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“It’s like the tulip craze:” South Florida developers expect Opportunity Zone land values to wilt

Investors and developers are focusing on projects near Fort Lauderdale and Delray Beach’s urban core

From left: Dale Reed of Merrimac Ventures, Daniel Lebensohn, the co-founder of Aventura-based BH3, Jorge Gomez-Moller of Driftwood Acquisitions & Development, Jaime Sturgis of Native Realty, and Nick Rojo of Affiliated Development
From left: Dale Reed of Merrimac Ventures, Daniel Lebensohn, the co-founder of Aventura-based BH3, Jorge Gomez-Moller of Driftwood Acquisitions & Development, Jaime Sturgis of Native Realty, and Nick Rojo of Affiliated Development

Developers are finally putting shovels in the ground and deploying capital in Opportunity Zones in South Florida and across the country.

But with 124 qualified Opportunity Zones in South Florida, developers, brokers and investors at a Bisnow panel on Thursday said they are largely focusing their attention on projects near Fort Lauderdale and Delray Beach’s urban core.

Jaime Sturgis of the Fort Lauderdale-based brokerage Native Realty said his company is involved in about 10 Opportunity Zone projects. Most of the projects are around 13th Street and Flagler Village in Fort Lauderdale, where interest in the area was already promising and density is high.

“There is a finite amount of land in Flagler Village,” Sturgis said during the Opportunity Zones event held at Sistrunk Market & Brewery in Fort Lauderdale. That, he said, is another reason Opportunity Zone investors are flocking to the area.

The Opportunity Zones program was part of President Trump’s tax plan, and was designed to encourage investment into low-income and distressed areas. Real estate developers quickly became enamored with the program, and large real estate investment funds such as EJF Capital and RXR Realty sought to raise substantial Opportunity Zone funds. The benefit for developers and investors in an Opportunity Zone is the ability to defer and potentially forgo paying capital-gains taxes.

Yet some owners of property in Opportunity Zones are listing them at prices that are much higher than investors want to pay, panelists said.

“Some folks think that the Opportunity Zone supercharges [the value] of your land,” said Dale Reed, an executive at Merrimac Ventures. “They are unrealistic on what their land deals are worth.”

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Daniel Lebensohn, co-founder of Aventura-based BH3, is planning to build a $100 million mixed-use project in an Opportunity Zone on West Atlantic Avenue in Delray Beach. He said that high land prices across South Florida will come down in the future once property owners realize that smart investors won’t pay the prices property owners are demanding.

“It’s like the tulip craze” said Lebensohn, referring to tulip mania in the 17th century, when tulips reached ridiculously high prices and then fell sharply.

Panelists also agreed that Opportunity Zone incentives alone would not lead them to invest in a project. Most already had secured the land and had the projects penciled out before the legislation came out in 2017.

Reed said Merrimac Ventures invested in two projects before the regulations were in released. “The two projects we did were because they were in the [Community Redevelopment Agency area] — that’s really the driving force with those projects initially.”

Nick Rojo with Affiliated Development, who is building SIX13, a 142-unit workforce apartment complex at 13 Northwest Third Avenue near Fort Lauderdale’s Flagler Village, pointed out that Affiliated’s project is getting $7 million in gap financing from the Fort Lauderdale Community Redevelopment Agency to complete the project.

Still, Sturgis said the program helps make deals more feasible, especially since rents have gone up in Flagler Village and other areas.

“The Opportunity Zone is the icing on the cake, its makes the pot that much sweeter,” Sturgis said.

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