Boston Business Journal, Oct 10, 2019
By Greg Ryan, Law & Marketing Reporter
Newton-based Cherrytree Group LLC is seeking to raise up to $145 million for investments in real estate projects located in so-called Opportunity Zones, including three in Massachusetts.
The Opportunity Zones program is part of the federal tax overhaul signed into law by President Donald Trump in 2017. The zones are supposed to be in low-income communities in need of an economic boost.
By investing in a real estate project or in a business located in an Opportunity Zone, investors can realize significant tax savings under the program.
So far in Massachusetts, the program has generated more in hypothetical interest than it has in actual investments, even though the Baker administration, with the federal government’s blessing, has designated 138 such zones in Boston, Lowell, Lynn and 76 other cities and towns across the state.
Cherrytree has emerged as one of the local investment firms most active in the space. It specializes in real estate projects that are eligible for tax credits, including those related to renewable energy and the rehabilitation of historic buildings. Cherrytree helps developers and property owners secure the credits from the government, and investors buy or sell the credits.
The firm has created a fund specifically for projects in Opportunity Zones. When the program was passed into law, Cherrytree President Warren Kirshenbaum saw a natural link with the tax credits the firm usually works on, he said.
“What we did was to think how Opportunity Zones could benefit tax credit projects, and make it easier to raise equity for tax credit projects,” he said.
Kirschenbaum and his firm have already identified projects to receive the funding. If the fundraising is successful, most of the money — about $92 million, according to Kirshenbaum — is intended for the construction of market-rate apartments in Florida. Cherrytree decided to go with Florida for a market-rate project because, compared with Massachusetts Opportunity Zones, “that’s where we find the long-term
appreciation,” Kirschenbaum said.
The three Massachusetts projects come with tax credits, he said. One is the rehabilitation of the Paramount Theater and Massasoit House Hotel in Springfield, which the developer and politicians alike see as a potential catalyst for revitalizing that city’s downtown. Cherrytree is tentatively aiming to use $15 million to $20 million from the fund for that project.
The firm is working with the developer that wants to renovate the Lowell Legacy Hotel, in that city’s downtown district. Kirschenbaum estimated that approximately $13 million of the fund would go toward the hotel, which is expected to house more than 50 rooms.
Another $3 million or so would fund apartments in Fitchburg reserved for people recovering from addiction to substances like alcohol and opioids, with the building providing certain support services, according to Kirschenbaum. The remainder of the fund is intended for a tax credit-related project in Wisconsin.
“We’ve tried to do things that have a social purpose as well, together with the obvious need to generate returns for the investors,” he said.
Kirshenbaum hopes to complete fundraising in the first half of 2020, with an aim to close on up to $20 million by the end of 2019, he said. Cherrytree typically seeks out wealthy individuals and family offices as investors, rather than institutional investors.