Wealth management firm Sage Financial Group has teamed with Jay Goldstein of Spring Garden Lending to close a fund vehicle for a real estate project in a Federal Opportunity Zone.
The project at 2601 Poplar St. on the border of the Fairmount and Brewerytown sections of Philadelphia, was bought by Dan Greenberg of North Broad Living Management and there are proposed plans to develop an apartment building with 130 or more units and retail on the first floor. The property is actually seven parcels spread over nearly an acre and currently is a vacant lot that Goldstein calls an eyesore.
Goldstein has funded some of Greenberg’s projects in the past. But this time around, he worked with friends Alan and Stephen Cohn, co-presidents of West Conshohocken-based Sage Financial, to allow the firm’s clients to take advantage of federal tax incentives created by the Tax Cuts and Jobs Act of 2017 that created the Opportunity Zones. The zones allow for certain investments in lower income areas to have tax advantages. The purpose of this program is to put capital to work that would otherwise be locked up due to the asset holder’s unwillingness to trigger a capital gains tax.
There are 8,700 areas nationwide designated as Opportunity Zones and experts believe they could help unleash trillions of dollars in real estate investment. There are 70 census tracts in Philadelphia that qualify, according to Goldstein. The Cohns said they believe this is one of the first opportunity zone funds for investors that has been fully funded/invested.
In addition to potential returns, investments in the fund can provide investors with unique tax benefits, including a tax deferral on realized capital gains and tax-free growth of the investment. The Sage/Goldstein team was able to finalize and fund the investment and provide their investors and their accountants with a comprehensive tax filing package prior to the 2018 tax filing deadline.
Just shy of 100 Sage clients, plus a minority investment from Goldstein and the Cohns, helped raise $12 million in the fund, which will be put toward construction of the project. Sage, which has about 650 clients and $2 billion in assets under management, has been investing client capital into private projects, usually real estate, since 2001. They have also invested in businesses such as retailer Five Below. But this fund was different.
“There’s been a lot of talk about the Opportunity Zones but not a lot of capital is being deployed,” Stephen Cohn said. “And there’s a reason for that. We have had our clients invest in private investments before but this is different. There are a lot of rules and regulations that you need to follow. But for us, this project needed to stand out on its own merits from a risk-return standpoint and not just be used for the tax benefits.”
What made the project easier for the Cohns to invest their clients’ money was the fact that Goldstein was familiar with Greenberg through the latter’s development work on student housing near Temple University and then a few midsized projects in Fairmount and most recently, at Broad and Hamilton streets. Goldstein is optimistic that project will obtain zoning approval and construction should then take 18 to 24 months.
The Cohns and Goldstein have known each other for several years through their service on the board of the Mastery Charter Schools foundation. This is actually their second joint real estate fund venture.
The first one came after Goldstein sold the bank he co-founded and built into one of the top-performing community banks in the nation within eight years, Valley Green Bank, to Univest Corp. in 2015 and ultimately settled into working at Spring Garden Lending in the Callowhill section of the city.
Most of Valley Green’s lending involved real estate projects in the city, where it developed an expertise in re-development projects. Callowhill was one of the neighborhoods contiguous with Center City that had not benefited from development. So Sage and Goldstein, working with developer Arts + Crafts Holdings, raised $30 million to convert 14 properties there, largely warehouses, into offices and retail.
Jeff Blumenthal
Reporter
Philadelphia Business Journal