Reno-Sparks development in line to benefit from opportunity zones
Special to the NNBV
RENO, Nev. — The redevelopment of the former Park Lane Mall is one of the largest urban renovation projects ever undertaken in Northern Nevada. Construction began early this year at the 46-acre site on the corners of Plumb Lane and Virginia Street that used to be the home of dozens of iconic retailers, including Sears, Weinstocks and Woolworths.
Reno Land Inc. acquired the project in 2015 and spent years designing a mixed-use master-planned development featuring multifamily apartments, retail and a Marriott hotel, among other amenities.
Development of the Park Lane project — and crucial project financing — was hasted by the creation of opportunity zones.
Joel Grace, vice president of development for Reno Land, says the opportunity zone designation has been a boon to spur development and attract capital to projects in the Truckee Meadows.
“They did a huge service to the areas in these zones,” Grace says. “(Opportunity zones) are in place to revamp areas that are blighted or in need of some help. This opportunity zone escalated the timeline to develop the site and attracted additional capital that may not have come to Reno.”
‘Money will start to move quickly’
The creation of opportunity zones stems from the 2017 Investing in Opportunity Act, which designated tracts of land typically in economically distressed and low-income urban areas for redevelopment.
Opportunity zones established in Reno-Sparks extend from the university area to Gentry Way and Keystone Avenue to the Grand Sierra in Reno, and the industrial region of Sparks surrounding Spice Island Drive, Greg Street and Glendale Avenue. Parts of Tahoe Reno Industrial Center also received the designation.
Investors who put money into new development or redevelopment projects within opportunity zones receive favorable capital gain tax incentives. Investors also can help established businesses within opportunity zones grow as well through equity financing.
As such, Northern Nevada is primed to see game-changing influx of development capital, says Par Tolles, chief executive officer of Tolles Development Co.
“The buzz is that there are huge war chests of money being assembled,” Tolles says. “It a tax-shelter vehicle for a number of different investments that may not have been monetized in the past. Local funds and larger national funds have been assembled that will look for investment opportunities in these opportunity zones where they can find appreciation, and Reno is very well positioned to attract these fund dollars.”
Federal guidelines regarding opportunity zones were finalized and released in mid-April, which could lead to a rush of capital into Northern Nevada projects.
In the development world, lining up debt equity and project financing is more art than science, says Tolles, who began his development career in Northern Nevada by building the Microsoft and Intuit campuses in Reno in the early 2000s.
“Now that there is clarity, money will start to move quickly,” Tolles says. “The financial engineering of development is complicated. We spend a lot of time selling Reno to capital and trying to convince them that this is a good place to invest.
“That investment money could be a really strong boost to what is already a thriving economy. It could be a really good capital injection for us.”
Taking a risk on Reno
It’s also perfect timing, Tolles adds. Reno developers were largely dormant during the recession, and the regional building boom currently underway stems in part from nearly a decade of pent-up demand.
Then in 2015 came the so-called “Tesla Effect” that put Northern Nevada on the national radar. Lastly, out-of-state investors who are unable to find good returns in primary markets have been pouring their investment dollars into secondary markets such as Reno-Sparks.
“Say what you want about the tax incentives, but Tesla and the rebranding of Reno put us on the map, and now we are seeing the impact of that,” Tolles says. “We have out-of-state investors chasing yield, and you just can’t find yield in primary markets; you have got to go to a secondary area like Reno, Boise or Salt Lake. When you find an opportunity in a secondary market that has this type of appreciation, you will take some of your investment money and put it there.
“Investors are taking a calculated risk on Reno because of all the population projections and the buzz going on.”
Reno-Sparks leads the nation in job growth, says Bryan McArdle, vice president of entrepreneurial development for the Economic Development Authority of Western Nevada. Development projects underway still aren’t enough to meet current demand or future growth, he says.
“We’ve been labeled as a top-20 location for opportunity zones, which puts us on the national radar as a prime location,” McArdle says. “We hope that these opportunity zones attract certain developers and developments that normally wouldn’t come here for a variety of projects.”
Opportunity zones are not just for ground-up redevelopment, he adds. Opportunity zone investors also can support business growth inside the zones by providing capital for business expansion, new equipment or job growth.
Getting the regulations about opportunity zone investments finalized sets the playing field and eliminates gray areas that had investors holding back, McArdle notes. Despite the favorable tax treatments, projects still must have solid financial metrics, he adds.
“Everyone thinks that with this opportunity zone funding, all these projects will easily get built,” he says. “It just makes good projects better. There’s more equity capital available, but projects still have to make financial sense.
“Hopefully it’s an incentive to get investors over that hurdle so they can start investing in this area.”
Studio prices range from $1,395 to $1,700 monthly, one-bedroom apartments range from $1,545 to $1,800, two-bedroom apartments go from $1,845 to $2,000 and three-bedroom apartments from $2,350 to $2,700. The median household income in Truckee for a household of four is $79,000. For a three bedroom unit at $2,700 a month, a family with that income would be paying over 40 percent of their income on rent.