Q&A with CIM Group
Editor’s note: Evercore Wealth Management supplements its core investment capabilities with carefully selected outside funds across the range of the firm’s asset classes.
CIM Group, a community-focused real estate and infrastructure owner, operator and lender, launched a $5 billion opportunity fund earlier this year to take advantage of the federal Qualified Opportunity Zone program. Here we interview Sean Morris, who leads the CIM Private Wealth Partners Group.
Q: CIM has a 25-year history of developing properties in urban areas undergoing a transition or revitalization, including many now designated as Qualified Opportunity Zones. What do you think the impact of these designations will be – on your business and on those communities?
A: CIM has been a developer, owner, operator and lender in underserved urban communities for over 25 years. Over half of the communities that we have internally qualified for investment contain Opportunity Zones. CIM currently controls over $4 billion of assets in these areas through vehicles launched prior to the Opportunity Zone legislation. We have long-standing relationships, established community support, and an actionable pipeline of investments. CIM’s community relationships, combined with our vertically integrated capabilities – in particular our in-house development capability – allow us to be one of the few managers that can effectively develop assets across geographies in underserved, densely populated communities throughout the United States.
Q: What makes a community attractive from an investment point of view?
A: Our unique community qualification process has always served as the foundation for our investment strategy. We target high barrier-to-entry markets/submarkets with high population density and undertake rigorous research before qualifying these communities for potential acquisitions. The qualification process may take anywhere between six months to up to five years. Since 1994, the firm has qualified 122 communities in high barrier-to-entry markets and has deployed capital in 72 of them.
Some of CIM’s criteria for qualifying communities include:
1) strong evidence of population and income level growth, 2) broad community/government support for our approach to development, 3) evidence of investments from other private investors, 4) underserved niches in the community’s real estate infrastructure, 5) opportunities below intrinsic values, and 6) potential to deploy at least $100 million of CIM-managed capital within five years.
Q: How do you determine what types of properties (office, retail, multifamily housing and restaurants) to develop within each community?
A: CIM has extensive experience developing, owning and operating a diverse range of asset types, including retail, residential, office, parking, hotel, signage, mixed-use and other real assets. We therefore do not have any asset class limitations to our development capability. That said, our experience with multiple asset types does not predispose us to select certain asset types over others. To determine what types of properties to develop, we look back to the community, conduct a comprehensive evaluation of the missing real estate infrastructure, and seek to fill underserved niches through developments. Aligning CIM’s acquisition/development plans in a given market with that market’s unfilled demand also helps us in mitigating risks in our projects.
Q: CIM is vertically integrated; managing the entire investment process as an owner, operator, lender and developer of property assets. What is the investment rationale for this unusual approach?
A: Being vertically integrated really sets us apart as a manager, especially in the Opportunity Zones space. We believe that having all capabilities in-house gives us some very clear advantages in executing our build-to-core strategy. It gives us an ability to leverage the expertise and market knowledge of different functions at every step of our investment process. It gives us complete control on the development process, which in turn minimizes execution related risks. And it gives us the ability to leverage on the synergies between different functions to drive the business plan for the asset.
Q: Your investment approach and your geographic diversification requires a team approach. Please describe your process.
A: The CIM investments group is led by a team of oversight principals that include the three co-founders of the firm. The group includes over 70 investment professionals located across our offices in Los Angeles, CA (headquarters); Oakland, CA; Bethesda, MD; and New York, NY.
Q: What are some examples of properties that would be included in the CIM QOZ fund?
A: CIM intends to build a diversified portfolio of assets; the fund’s investments are expected to consist of assets related to infrastructure, multifamily residential, student housing, hotel, retail, office, industrial, storage, land, theater, media and parking infrastructure assets across Opportunity Zones located in our qualified communities in the United States. Currently we anticipate a portfolio allocation of 30% to office, 30% to residential, 30% to retail, and the remaining 10% to other real estate/infrastructure upon the stabilization of portfolio.
We have a warehoused investment opportunity in the fund – a 670 MW solar park in the Central Valley of California that is shovel-ready. The fund anticipates participating in the project as a co-investor alongside one of CIM’s infrastructure funds. We are actively evaluating several other investment opportunities across CIM-qualified communities that have been designated as Opportunity Zones.
Q: Please describe the investment timelines. What should investors expect?
A: Our Opportunity Zone fund is a build-to-core strategy. What that really means is that the fund will be investing in ground-up/heavy repositioning projects, seeing them through their transition into stabilized assets, and then, instead of exiting, it will continue holding these investments over the long term. We expect to hold assets in the fund for at least 10-12 years, so that early investors in the fund can get the 10-year tax benefits of the Opportunity Zones program. We also have planned our open-ended fund structure to support investor redemptions subject to an initial lock-up of four years.
For further information about the CIM Opportunity Zone, L.P., and other funds on the Evercore Wealth Management investment platform, please contact Stephanie Hackett at email@example.com.
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