Item 1. Business
Item
1. Business.
In
this Annual Report on Form 10-K (this “Form 10-K”), unless context otherwise requires, references to “we,” “us,”
“our,” “Belpointe” or the “Company” refer to Belpointe PREP, LLC, a Delaware limited liability company,
its operating companies, Belpointe PREP OC, LLC, a Delaware limited company, and Belpointe PREP TN OC, LLC, a Delaware limited company
(each an “Operating Company” and, together, the “Operating Companies”), and each of the Operating Companies’
subsidiaries, taken together.
History
and Development of the Company
We
are the successor in interest to Belpointe REIT, Inc., a Maryland corporation (“Belpointe REIT”), incorporated on June 19,
2018. During the year ended December 31, 2021, we acquired all of the outstanding shares of common stock of Belpointe REIT in an exchange
offer and related conversion and merger transaction.
On
September 30, 2021, the U.S. Securities and Exchange Commission (the “SEC”) declared effective our initial registration statement
on Form S-11, as amended (File No. 333-255424) (the “Primary Registration Statement”), registering a continuous primary offering
of up to $750,000,000 in our Class A units (our “Primary Offering”). From the period of October 7, 2021, the date of the
first closing held in connection with our Primary Offering, through December 31, 2022, we issued 2,273,339 Class A units in our Primary
Offering, raising net offering proceeds of $226.0 million.
On
May 9, 2023, the SEC declared effective our follow-on registration statement on Form S-11, as amended (File No. 333-271262) (the “Follow-on
Registration Statement”), registering the offer and sale of up to an additional $750,000,000 of our Class A units on a continuous
“best efforts” basis by any method deemed to be an “at the market” offering pursuant to Rule 415(a)(4) under
the Securities Act of 1933, as amended (the “Securities Act”), including by offers and sales made directly to investors or
through one or more agents (our “Follow-on Offering” and, together with our Primary Offering, our “Public Offerings”).
In
connection with the Follow-on Registration Statement, we entered into a non-exclusive dealer manager agreement with Emerson Equity LLC
(the “Dealer Manager”), a registered broker-dealer, for the sale of our Class A units through the Dealer Manager. The Dealer
Manager will enter into participating dealer agreements and wholesale agreements with other broker-dealers, referred to as “selling
group members,” to authorize those broker-dealers to solicit offers to purchase our Class A units. We will pay our Dealer Manager
commissions of up to 0.25%, and the selling group members commissions ranging from 0.25% to 4.50%, of the principal amount of Class A
unit sold in the Follow-on Offering. In addition, our Follow-on Registration Statement constitutes a post-effective amendment to our
Primary Registration Statement, conforming our Primary Offering to our Follow-on Offering.
For
the year ended December 31, 2023, we issued 98,950 Class A units in connection with our Public Offerings. Together with the gross
proceeds raised by Belpointe REIT in its prior offerings, as of December 31, 2023, we have raised aggregate gross offering cash
proceeds of $354.3 million.
Overview
of our Business and Operations
We
are the only publicly traded qualified opportunity fund listed on a national securities exchange. We are a Delaware limited liability
company formed on January 24, 2020, and intend to operate in a manner that will allow us to qualify as a partnership for U.S. federal
income tax purposes. We are focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located
within qualified opportunity zones. At least 90% of our assets consist of qualified opportunity zone property. We qualified as a qualified
opportunity fund beginning with our taxable year ended December 31, 2020. Because we are a qualified opportunity fund certain of our
investors are eligible for favorable capital gains tax treatment on their investments.
All
of our assets are and will continue to be held by, and all of our operations are and will continue to be conducted through, one or more
of our Operating Companies, either directly or indirectly through their subsidiaries. We are externally managed by Belpointe PREP Manager,
LLC (our “Manager”), which is an affiliate of our sponsor, Belpointe, LLC (our “Sponsor”).
5
Our
Manager
We
are externally managed by our Manager, Belpointe PREP Manager, LLC, and, pursuant to the terms of a management agreement between us,
our Operating Companies and our Manager (the “Management Agreement”), our Manager manages our day-to-day operations, implements
our investment objectives and strategy and performs certain services for us, subject to oversight by our board of directors (our “Board”).
Subject to the limitations set forth in our Amended and Restated Limited Liability Company Operating Agreement (our “Operating
Agreement”), a team of investment and asset management professionals, acting through our Manager, makes all decisions regarding
the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties,
real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real
estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity
funds and qualified opportunity zone businesses.
Our
Manager also provides portfolio management, marketing, investor relations, financial, accounting and other administrative services on
our behalf with the goal of maximizing our operating cash flow and preserving our invested capital.
Our
Sponsor
Our
Sponsor, Belpointe, LLC, a leading investment firm based in Greenwich, Connecticut, operates a family office making private investments
and oversees its businesses, such as wealth management, legal and real estate services. Our Sponsor’s senior executives have substantial
experience in the acquisition, development and ownership of real estate and, as of December 31, 2023, its affiliates have facilitated
or originated 13 real estate assets with aggregate purchase prices and construction costs of approximately $400 million. Our Sponsor’s
financial management division also currently manages over $4 billion in public securities.
Our
Investment Objectives and Investment Strategy
Our
primary investment objectives are:
●
to
preserve, protect and return your capital contribution;
●
to
pay attractive and consistent cash distributions over the long term;
●
to
grow net cash from operations so that an increasing amount of cash flow is available for distributions to investors over the long
term; and
●
to
realize growth in the value of our investments.
We
cannot assure you that we will achieve our investment objectives. See Item 1A. “Risk Factors.”
6
Our
initial investments consist of and are expected to continue to consist of properties located in qualified opportunity zones for the development
or redevelopment of multifamily, student housing, senior living, healthcare, industrial, self-storage, hospitality, office, mixed-use,
data centers and solar projects located throughout the United States and its territories. We also anticipate identifying, acquiring,
developing or redeveloping and managing a wide range of commercial real estate properties located throughout the United States and its
territories, including, but not limited to, real estate-related assets, such as commercial real estate loans and mortgages, and debt
and equity securities issued by other real estate-related companies, as well as making private equity acquisitions and investments, and
opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, with the goal of increasing
distributions and capital appreciation.
Our
investment guidelines delegate to our Manager discretion and authority to execute acquisitions and dispositions of investments (including
the reinvestment of capital basis and gains), provided such investments are consistent with our investment objectives and strategy and
our investment guidelines. Our Manager’s investment committee will periodically review our portfolio of assets and investments,
our investment objectives and strategy and our investment guidelines to determine whether they remain in the best interests of our members
and may recommend changes to our Board as it deems appropriate. We may, at any time and without member approval, cease to be a qualified
opportunity fund and acquire assets that do not qualify as qualified opportunity zone investments. Furthermore, there are no prohibitions
in our Operating Agreement on the amount or percentage of assets that may be invested in a single property.
Qualified
Opportunity Zone Program
The
opportunity zone program is a community development program established by the Tax Cuts and Jobs Act of 2017 to encourage new long-term
investment in low-income urban and rural communities nationwide. The opportunity zone program provides a tax incentive for investors
to re-invest their unrealized capital gains into qualified opportunity funds dedicated to investing in “qualified opportunity zones.”
Qualified opportunity zones are census tracts identified and nominated by the chief executives of every state and territory of the United
States ( e.g ., state governors) and designated by the Secretary of the Treasury.
There
are more than 8,700 qualified opportunity zones throughout the United States and its territories.
A
“qualified opportunity fund” is generally defined as an investment vehicle that is taxed as a corporation or partnership
for U.S. federal income tax purposes and organized to invest in, and at least 90% of its assets consist of, qualified opportunity zone
property (the “90% Asset Test”). A qualified opportunity fund must determine whether it meets the 90% Asset Test on each
of (i) the last day of the first six-month period of its taxable year, and (ii) the last day of its taxable year (each a “Test
Date”).
The
opportunity zone regulations allow a qualified opportunity fund to apply the 90% Asset Test without taking into account any investments
received in the 6-month period preceding the Test Date, provided those investments are (i) received (a) solely in exchange for stock
by a qualified opportunity fund that is a corporation, or (b) as a contribution by a qualified opportunity fund that is a partnership,
and (ii) held continuously from the fifth business day after the exchange or contribution, as applicable, through the Test Date in cash,
cash equivalents or debt instruments with a term of 18 months or less.
Subject
to a one-time six-month cure period, for each month following a Test Date in which a qualified opportunity fund fails to meet the 90%
Asset Test it will incur a penalty equal to (a) the excess of 90% of the fund’s aggregate assets over the aggregate amount of qualified
opportunity zone property held by the fund, multiplied by (b) the short-term federal interest rate plus 3%. However, notwithstanding
a qualified opportunity fund’s failure to meet the 90% Asset Test, no penalty will be imposed if the fund demonstrates that its
failure is due to reasonable cause.
We
initially qualified as a qualified opportunity fund beginning with our taxable year ended December 31, 2020.
An
eligible investor may defer recognition of capital gains (short-term or long-term) resulting from the sale or exchange of capital assets
(or business assets the gain on the sale of which is treated as capital gain) by reinvesting those gains into a qualified opportunity
fund within a period of 180 days generally beginning on the date of the sale or exchange (the “Deferred Capital Gains”).
The 180-day period generally begins on the day on which the gains would be recognized for U.S. federal income tax purposes had they not
been reinvested into a qualified opportunity fund. Deferred Capital Gains are recognized on the earlier of December 31, 2026 or the date
on which an inclusion event occurs, such as the date on which the investor sells its qualified opportunity fund investment.
7
All
individuals and entities that recognize capital gains for U.S. federal income tax purposes are eligible to elect to defer their capital
gains by investing in a qualified opportunity fund within the applicable 180-day period. This includes natural persons as well as entities
such as corporations, regulated investment companies, real estate investment trusts (“REITs”), partnerships and other pass-through
entities (including, certain common trust funds, qualified settlement funds, and disputed ownership funds). Eligible investors must make
deferral elections on Form 8949, Sales and Other Dispositions of Capital Assets , which will need to be attached to their U.S.
federal income tax returns for the taxable year in which the capital gain would have been recognized had it not been deferred. In addition,
Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments , requires eligible investors holding a
qualified opportunity fund investment at any point during the tax year to report: (i) qualified opportunity fund investments holdings
at the beginning and end of the tax year; (ii) current tax year capital gains deferred by investing in a qualified opportunity fund;
and (iii) qualified opportunity fund investments disposed of during the tax year. Eligible investors who have not properly followed the
instructions for Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments , may receive a Letter
6502, Reporting Qualified Opportunity Fund (QOF) Investments , or a Letter 6503, Annual Reporting of Qualified Opportunity Fund
(QOF) Investments , from the Internal Revenue Service (“IRS”) if the IRS is missing information, the investor entered
invalid information, or the requirements to maintain a qualifying investment have not been followed. Eligible investors who receive a
Letter 6502, Reporting Qualified Opportunity Fund (QOF) Investments , or a Letter 6503, Annual Reporting of Qualified Opportunity
Fund (QOF) Investments , may need to file an amended return or an administrative adjustment request with a properly completed Form
8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments .
An
eligible investor may elect to increase the tax basis with respect to its qualified opportunity fund investment interest to the fair
market value of the investment interest, and similarly may elect to exclude from income gains from sales of non-inventory assets by the
qualified opportunity fund, if the investor holds the qualified opportunity fund investment interest for a period of ten years or more
prior to the date of sale, up to December 31, 2047. Provided these requirements are met, for U.S. federal income tax purposes an eligible
investor will not be required to pay federal income tax on a sale of its qualified opportunity fund investment interest. This benefit
will not be available with respect to sales or exchanges after December 31, 2047.
Our
Investments
As
of the date of this Form 10-K, our investment portfolio consisted of the following multifamily and mixed-use rental properties:
1991
Main Street – Sarasota, Florida (also known as “Aster & Links”) – 1991 Main Street (“1991 Main”
or “Aster & Links”) is a 5.13-acre site which was acquired for an aggregate purchase price of $20.7 million, inclusive
of transaction costs and deferred financing fees. On August 24, 2023, we acquired an adjacent land parcel that was previously subject
to a ground lease for a purchase price of $4.9 million , inclusive of transaction costs.
1991
Main is being developed as two 10 story buildings with over 900 garage and surface-level parking spaces marketed under the name
“Aster & Links.” Aster & Links will feature 424-apartments, including a mix of one-bedroom, two-bedroom and
three-bedroom apartments, four-bedroom townhome-style penthouse apartments, and six guest suite apartments, with approximately
51,000 square feet of retail space located on the first level. In May 2023, we announced the signing of a definitive lease agreement
with Sprouts Farmers Market (“Sprouts”), one of the fastest growing specialty retailers of fresh, natural and organic
food in the United States. Sprouts will occupy approximately 23,000 square feet of retail space at Aster & Links.
Aster
& Links will include a clubroom, fitness room, center courtyard with heated saltwater pool and roof top amenities including a community
room and a private dining area for private events as well as outdoor grills and seating. In addition, each building will have its own
leasing office.
Aster
& Links is situated in downtown Sarasota, at the intersection of Main Street and Links Avenue, and is located in a high foot
traffic area next to a number of popular retail establishments. Sarasota’s metro area economy is the largest of the southwest
Florida markets and has had very strong gains in jobs, population, and home values over the past year. According to Oxford
Economics, the Sarasota economy is expected to remain strong and grow by roughly 2.1% between 2024-2028, a stronger outlook than the
U.S. at large.
1991 Main Construction Management
Agreement
During
the year ended December 31, 2022, our indirect wholly-owned subsidiary entered into a construction management agreement for the development of 1991 Main. The construction
management agreement contains terms and conditions that are customary for a project of this type and will be subject to a guaranteed
maximum price (a “GMP”). We currently anticipate that the funding for construction and soft costs associated with the development
will be a minimum of $182.4 million, inclusive of the GMP, and are building to an estimated unlevered yield of greater than 6%.
The property is currently under construction, and we expect initial occupancies to occur in the first half of 2024. Construction on both
buildings is expected to be completed by the end of 2024.
1991 Main Construction Loan
On May 12, 2023, our indirect majority-owned subsidiary (the “Mortgage
Borrower”) entered into a variable-rate construction loan agreement (the “1991 Main Construction Loan Agreement”) for
up to $130.0 million in principal amount (the “1991 Main Construction Loan”) with Bank OZK (the “Mortgage Lender”),
which is secured by 1991 Main and which matures on May 12, 2027, subject to a one-year extension option. Advances under the 1991 Main
Construction Loan bear interest at a per annum rate equal to the one-month term Secured Overnight Financing Rate (SOFR) plus 3.45%, subject
to a minimum all-in per annum rate of 8.51%, and may be used to fund the development of 1991 Main. The 1991 Main Construction Loan has
an initial maturity date of May 12, 2027 and contains a one-year extension option, subject to certain restrictions. As of December 31,
2023, we have drawn down $23.1 million on the 1991 Main Construction Loan.
In connection with the 1991 Main Construction Loan, we provided a carveout
guaranty to the Mortgage Lender (the “Carveout Guaranty”) pursuant to which we guaranteed the Mortgage Borrower’s obligations
to the Mortgage Lender with respect to certain non-recourse carveout events, such as “bad acts,” environmental conditions,
and violations of certain provisions of the loan documents. The Carveout Guaranty also contains financial covenants requiring that we
maintain liquid assets of no less than $20.0 million and a net worth of no less than $130.0 million. Together with the Mortgage Borrower
we also provided a customary environmental indemnity agreement to the Mortgage Lender pursuant to which we agreed to protect, defend,
indemnify, release and hold harmless the Lender from and against certain environmental liabilities related to 1991 Main.
8
1991
Main Interest Rate Cap
As required under the terms of the 1991 Main Construction Loan Agreement, the Mortgage Borrower also entered
into an interest rate cap agreement, effective July 10, 2023 (“1991 Main Interest Rate Cap”), which, as of December 31, 2023,
had a notional amount of approximately $72.2 million a one-month SOFR rate based strike price of 5.07%, and which is due to mature on
July 10, 2024. The notional amount of the 1991 Main Interest Rate Cap increases in accordance with the schedule set forth in the interest
rate cap agreement up to a maximum notional amount of $112.5 million.
1991 Main Mezzanine Loan
On January 31, 2024, our indirect majority-owned subsidiary (the “Mezzanine
Borrower”) entered into a mezzanine loan agreement, for up to $56.4 million in principal amount (the “1991 Main Mezzanine
Loan”) with Southern Realty Trust Holdings, LLC (the “Mezzanine Lender”). The 1991 Main Mezzanine Loan bears interest
at a rate of 13.0% per annum and is secured by our investment in 1991 Main. Advances under the 1991 Main Mezzanine Loan may be used to
reimburse us for certain costs and expenses incurred in relation to, and to fund the continued development of, 1991 Main. The 1991 Main
Mezzanine Loan has an initial maturity date of May 12, 2027 and contains a one-year extension option, subject to certain restrictions.
In connection with the 1991
Main Mezzanine Loan, we are required to maintain an interest reserve and carry reserve for purposes of paying accrued but unpaid interest
on the 1991 Main Mezzanine Loan and interest, principal and other obligations under the 1991 Main Construction Loan (the “Reserves”).
We also provided the Mezzanine Lender with (i) a completion guaranty, which, among other things, guarantees completion of the work on
1991 Main, and (ii) a carveout guaranty, which, among other things, indemnifies the Mezzanine Lender for losses resulting from certain
“bad acts,” insolvency, environmental conditions, violations of the terms of the 1991 Main Mezzanine Loan and certain provisions
of the 1991 Main Construction Loan Agreement (collectively, the “Mezzanine Guarantees”). Similar to the Carveout Guaranty
we provided to the Mortgage Lender, the Mezzanine Guarantees contain financial covenants requiring that we maintain liquid assets of
no less than $20.0 million and a net worth of no less than $130.0 million. Cash proceeds from the 1991 Main Mezzanine Loan totaled $39.8
million, after the Reserves of $15.0 million were held back at closing, and incurring closing costs of $1.6 million.
1900 Fruitville Road – Sarasota
Florida – 1900 Fruitville Road is a 1.2-acre site, consisting of a retail building and parking lot, which we acquired for an
aggregate purchase price of $4.7 million, inclusive of transaction costs. In February 2024 we commenced demolition of the building with
the intention to use the property as additional parking for Sprouts, our grocery store tenant at Aster & Links.
1000
First Avenue North and 900 First Avenue North – St. Petersburg, Florida (also known as “Viv”) – We have
consolidated several parcels, comprising 1.6-acres of land (previously referred to as 902-1020 First Avenue North, St.Petersburg,
Florida), which we acquired for an aggregate purchase price of $12.1 million, inclusive of transaction costs, into 1000 First Avenue North, St. Petersburg, Florida (“1000 First” or “Viv”).
900 First Avenue North (“900
First”) is a parcel of land with a two-tenant retail building which we acquired for an aggregate purchase price of $2.5 million,
inclusive of transaction costs. 900 First will remain a two-tenant retail building, and we have taken the additional development rights
and added them to 1000 First.
1000 First is being developed into a 15-story high-rise building marketed
under the name “Viv.” Viv will be comprised of two 11-story residential towers above a 4-story parking garage, featuring approximately
269-apartment homes with a mix of studio, one-bedroom, two-bedroom and three-bedroom units, with approximately 15,500 square feet of retail
space located on the first level. Amenities at Viv will include a clubroom, fitness center, courtyard with a swimming pool, shared working
space and a leasing office.
9
Viv
is located in the downtown district of St. Petersburg, one mile west of Tampa Bay and the downtown waterfront district and only one block
away from Tropicana Field, home to the Tampa Bay Rays professional baseball team, and features direct access to downtown amenities such
as public parking, restaurants, museums and cultural sites. In September of 2023, the Tampa Bay Rays, City of St. Petersburg and Pinellas
County announced a joint plan to build a brand new approximately 30,000 seat ballpark on the 86-acre site where the team’s current
stadium sits. The project will include nearly 8 million square feet of mixed-use development and result in over $6.5 billion in investment
in the Gas Plant District over the next 20 years.
St. Petersburg placed 44 th on Niche’s 2023 Best Cities
to Live in America list, earning an Overall Niche Grade of “A”. St. Petersburg is the 5th largest city in Florida and the
85th largest city in the United States and has an average annual population growth rate of approximately 0.82% since 2020. Downtown St.
Petersburg is one of the fastest growing neighborhoods in the Tampa-St. Petersburg-Clearwater metropolitan statistical area (“MSA”)
and has experienced increased demand in recent years because of proximity to the water, sporting events, shopping, bars and restaurants
in the neighborhood. The Tampa-St. Petersburg-Clearwater MSA is home to more than 20 corporate headquarters, seven of which are Fortune
1000 companies. The St. Petersburg area also includes a branch of St. Petersburg College and the University of South Florida St. Petersburg
and is home to two professional sports teams, the Tampa Bay Rays (Major League Baseball) and the Tampa Bay Rowdies (United Soccer League
Championship).
1000
First Construction Management Agreement
In April 2023, our indirect
majority-owned subsidiary entered into a construction management agreement in connection with the development of 1000 First. The construction
management agreement contains terms and conditions that are customary for a project of this type and will be subject to a GMP of $69.0
million.
1701,
1702 and 1710 Ringling Boulevard – Sarasota, Florida – 1701 Ringling Boulevard (“1701 Ringling”) and 1710
Ringling Boulevard (“1710 Ringling”) make up a 1.6-acre site, consisting of a six-story office building and a parking lot
which we acquired for an aggregate purchase price of $7.0 million, inclusive of transaction costs. We currently anticipate that 1701
Ringling will be renovated into a modern office building, consisting of approximately 80,000 square feet of rentable space, with 1710
Ringling consisting of an approximately 128-space parking lot. Upon acquiring 1701 Ringling, we entered into a new lease agreement with
the existing tenant covering approximately 42,000 square feet for an initial term of 20 years, and several lease extension options.
1702
Ringling Boulevard (“1702 Ringling” and, together with 1701 Ringling and 1710 Ringling, “1701-1710 Ringling”)
is a 0.327-acre site consisting of a fully-leased, single-story 1,546 gross square foot single-tenant office building and associated
parking lot, which we acquired for an aggregate purchase price of $1.5 million, inclusive of transaction costs. We currently anticipate
holding 1702 Ringling for future multifamily development .
1701-1710
Ringling is located within the historic downtown Sarasota area along Ringling Boulevard, a major two-way arterial road, with good access
to the surrounding Sarasota market, as well as easy access to Interstate 75 and the greater Tampa-St Petersburg area. 1701-1710 Ringling
is located in a high foot traffic area close to a number of popular restaurants and retail establishments.
497-501
Middle Turnpike and Cedar Swamp Road – Storrs, Connecticut – 497-501 Middle Turnpike (“497-501 Middle”)
is an approximately 60.0-acre site, consisting of approximately 30 acres of former golf course and approximately 30 acres of wetlands,
some of which includes walking trails. We acquired a majority ownership interest in CMC Storrs SPV, LLC (“CMC”), the holding
company for 497-501 Middle, for an initial capital contribution of $3.8 million.
We
currently anticipate 497-501 Middle will be developed into an approximately 261-apartment home community and an adjacent
single-family home, with amenities that will include a leasing office, clubroom with a chef’s kitchen, fitness center, game
room, study/lounge area, meeting rooms, and an outside AstroTurf meadow.
Cedar
Swamp Road (“Cedar Swamp Road”) is a 1.1-acre site immediately adjacent to 497-501 Middle, which we acquired for a purchase
price of $0.3 million, inclusive of transaction costs. We currently anticipate adding Cedar Swamp Road to the 497-501 Middle development.
497-501 Middle and Cedar Swamp Road are located less than a mile from
the main college campus at the University of Connecticut (“UConn”) in Storrs, Connecticut (“Storrs”), approximately
30 minutes from Hartford, Connecticut, and 90 minutes from Boston, Massachusetts. UConn ranked 26th among “top public universities”
nationally in the 2024 U.S. New & World Report (“U.S. News”) collegiate rankings, and, based on a fact sheet published
by UConn, over 18,900 undergraduate students enrolled in college at the Storrs campus in 2022, with more than a third of those students
living off campus.
10
900
8th Avenue South – Nashville, Tennessee – 900 8th Avenue South (“900 8th Avenue South”) is a 3.2-acre
land assemblage, which we acquired for an aggregate purchase price of $19.7 million, inclusive of transaction costs.
900
8th Avenue South is located in central Nashville at the north end of the 8th Avenue South District, within walking distance of a number
of popular retail, dining and nightlife establishments in downtown Nashville. The parcels have received approval for a mixed-use development including residential, retail and office with a maximum
of 300 residential multi-family units and a maximum of seven stories.
1700
Main Street – Sarasota, Florida – 1700 Main Street (“1700 Main”) is a 1.3-acre site, consisting of a former
gas station, a three-story office building with parking lot and a two-story retail building, which we acquired for an aggregate purchase
price of $6.9 million, inclusive of transaction costs. We currently anticipate that 1700 Main will be redeveloped into an expected 226-apartment
home community consisting of one-bedroom, two-bedroom and three-bedroom units, with approximately 6,400 square feet of retail space located
on the first two levels. We anticipate that 1700 Main will consist of a 10-story podium style building with a 3-story, 330-space garage
and 7 stories of apartments above, including a clubroom, fitness center, and courtyard with a swimming pool as well as a leasing office.
U.S.
News & World Report ranked Sarasota as the 5th best place to live in the United States for 2023-2024, number two among the fastest
growing places in the U.S., and the number 11th best place to retire. Sarasota is headquarters to a diverse group of large companies,
such as Boar’s Head Provisions, CAE Healthcare, PGT Innovations, Tervis, Sun Hydraulics and Voalte. The Sarasota area also has
a large number of universities including the University of Southern Florida, Florida State University’s College of Medicine campus,
Ringling College, State College of Florida, Keiser College and New College of Florida. According to the U.S. Department of Housing and
Urban Development (HUD), the housing demand for the Northport-Sarasota-Bradenton MSA is forecasted to be 11,950 new units through August
2023, but only 3,250 housing units are expected to be delivered in that timeframe causing a short fall of 8,700 units by the completion
of construction.
1700
Main is located in downtown Sarasota along Main Street and is located in a high foot traffic area next to a number
of popular restaurants and retail establishments.
690/1106
Davidson Street – Nashville, Tennessee – Our second investment in Nashville, Tennessee 690/1106 Davidson Street
(“690/1106 Davidson Street”) is an approximately 8.0-acre site, consisting of two industrial buildings and associated
parking, which we acquired for an aggregate purchase price of $21.0 million, inclusive of transaction costs. We currently anticipate
that 690/1106 Davidson Street will be redeveloped into mixed-use residential community consisting of studio, one-bedroom,
two-bedroom and three-bedroom apartments. The buildings will have a fitness center, game room, co-working spaces, outdoor heated
saltwater swimming pool, riverfront courtyards and rooftop terraces as well as a leasing office. In September 2023, the parcels were
successfully rezoned to accommodate medium to high density multi-family residential and a mix of other commercial uses including
hotel, office, retail and restaurant.
1130
Davidson Street – Nashville, Tennessee – Our third investment in Nashville, Tennessee 1130 Davidson Street
(“1130 Davidson Street”), is an approximately 1.7-acre site consisting of a single-story, 10,000 square foot retail
building and associated parking lot, which we acquired for an aggregate purchase price of $2.1 million, inclusive of transaction
costs. The building is leased back to the seller through November 2024, with the ability to continue month to month thereafter. In
September 2023, the parcel was successfully rezoned to accommodate medium to high density multi-family residential and a mix of
other commercial uses including hotel, office, retail and restaurant.
1400
Davidson Street – Nashville, Tennessee – Our fourth investment in Nashville, Tennessee, 1400 Davidson Street
(“1400 Davidson Street”) is an approximately 5.9-acre site consisting of an industrial building, which we acquired for
an aggregate purchase price of $16.4 million, inclusive of transaction costs. The building is leased back to the seller through June
2024. We currently anticipate that 1400 Davidson Street will be redeveloped into a mixed-use residential community consisting of
studio, one-bedroom, two-bedroom and three-bedroom apartments. In September 2023, the parcel was successfully rezoned to accommodate
medium to high density multi-family residential and a mix of other commercial uses including hotel, office, retail and
restaurant.
11
Storrs
Road – Storrs, Connecticut – Storrs Road (“Storrs Road”) is a 9.0-acre parcel of land near UConn,
which we acquired for an aggregate purchase price of $0.1 million, inclusive of transaction costs. We currently anticipate holding Storrs
Road for future multifamily development.
1750
Storrs Road – Storrs, Connecticut – 1750 Storrs Road (“1750 Storrs”) is an approximately 19.0-acre development
site near UConn, which we acquired for an aggregate purchase price of $5.5 million, inclusive of transaction costs.
We
currently anticipate that 1750 Storrs will be developed into a multifamily mixed-use development, featuring one-bedroom, two-bedroom
and three-bedroom apartments. Amenities are anticipated to include a clubhouse, with state-of-the-art fitness center, chef’s kitchen
and more.
901-909
Central Avenue North – St. Petersburg, Florida – 901-909 Central Avenue North (“901-909 Central Avenue”) is a 0.13-acre
site consisting of a single-story 5,328 gross square foot retail/office building comprised of 4 units located in St. Petersburg, Florida,
which we acquired for an aggregate purchase price of $2.6 million, inclusive of transaction costs.
Joint
Venture and Other Co-Ownership Arrangements
Each
of our assets has either an affiliate of our Sponsor or Manager, such as Belpointe SP, LLC (“Belpointe SP”), or their respective
affiliates (together with Belpointe SP, the “Belpointe SP Group”), or an independent third party, or any combination of the
foregoing, as the sponsor or co-sponsor, general partner or co-general partner, manager or co-manager, developer or co-developer of the
investment (each an “Investment Partner”), and our role, in general, is as a passive investor.
Entering
into joint venture investments aligns our interests with the interests of our Investment Partner for the benefit of the holders of our
Class A units by leveraging of our capital resources and our Investment Partner’s extensive industry relationships and significant
acquisition, development and management expertise to: (i) achieve potentially greater returns on our invested capital; (ii) diversify
our access to investment opportunities; and (iii) promote our brand and potentially increase our market share.
Borrowing
Policy
We
intend to employ leverage in order to provide more funds available for investment. Leverage will allow us to make more investments than
would otherwise be possible, resulting in a broader portfolio. We believe that careful use of conservatively structured leverage will
help us to achieve our diversification goals and potentially enhance the returns on our investments. We also believe that our Sponsor’s
ability to obtain both competitive financing and its relationships with top tier financial institutions will allow our Manager to access
and successfully employ competitively priced borrowing.
Our
targeted aggregate property-level leverage, excluding any debt at the Company level or on assets under development or redevelopment,
after we have acquired a substantial portfolio of stabilized commercial real estate, is between 50-70% of the greater of the cost (before
deducting depreciation or other non-cash reserves) or the fair market value of our assets. During the period when we are acquiring, developing
and redeveloping our investments, we may employ greater leverage on individual assets. An example of property-level leverage is a mortgage
loan secured by an individual property or portfolio of properties incurred or assumed in connection with our acquisition of such property
or portfolio of properties. An example of debt at the Company level is a line of credit obtained by us or our Operating Companies.
Our
Manager may from time to time modify our leverage policy in its discretion in light of then-current economic conditions, relative costs
of debt and equity capital, market values of our assets, general conditions in the market for debt and equity securities, growth and
acquisition opportunities or other factors. For an overview of our borrowings, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources .”
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Disposition
Policies
The
period that we will hold our investments will vary depending on a number of factors, including the type of investment, interest rates
and economic and market conditions. Our Manager’s investment committee will develop a well-defined exit strategy for each investment
we make and will periodically perform a hold-sell analysis to determine the optimal holding period for generating strong returns. As
each of our investments reach what we believe to be its maximum value we will consider disposing of the investment and may do so for
the purpose of either distributing the net sale proceeds to holders of our Class A units or investing the proceeds in other investments
that we believe may produce a higher overall future return. However, we may sell any or all of our investments before or after their
anticipated holding period if, in the judgment of our Manager’s investment committee, selling the investment is in our best interest.
The
determination of when a particular investment should be sold or otherwise disposed of will be made after consideration of all relevant
factors, including prevailing and projected economic and market conditions, whether the value of the investment is anticipated to change
substantially, whether we could apply the proceeds from the sale to make other investments consistent with our investment objectives
and strategy, whether disposition of the investment would allow us to increase cash flow, and whether the sale of the investment would
impact our intended qualification as a publicly traded partnership and qualified opportunity fund.
Taxation
of the Company
We
have been treated as a partnership for U.S. federal income tax purposes since our tax year ended December 31, 2020. We currently intend
to manage our affairs so that we continue to meet the requirements for classification as a partnership. If our Manager determines that
it is no longer in our best interests to continue as a partnership for U.S. federal income tax purposes, our Manager may elect to treat
us as an association or as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state) income tax
purposes. If we elect to be taxable as a corporation for U.S. federal (and applicable state) income tax purposes, we may also elect to
qualify and be taxed as a REIT.
Generally,
an entity that is treated as a partnership for U.S. federal income tax purposes is not a taxable entity and incurs no U.S. federal income
tax liability. Rather, each partner is required to take into account its allocable share of items of income, gain, loss and deduction
of the partnership in determining its U.S. federal income tax liability, regardless of whether cash distributions are made. Distributions
of cash by a partnership to a partner are not taxable unless the amount of cash distributed to a partner is in excess of the partner’s
adjusted basis in its partnership interest.
Notwithstanding
the foregoing, unless an exception applies, an entity that would otherwise be classified as a partnership for U.S. federal income tax
purposes may nevertheless be taxable as a corporation if it is a “publicly traded partnership” within the meaning of Section
7704 the Code. An entity that would otherwise be classified as a partnership is a publicly traded partnership within the meaning of Section
7704 of the Code if its interests are (i) traded on an established securities market, or (ii) readily tradable on a secondary market
or the substantial equivalent thereof. Our Class A units are listed on the NYSE American under the symbol “OZ.” There is,
however, an exception to taxation as a corporation which is available if at least 90% of a partnership’s gross income for every
taxable year consists of “qualifying income”and the partnership is not required to register under the Investment Company
Act of 1940, as amended (the “Qualifying Income Exception”). Qualifying income includes certain interest income (other than
from a financial business), dividends, real property rents, gains from the sale or other disposition of real property and any gain from
the sale or disposition of a capital asset or other property held for the production of income that otherwise constitutes qualifying
income. We intend to manage our affairs so that we will meet the Qualifying Income Exception in each taxable year and so that neither
we nor any of our subsidiaries are required to register under the Investment Company Act of 1940, as amended.
Government
Regulation
Our
operations are subject, in certain instances, to supervision and regulation by federal, state and local governmental authorities, and
may be subject to various laws, regulations and judicial and administrative decisions imposing various requirements and restrictions,
including, among others, (i) federal and state securities laws and regulations, (ii) federal, state and local tax laws and regulations,
(iii) state and local laws relating to real property, (iv) federal, state and local environmental laws, ordinances and regulations, and
(v) various laws relating to housing, including rent control and stabilization laws, the Fair Housing Amendment Act of 1988 and Americans
with Disabilities Act of 1990, among others.
Compliance
with the federal, state and local laws is not expected to have a material adverse effect on our business, assets or results of operations,
and we do not expect to incur material expenditures to comply with the laws and regulations to which we are subject.
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Competition
We
face competition from various entities for investment opportunities, including other qualified opportunity funds, REITs, Delaware statutory
trusts, pension funds, insurance companies, private equity and other alternative investment funds and companies, partnerships and developers.
In addition to third-party competitors, we may compete for investment opportunities with other programs sponsored by our Sponsor and
its affiliates, especially those with investment strategies similar to our own.
Most
of our current and potential competitors have significantly more financial, technical, marketing and other resources than we do. Larger
competitors may also enjoy significant advantages that result from, among other things, a lower cost of capital and enhanced operating
efficiencies. In addition, the number of entities and the amount of funds competing for investment opportunities may increase over time.
Any such increase would result in a greater demand for investment opportunities and could result in our acquiring assets and investments
at higher prices or using less than ideal capital structures.
In
the face of such competition, we expect to greatly benefit from our Manager’s access to our Sponsor’s investment and operating
platforms, including without limitation, our Sponsor’s highly experienced management team with significant real estate and asset
management expertise, extensive market knowledge and network of industry relationships, which we believe will provide us with our own
competitive advantage and will help us source, evaluate and compete for investment opportunities.
Human
Capital
We
are externally managed and currently have no employees or intention of having any employees. We rely on our Manager to manage our
day-to-day operations, implement our investment objectives and investment strategy and perform certain services for us pursuant to
the Management Agreement. These services are provided by individuals who are employees of our Sponsor or one or more of its
affiliates. Our executive officers also serve as officers of our Sponsor and certain of its affiliates.
We,
our Manager and our Sponsor are a party to an employee and cost sharing agreement (the “Employee and Cost Sharing Agreement”)
pursuant to which our Sponsor provides our Manager with access to portfolio management, asset valuation, risk management and asset management
services, as well as administration services addressing legal, compliance, investor relations and information technologies necessary
for the performance by our Manager of its duties under the Management Agreement. Pursuant to the Management Agreement, our Manager or
one or more of its affiliates is entitled to receive expense reimbursements and a quarterly management fee. Pursuant to the Employee
and Cost Sharing Agreement, our Sponsor or one or more of its affiliates is entitled to receive expense reimbursements and our Manager’s
allocable share of employment costs incurred by the Sponsor.
Available
Information
Holders
of our Class A units may obtain copies of our filings with the SEC, free of charge, from the SEC’s website, www.sec.gov ,
or from our website, www.belpointeoz.com .
The
contents of our website are solely for informational purposes and the information on our website is not part of or incorporated by reference
into this Form 10-K.
From
time to time we may use our website as a distribution channel for material company information, accordingly investors should monitor
our website in addition to following our press releases and SEC filings.
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