By Opportunity Zone Magazine Staff
California real-estate company M31 Capital is rolling out a $25 million boutique Opportunity Zone fund to help Silicon Valley’s HNWIs convert tech-sector stock gains into tax-favorable Bay Area real-estate investments.
San Francisco, where the average home now costs $1.6 million, might not seem an obvious place to exploit tax incentives designed for distressed communities — but M31 is betting that the Bay Area still has plenty of underused properties that could benefit from an OZ-funded overhaul.
“There’s a lot of money in the Bay Area, but there are still areas where if you walk down the street you’ll see vacant structures that could be housing or office spaces,” explains M31 founder and CEO Taylor Lembi.
The new Morpheus 1 fund will focus on redeveloping vacant commercial and residential OZ properties in San Francisco and the broader Bay Area. That strategy will help M31 to sidestep the planning and entitlement issues that often stall ground-up projects, Lembi explains.
“That process in the Bay Area is very slow — entitlements can take three or four years,” he says. “We figured we could invest into existing structures … and get those units back online within 18 months.”
The Morpheus fund is close to closing on a pair of East Bay properties, where redevelopment work could start within a few months, and is also eyeing a property in San Jose. The fund’s small size reflects the limited stock of suitable projects in the area, Lembi says, but M31 could embark on additional rounds of OZ fundraising once the Morpheus 1 fund has proven itself.
M31 will be co-investing about $3 million in the fund, in a move that the company says should reassure investors that they’ll be partnering with developers who know the local market and have skin in the game.
“All of the investments made by Morpheus 1 will be economically sound without regard to the tax incentives,” adds M31 managing director Anthony Dagati.