZ's portfolio consists of a diverse mix of multi-family, mixed-use, and commercial properties located in markets such as Sarasota, Florida; St. Petersburg, Florida; Nashville, Tennessee; and Storrs, Connecticut. The company's flagship development, Aster & Links in Sarasota, Florida, has been a shining example of Belpointe OZ's ability to transform underutilized properties into vibrant, high-end residential and retail hubs.
Aster & Links, a 5.13-acre mixed-use development, comprises 424 luxury residential units and approximately 51,000 square feet of retail space. The project, which was completed in 2024, has been instrumental in revitalizing the heart of downtown Sarasota, attracting both residents and visitors to the area. The development's high-end amenities, including a clubroom, fitness center, and rooftop terrace, have made it a sought-after destination for those seeking a lifestyle that seamlessly blends urban convenience with resort-style living. During the nine months ended September 30, 2024, construction was completed and leasing began at Aster Links.
To finance the development of Aster Links, Belpointe's indirect majority-owned subsidiary entered into a $130 million variable-rate construction loan agreement in May 2023. The loan bears interest at one-month SOFR plus 3.45%, subject to a minimum all-in rate of 8.51%. As of September 30, 2024, the company had drawn down $84.3 million on this construction loan. Additionally, in January 2024, the company's indirect subsidiary entered into a $56.4 million mezzanine loan agreement, bearing interest at 13% per annum, to help fund the continued development of Aster Links.
In addition to Aster & Links, Belpointe OZ's portfolio includes Viv, a 15-story high-rise development in downtown St. Petersburg, Florida. This mixed-use project, which is currently under construction, will feature 269 apartment homes and 15,500 square feet of retail space, further enhancing the vibrancy of the city's downtown district. Viv will comprise two 11-story residential towers above a 4-story parking garage, featuring a mix of studio, one-, two-, and three-bedroom units. As of September 30, 2024, construction on Viv was approximately 60% complete, with an anticipated completion in the second half of 2025. To finance the development of Viv, Belpointe's indirect subsidiary entered into a $104 million variable-rate construction loan agreement in June 2024, bearing interest at one-month SOFR plus 3.80%, subject to a minimum all-in rate of 7.55%.
The company has also made investments in other markets, including Nashville, Tennessee and Storrs, Connecticut. In Nashville, Belpointe acquired several parcels totaling 12.1 acres, with plans to develop a mixed-use residential community. In Storrs, the company acquired a majority ownership interest in a 60-acre site near the University of Connecticut, with plans to develop an approximately 261-unit apartment community.
Community Engagement
Belpointe OZ's commitment to transforming opportunity zones extends beyond its real estate investments. The company has also actively engaged with local communities, collaborating with municipal authorities and community organizations to identify and address the unique needs of each region. This collaborative approach has enabled Belpointe OZ to create lasting positive impacts, ensuring that its developments not only generate financial returns but also serve as catalysts for economic and social revitalization.
Financials
Financially, Belpointe OZ has demonstrated resilience in the face of challenging market conditions. As of the company's most recent quarterly reporting, Belpointe OZ reported a net asset value (NAV) of $356.78 million, or $98.24 per Class A unit, as of June 30, 2024. While the NAV experienced a slight decrease of approximately 1% compared to the previous quarter, primarily due to a valuation change in the Nashville, Tennessee market, the company's overall financial position remains strong, with a prudent leverage profile and ample liquidity to support its ongoing development and acquisition efforts.
For the most recent fiscal year (2023), Belpointe OZ reported revenue of $2.25 million and a net income of -$14.35 million. The company's operating cash flow (OCF) and free cash flow (FCF) for the year were both -$6.95 million. In the most recent quarter (Q3 2024), revenue was $860,000, with a net income of -$6.93 million.
The company's debt-to-equity ratio stands at 0.48, indicating a relatively conservative leverage profile. Belpointe OZ's current ratio and quick ratio are both 0.61, suggesting that the company may face some challenges in meeting its short-term obligations.
Liquidity
Belpointe OZ's liquidity position remains robust, with $23.99 million in cash and cash equivalents as of September 30, 2024. Additionally, the company has a $3 million revolving credit facility from an affiliate, of which $2.6 million was drawn as of September 30, 2024. This strong liquidity profile provides the company with the flexibility to pursue new investment opportunities and support its ongoing development projects.
Future Outlook
Looking ahead, Belpointe OZ remains optimistic about the future. The company's robust pipeline of potential investment opportunities, coupled with its deep understanding of the opportunity zone landscape, positions it well to continue capitalizing on the significant untapped potential within these economically distressed communities. Furthermore, Belpointe OZ's commitment to sustainable and socially responsible development practices aligns with the broader trend of investors seeking investments that deliver both financial returns and positive social impact.
Conclusion
In conclusion, Belpointe OZ has emerged as a trailblazer in the opportunity zone real estate investment space. Through its strategic focus on transforming underutilized properties into thriving hubs of economic activity, the company has not only generated strong financial returns for its investors but has also made a tangible difference in the communities it serves. As Belpointe OZ continues to execute on its growth strategy, the company's unique approach and proven track record position it as a compelling investment opportunity for those seeking exposure to the burgeoning opportunity zone market.
Belpointe OZ operates through its wholly-owned subsidiaries, Belpointe PREP OC, LLC and Belpointe PREP TN OC, LLC, which collectively make up the company's "Operating Companies". This structure allows the company to efficiently manage its diverse portfolio of properties across multiple markets.
The company's investment strategy has been focused on identifying and acquiring commercial real estate assets located within qualified opportunity zones, with a particular emphasis on multifamily and mixed-use developments. Belpointe OZ has utilized a combination of equity capital raised through its public offerings, as well as construction and mezzanine financing, to fund the development and redevelopment of its portfolio properties.
As Belpointe OZ continues to grow and develop its portfolio, investors should closely monitor the company's progress in leasing up its newly completed properties, such as Aster Links, and the timely completion of ongoing projects like Viv. The success of these developments will be crucial in determining the company's ability to generate sustainable cash flows and ultimately deliver value to its unitholders.