Developers Create Opportunity Zone Fund for Assisted Living Project

Two Dallas-based companies have teamed up to build a $17 million assisted living and memory care campus in nearby Denton, Texas, and have established an opportunity zone fund to raise part of its capital stack.

Sage Oak Assisted Living and ANG Development established GoodHorn Senior Living Opportunity Zone Fund, with a target goal to raise between $6 million and $7 million from opportunity zone investors, Sage Oak CEO Loe Hornbuckle told Senior Housing News.

Sage Oak has a portfolio of five boutique assisted living and memory care communities in the Dallas area, all of them multiple residential care homes with no more than 16 units. The Denton project, located 50 miles northwest of Dallas, will include 98 units in the same residential care home format. This allows for higher caregiver-to-resident ratios, compared to a standard assisted living community.

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GoodHorn is one of four opportunity zone funds with a focus on senior living development, according to the National Council of State Housing Agencies (NCSHA) opportunity zone fund directory.

Solid synergies

Created by the 2017 Tax Cuts and Jobs Act, “opportunity zones” hold immense promise for senior housing investment and development, particularly for more affordable options.

The zones offer tax incentives for certain investment in lower income urban, suburban and rural Census tracts across the country, as well as the probability for significant tax benefits to investors who re-invest capital gains earnings into new investments, without having to pay taxes on the gains. There are over 8,700 opportunity zones in the U.S.

For investors and sponsors, the most exciting aspect of opportunity zones is, unlike a Section 1031 exchange where capital gains must be reinvested into similar assets in order to defer paying taxes, the gains may be invested in different asset classes, so long as the investor is willing to hold on to the investment long term.

Opportunity zone guidelines released by the IRS mandate a 10-year hold period on an investment, which makes senior housing an ideal investment opportunity, Hornbuckle told SHN.

Hornbuckle sought out ANG Development Owner Austin Good, who has a solid track record for developing single-family townhomes, as well as self-storage facilities and commercial properties. The venture was already committed to pursuing assisted living on the Denton site, Good told SHN. Then they decided to investigate how opportunity zones work.

“The deal by itself was appetizing for us to pursue it and it passed our feasibility studies,” Good said.

Creating GoodHorn allows the venture to diversify its equity blend to meet differing hold periods among investors. While the opportunity zone fund investors will be patient with their capital, ANG and Sage Oak are bringing in private equity from established relationships, and the group is in discussions with family office funds for the development.

“It’s yet to be determined what the mix will be, but we feel confident that from our existing relationships we should be able to fund [the project],” Good said.

Good believes he has the perfect partner to enter the senior living space with Sage Oak, and that they can make the Denton project stand out in the market via shared synergies such as design features and amenities that cater to both product types.

“Loe’s expertise on what we need to add is a good mesh with our experience,” he said.

Educating investors

GoodHorn is in the process of completing its financial modeling and legal review of its opportunity zone fund, and expects it to be ready to present to investors by late June or early July, Hornbuckle told SHN. He and Good have seen a lot of interest in opportunity zones, but many investors in the space are still studying how opportunity zones work and understanding the possibilities they hold.

“It’s the hot new conversation in commercial real estate,” Hornbuckle said.

In addition to the long hold periods, GoodHorn believes there is an opportunity for investors who want to fund projects with positive social impacts, such as senior housing, through opportunity zone funds.

“We want Main Street investors to invest in Main Street, not Wall Street,” he said.

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