Over the past eight years our experience and success with real estate, tax lien certificates and tax deeds has led to the natural evolution of our business into related fields, including Community Development District bonds (CDDs), foreclosures, distressed debt and real estate auctions.Invest with US >
The former Biscayne Chemical Site (“the Property”) is a 2.5 acre parcel located at 690 NW 13th St, in the Allapatah neighborhood of Miami Florida, directly adjacent to Booker T. Washington High School. Allapatah is bordered by Downtown Miami to the east as well as the surging Wynwood and Miami Medical Center Districts to the north. The site is situated caddy corner to the Culmer Metrorail Station, which provides direct access to Downtown Miami. The property was operated as a chemical distribution plant from the 1940’s through the spring of 2000. Following the plant’s closure, petroleum hydrocarbon contamination was discovered on site and subsequently remediated. In 2017, the Florida Department of Environmental Protection issued a “Site Rehabilitation Completion Order”, providing specific guidelines to complete the remediation and redevelopment of the Property.
In 2019, KCP entered into a joint venture with Goldstein Brownfields Group (“the Partnership”) to analyze the acquisition of the property. Having provided legal counsel to the property owner in the past, Goldstein Brownfields Group originally identified the site and was intimately familiar with its environmental concerns and lucrative redevelopment scenarios.
Prior to acquisition, the Partnership commissioned Phase I and Phase II environmental studies to determine the extent of remaining contamination, cost of ongoing cleanup and to secure all available forms of liability protection. Pre acquisition due diligence also included the engagement of Holland & Knight (“H&K”), Miami’s premier land use attorneys. H&K coordinated with City of Miami zoning officials to address the drastic shortage of “attainable” or “work force” housing within the area. Given the site’s proximity to the public transit, it became a logical candidate to receive a density increase from 150 multifamily units per acre to 300.
After underwriting environmental cleanup costs and securing liability protection, the Partnership closed on the Property in October 2019 with assurances that the City of Miami would cooperate with efforts to change the zoning to high density residential. Since that time, the remediation and redevelopment timeline has already hit significant milestones ahead of schedule. Ground water remediation efforts from November and December of 2019 have ongoing reports indicating site remediation is ahead of schedule with completion now anticipated by as early as June 2020. The City of Miami is actively reviewing the Property’s zoning application while H & K addresses any of their ongoing requests. Zoning approvals are currently anticipated by May of 2020. Following the successful completion of environmental remediation and rezoning, the Property will be marketed for sale in July 2020.
Established in 2006, Pine Ridge Plantation Community Development District (CDD) is a 740-acre gated residential community located in Clay County, FL in the southwestern portion of the Jacksonville MSA. The community originally consisted of 736 single-family lots, which were sold to a regional homebuilder. From 2006 – 2008, 400 of these lots were improved with single-family houses and sold to end-users. However, following the housing crisis of 2008, 336 of the lots remained unimproved. The regional homebuilder eventually ceased payment of their property taxes as well as their annual CDD bond payments causing the lots to fall into default.
By 2014, KCP was actively acquiring tax certificates within functioning CDDs in large metropolitan MSAs. After analyzing the robust Duval and Clay County housing trends, the firm began to acquire tax deed eligible certificates on 171 of the 336 unimproved lots remaining within the Pine Ridge Plantation at a significant discount to their par / redemptive value. Simultaneously, KCP negotiated the discounted purchase of numerous lots, which had been acquired by third party investors at tax deed auction. In 2017, the defaulting property owner approached KCP with the intention of reaching a discounted settlement. After extensive negotiations, KCP agreed to sell all tax-deed eligible certificates and tax deeds to the property owner in exchange for a sum well in excess of the net purchase price and accrued interest. By acquiring property tax certificates within a recently constructed CDD in the Jacksonville MSA, KPC was able to acquire significant interest income with minimal downside risk.
Established in 2000, Spring Ridge Community Development District (CDD) is a gated residential community located in Southern Hernando County. The community originally consisted of 550 single-family lots, which were sold to various homebuilders. From 2000 – 2008, 360 of these lots were improved with single-family houses and sold to end-users. However, following the housing crisis of 2008, 190 of the lots remained unimproved by the various homebuilding entities. These homebuilders eventually ceased payment of their property taxes as well as their annual CDD bond payments causing the lots to fall into default.
By 2014, the Hernando County residential housing market was in full recovery. KCP began to acquire tax deed eligible liens on the 190 unimproved lots remaining within the District at a significant discount to their par / redemptive value. Simultaneously, KCP negotiated the discounted purchase of $3.8mm in corollary tax exempt, fixed-income bonds secured by the properties. KCP coordinated with the previous property owners, the District’sBoard of Directors, the District Attorney, institutional bond owners, and Hernando County to secure marketable title to the properties. In November 2017, KPC successfully sold the properties to LGI, a publicly traded homebuilder, realizing a significant return to its investment fund.
Fund I was the first tax certificate investment opportunity launched by the principals of KTLC. Fund I was a closed end investment company whose diverse portfolio consisted of Florida tax certificates in four different counties on multiple property types with an average interest rate of 18%, and two Colorado counties with an average interest rate of 10%. Fund I was liquidated in the first quarter of 2011 providing investors with a 14.1% annualized return on their invested capital.
Annualized return on invested capital
Fund II was the second tax certificate investment opportunity launched by the principals of KTLC. This fund dramatically increased the size and diversification of KTLC’s overall portfolio. This Fund's portfolio consisted of over 4,000 tax certificates in twenty-seven different counties on multiple property types with an average interest rate of 13%. Fund II was liquidated in the first quarter of 2012 providing investors with a 14.7% annualized returnon invested capital.
Annualized return on invested capital
Fund III was the third investment opportunity launched by the principles of KTLC. Fund III consists of over 4,000 tax certificates in thirty-five different counties on multiple property types with an average interest rate of 13%. Fund III was also liquidated in the first quarter of 2012 providing investors with a 9.2%annualized return on invested capital.
Annualized return on invested capital
Fund IV is the fourth and current tax certificate investment opportunity launched by the principals. The structure of Fund IV has evolved from the previous Funds. The new structure includes an increased term length of seven years and allows investors the opportunity to add and remove capital bi-annually on a limited basis. This flexibility allows the investor to have increased liquidity and provides the Fund with windows for capital injections as opportunities arise. Based on the most recent quarterly report, Fund IV has grown 10.1% since inception and is projected to return over 14% on an annualized basis through its full term.
Growth since inception (as of xx/xx/xx)
Estimated annualized return through full term
Partnerships formed for the acquisition of tax deeds, foreclosure and other distressed real estate are too extensive to list here and are made available to a limited group of selected investors.
Introduced to Florida in 1980, Community Development Districts (CDDs) present an alternative mechanism for real estate developers to finance, construct and maintain the necessary infrastructure to horizontally develop a community. This includes the construction of roads, sewers, electrical grids, clubhouses, golf courses and other amenities. Noteworthy CDDs include:
Instead of securing a traditional bank loan to finance this construction, CDDs allow developers to create a special purpose quasi-legislative government for the community. This enables developers to issue tax-exempt bonds that are collateralized by the underlying real estate without incurring upfront development costs. The total debt of the bond issuance is allocated proportionately among each platted property within the CDD. Known as debt special assessments, the principal and interest are collected on each property over the course of 30 years to ultimately repay the bondholders in full. The obligation to pay this debt special assessment passes with the property’s chain of title from the developer to the homebuilder and, finally, to the homeowner(s).
In addition to debt special assessments, the CDD may issue a second special assessment to fund to community’s operations and maintenance (O&M assessment). This amount is calculated annually and ensures the District’s property and infrastructure is adequately maintained. Property owners are obligated to satisfy debt and O&M assessments along with their annual property taxes as a “non ad valorem” line item on their tax bill.
Since 1980, CDDs have evolved into the preferred financing mechanism for residential developers. The bond debt’s affordable interest rates and low up-front financing costs permit developers to offer upgraded amenities and higher construction standards to homeowners while responsibly funding the community’s ongoing operation and maintenance. These communities have provided an effective means for growth within the State of Florida by providing a mutually beneficial solution to developers and homeowners alike.
The acquisition of tax certificates on property within a Community Development District (CDD) can provide an investor with a significant return under the right circumstances. Under the wrong circumstances without a proper understanding of thorough due diligence, investing in CDDs can be catastrophic.
When a property owner fails to pay property taxes, a tax certificate is sold at a tax lien auction to the lowest bidder. If the property owner fails to pay the taxes and corollary interest within 22 months, the bidder may elect to send the property to foreclosure via a tax deed auction. The winning tax deed bidder emerges from the auction with title to the property.
In most cases, the tax deed auction process administratively extinguishes any encumbrances on the property including mortgages and construction liens. Because of their unique composition, CDD tax deeds are an exception to this rule. Similar to a typical tax deed auction, when a CDD property is auctioned at a tax deed sale the winning bidder may take immediate possession of the property following payment. Unlike a traditional property, however, the delinquent and future CDD assessments (both debt and O&M) survive the tax deed sale. Because the annual debt assessments were not paid when due, the entirety of the delinquent and future debt assessments are accelerated and due immediately.
Following the global economic recession of 2008, property owners of all types struggled to pay annual property taxes. Among the most adversely impacted asset classes were unimproved lots within CDDs. Of the 600+ CDDs in Florida, over 400 were created between 2003 and 2008. As institutional lending for new home construction disappeared, CDD developers were unable to sell their finished lots to homebuilders.
These developers were left with a difficult decision: continue to pay the property taxes, debt special assessments, and O&M associated with their properties, grant a deed in lieu of foreclosure to the District, or abandon the property altogether. In most cases, developers elected to sign a deed in lieu of foreclosure, thus transferring title to the District. Without any source of O&M income from property owners, these CDDs often fell into disrepair and operated with large deficits. This left the State with vast a surplus of undeveloped and unimproved lots within hundreds of newly founded CDDs.
In the years following the recession, uninformed tax lien investors purchased property tax liens on thousands of improved (fully developed but without a house) lots within CDDs throughout the State. Unaware that the CDD debt survived the tax deed auction, these investors left County auctions satisfied that they were the owners of a developed lots within a gated community at a significant discount to market prices. Upon realizing their error, these tax lien investors sought to recoup their investment by selling their liens; often at a significant discount.
In this chaos, KCP saw an opportunity to track new housing starts within defunct CDDS. As homebuilders and bondholders negotiated deals to resurrect defunct CDDs, KCP simultaneously acquired tax certificates for the properties within the corollary community. This typically resulted in the realization of significant ROI in very short periods of time.
Since the complete rebound of the real estate market in Florida, opportunities to acquire high yield tax certificates within CDDs have subsided. KCP continues to monitor new CDD bond issuances and the overall trends for new housing starts. As opportunities emerge, the firm will remain on the forefront of this lucrative investment opportunity.
Created under the 2017 Tax Cuts and Jobs Act, Opportunity Zones are economically stigmatized communities that are privy to additional tax incentives intended to catalyze new development, additional commerce and employment. This initiative allows investor developers to diminish capital gains taxation and future appreciation by reducing their rate of taxation. These incentives are most beneficial when developers construct and hold the property for ten year or more.
In response to this legislation, KPC entered into a joint venture with environmental attorney Michael Goldstein to form Goldstein Kite Environmental investment fund (GKE). The fund was created to finance the acquisition, remediation, and redevelopment of Brownfield properties throughout the Southeast United States. Not coincidentally, many historically industrial submarkets were designated as opportunity zones to address a high concentration of environmentally contaminated and Brownfield properties.
Brownfield properties are the beneficiaries of significant development incentives including tax credits, which can provide up to 90% reimbursement for environmental remediation and horizontal development costs. Brownfields located within an opportunity zone, however, are the recipient of the capital gains incentives in addition to their Brownfield tax credits.
In October 2019, the partnership acquired the Former Biscayne Chemical site, a former chemical distribution facility located within an opportunity zone in the Allapatah neighborhood of Miami, FL. The Florida Department of Environmental Protection recognizes the property as eligible for the Brownfield Site Rehabilitation Act. As remediation and redevelopment occur, GKE continues to source additional properties, which suit this unique criteria.
KCP primarily adds value to its investments through the negotiation and reduction of outstanding debt, increasing or improving density and remediating environmental liabilities. In addition to these services, KPC is an active developer throughout Florida, specifically when investment properties meet certain criteria.
KCP focuses on the acquisition and development properties in Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina and Tennessee.
KCP focuses on the acquisition of properties eligible for the EPA’s Brownfields & Land Revitalization Program. Additionally, the firm will consider certain non-Brownfield acquisitions within opportunity zones.
Prior to the development of a commercial property or residential community, developers are required to coordinate with local municipalities to ensure that the property’s proposed use meets local codes. This may include modifications to the zoning and overall density. Navigating this process may be extremely complicated as regulations vary by municipality. In many cases, developers experience significant setbacks, which disrupt their development schedule causing significant unforeseen costs.
With extensive backgrounds in property development and real estate law, KCP co-founders have overseen the horizontal construction of various commercial and residential developments. Prior to founding KCP, Kelly Kite oversaw the ground-up development of numerous nationally branded hospitality properties. His responsibilities included land acquisition, coordination of zoning, and entitlement changes with local municipalities and construction. As the former President of the Indian River County Board of Realtors, Joseph Schlitt worked closely with residential developers as they brought new communities through the entitlement process.
Since 2009, KCP professionals have successfully worked with local municipalities throughout the State in obtaining development approvals for a wide array of real estate asset classes. The firm has familiarized itself with this process while forming important relationships on the City, County and State levels. Additionally, KCP has forged long lasting relationships with industry leading engineers, attorneys and consultants. With unparalleled experience and strong local relationships, KCP is able to seek development approvals quickly and efficiently.