XENIA CO-INVESTMENT (CLOSED)
a Qualified Opportunity Zone single asset investment opportunity
A fully leased, class A medical office building that will be constructed for Premier Health, the leading health system in Southwest Ohio, and is located in a federally designated Opportunity Zone in Xenia, Ohio.
STRATEGY/ASSET TYPE: Core, Medical Office
INVESTMENT SIZE: $2,300,000
MINIMUM INVESTMENT: $100,000
(Accredited Investors with Qualified Client Status Only)
CLOSED: August 2022
Chestnut Funds is offering a Qualified Opportunity Fund co-investment alongside its opportunity zone fund to acquire the 14,915 square foot, 100% leased medical office property located in a federally designated Opportunity Zone.
Premier Health is the largest comprehensive health system in Southwest Ohio. Premier Health will operate a Premier Primary Care clinic at this location to provide primary care services to residents of Xenia. Construction on the Premier Primary Care facility in Xenia will begin on June 15, 2022. The tenant is expected to begin seeing patients in the spring of 2023 with rent commencement beginning at that time. Premier Primary Care intends to provide a wide range of services to patients from infancy throughout adulthood.
Why We're Investing
Property Demand: Medical office remains one of the most in demand property types due to its relative lack of correlation with the overall economy as well as the macro demographic trends that support increased healthcare service demand.
Below Market Acquisition Cost: The property is being acquired from a developer prior to construction commencement, providing the opportunity to acquire the asset for an attractive capitalization rate of 5.5%. Based upon Chestnut’s experience with medical office building acquisitions through its medical office building funds, single tenant sales with comparable health system tenancy suggest that the market capitalization rate could be lower than 5%.
Strong Tenancy and Lease Term: Premier Health is a non-profit health system with a strong balance sheet and profitability. The 15-year lease term with 2% annual escalations and full pass through of property operating expenses is designed to provide predictable and secure cash flow.
Investment Period Capital Event: It is expected that the loan used for the acquisition and development of the Premier MOB will be refinanced in the third year, providing the opportunity to generate tax-free proceeds that may be distributed to investors.
Tax Efficient Investment: As a new construction project, depreciation can be accelerated, providing an expense to offset rental income. The Opportunity Zone incentive also allows for a step-up in basis after 10 years to the market value of the asset, meaning the depreciation taken over the life of the investment is not recaptured. Additionally, Ohio offers a tax credit for Opportunity Zone investments in the state.
Community Need and Desired Impact
Xenia’s strategic plan, the “X Plan” includes a “Grow our Own” approach to economic development that focuses on business retention and expansion. The development of a new, larger facility for Premier Primary Care enables physicians to stay in the community and serve more people in updated facilities. Furthermore, Premier Primary Care’s services include and are aligned with two of the top three health priorities identified in the 2020 Greene County Health Improvement Plan - obesity and preventative health services. With a 18% poverty rate in Xenia City, providing access to preventative health care services is important to support community members’ overall well-being and to help manage future cost burdens of healthcare services.
Opportunity Zone Tax Benefits
Opportunity Zones were established by Congress in the 2017 Tax Cuts and Jobs Act as an innovative approach to spur long-term private sector investments in low-income communities nationwide. The Opportunity Zone investment tool allows private investors to receive capital gains tax benefits by reinvesting eligible capital gains into a Qualified Opportunity Fund (QOF) that in turn makes qualified investments in real estate or businesses located in designated distressed communities nationwide.
Deferral of Gain: Tax on invested capital gains is due until date QOF investment is sold or December 31, 2026, whichever is earlier, at the then current capital gain tax rate.
Permanent Exclusion: After 10 years, permanently exclude capital gain recognition on any appreciation of the QOF investment.
This summary (“Summary”) is not an offer or sale, or a solicitation to any person to buy, of any security or investment product, nor is intended to be investment advice. The information contained in this Summary has been prepared by one or more general partners, management companies and/or other entities affiliated with Chestnut Chula Vista, LP (“Chestnut”) and is furnished on a confidential and limited basis for the sole and exclusive purpose of providing general and background information concerning private equity funds (each a “Fund”) sponsored by Chestnut or its affiliates. Any offer, sale or solicitation of securities in any Fund will be made only pursuant to a Limited Partnership Agreement (as amended and/or supplemented from time to time, and including, without limitation, the legends contained therein) and subscription documents, and will be subject to the terms and conditions contained in the Limited Partnership Agreement and such subscription documents. This Summary is qualified in its entirety by reference to any Limited Partnership Agreement.