azing Am tax r helte s
1
Hurricanes Katrina and Rita, which hit the U.S. in the summer of 2005 were considered the most devestating natural disasters our counrty has ever seen. These
catastrophes had an enormous impact on the affected states’ economies. As a result, Congress approved House Bill number HR 4440 on December 16, 2005 which was signed by President Bush five days later. HR 4440, otherwise known as the Gulf Opportunity Zone Act of 2005, or the GO Zone Act, offers several federal tax benefits for commercial properties built in the regions affected by the hurricanes. These tax incentives are being offered by the federal government to help restore normal life in the affected states. The GO Zone Act applies to certain specific cities, counties, and states, including Mississippi.
2
in the Mississippi GO Zone
The federal and state governments have implemented some very aggressive incentives for those who want to invest in Mississippi. 1. Uncle Sam needs you! The federal government has implemented some amazing tax incentives for those who help rebuild the GO Zone area of Mississippi. An investor can claim a federal 50% BONUS DEPRECIATION on a new property put into rental service prior to the December 31, 2010 deadline. For example, let’s say a buyer purchases a $269,000 pre-construction duplex, and then rents it out. Let’s assume the value of the land is 20% and the remaining 80% ($215,200) is the actual structure. The buyer could claim a bonus depreciation deduction of $107,600 (in addition to the normal $7,825), for a total depreciation deduction of $115,425 for tax purposes. If the buyer is in the 35% tax bracket, that could equate to a tax savings of $40,398. WOW! If you bought 2, 3 or more properties, you would receive similar bonus depreciations on each property. As you can see, it might be possible to offset all of your taxable income!! Of course, the ability to use all the bonus depreciation depends on each buyer’s circumstances, and it may be possible to carry over unused depreciation into the next tax year, or get a rebate for it from prior tax years. (Please consult your tax advisor.) 2. The people of Mississippi need you! The State of Mississippi has implemented the Small Rental Assistance Program (SRAP). In general, this is how it works: If you buy a pre-construction rental property and place it in the SRAP rental program for 5 years, the Mississippi state government will give you up to $73,000 in cash per 3-bedroom duplex, if construction of your property is completed within 6 months from the time you applied to the program. (Subject to other restrictions.)
Two Reasons to Invest
3
Why Mississippi?
Although New Orleans received the lion’s share of news coverage in the aftermath of Hurricane Katrina, other areas of the Gulf Coast were hit just as hard. After the hurricane, the governor of Mississippi described Biloxi as an American version of the atomic bombing of Hiroshima. Casino barges were literally lifted out of the water, and the BiloxiOcean Springs Bridge was almost entirely destroyed. However, the city is staging a dramatic, well-planned comeback. Because Mississippi is starting from an almost blank slate - 90% of ocean front buildings were destroyed there is plenty of opportunity. Biloxi is being rebuilt from the ground up, basically creating an entirely new waterfront city. An estimated 55,000 new homes will need to be built in the next few years, and fewer than 10,000 (less than 18%) of these homes have already been built. The creation of an almost entirely new ocean front city is unprecedented in modern American history, as most ocean front real estate was developed years ago. This is a rare chance to create a brand new community, with none of the problems and disadvantages of real estate that was developed in accordance with 19th- and 20thcentry standards, not 21st-century standards. It’s not much of a secret that more and more people will be visiting Biloxi in the near future.
“... proven catalysts for economic growth and real estate appreciation ...”
The Biloxi-Ocean Springs Bridge is being rebuilt now, and once again will provide easy highway access to Biloxi when it re-opens this winter. Gulfport-Biloxi International Airport is already seeing 20% more passengers than the 2005 passenger tally. The airport is also undergoing a major, $51 million expansion, to be finished this year, which will increase terminal square footage by 80%, as well as allow access to two more airlines. These are proven catalysts for economic growth and real estate appreciation. Why are so many people coming to Biloxi, though? Biloxi is well-known for its numerous casinos, many of which were temporarily shut down following Katrina. Seven of the nine casinos have already re-opened, and there are plans to add 10 more in the near future. A change in Mississippi state law allowing the casinos, formerly restricted to barges, to be built on land has resulted in an influx of billions of dollars from the casino industry. Just one example of the new casino resorts is the Harrah’s Entertainment-Jimmy Buffet joint project, Margaritaville. This is an oceanfront casino resort with a first phase budget of $700 million, and may eventually cost $1.3
billion. In fact, casino companies have purchased 175 acres of real estate for expansion purposes since Katrina, and experts are predicting that the number of casino workers will double to 30,000 within the next few years. Even with the wide-ranging construction (and reconstruction), casinos have shown record revenues in nine of the last 11 months. Unfortunately, even with the broad economic success of the casinos, many casino workers are still living in FEMA-provided trailers and other sub-standard housing. There is simply not enough housing to provide space to all of the workers. The combination of more and more casino workers and more and more tourists visiting Biloxi results an increased demand for housing, and the supply of housing is not growing nearly as quickly as the demand. Economics 101 tells us that when demand increases faster than supply, prices go up, and that is exactly what is happening to rental prices today. Approximately 60% of casino workers rent, and rental properties are now being leased for 10 to 20% over market value only a few days after they go on the market. This appears to be a “perfect storm” of favorable factors for Biloxi: casino-fueled economic growth; low supply coupled with high demand for housing; transportation system upgrades; and “smart money” purchases of real estate and investments in casino-bulding. Biloxi could also be the perfect investment.
4
Reasons To Invest
In Biloxi, Mississippi
BILOXI IS A SOLID GROWTH AREA IN TODAY’S VOLATILE REAL ESTATE MARKET
In 2006, Biloxi was one of the top three best-performing markets in the United States, with an increase of 15.7% in the price of an average house over a one-year period. A recent article on CNN Money lists Biloxi as one of the metropolitan areas unaffected by the nationwide real estate downturn.
BILOXI’S CASINOS ARE PROVIDING A POWERFUL CATALYST FOR REAL ESTATE PRICES
After the devastation of Hurricane Katrina, the Mississippi government passed a law allowing the formerly barge-based casinos to be built on dry land. This has fueled massive growth in the casino industry of Biloxi. Two years after Katrina, eight casinos are already open, and twelve more have been proposed or are under construction. The Gulfport-Biloxi region is estimated to be the third-largest casino district in the United States. Each casino employs an average of 2,200 people, of which, approximately 60% will rent their homes. This surge in demand will be facing limited supply in the housing market, which should increase the value of real estate.
THERE IS A CRITICAL SHORTAGE AND URGENT DEMAND FOR HOUSING IN THE REGION
Hurricane Katrina destroyed more than 65,000 homes and 47,000 rental properties. Altogether, 101,000 Mississippi residents are living in FEMA trailers this totals approximately 80,000 people on the Mississippi Gulf Coast alone. However, business has continued, and employees need to live somewhere. As FEMA programs come to an end, over 30,000 families will soon be evicted from government trailers and will require affordable housing.
BOTH THE FEDERAL AND STATE GOVERNMENTS ARE PROVIDING GENEROUS INVESTOR INCENTIVES
Due to the incredible need for housing in the region, government assistance has been made readily available. There is a federal bonus depreciation allowance available, as well as up to $40,000 per four-bedroom residence through the Mississippi Small Rental Assistance Program. In total, there is $260 million of government assistance to encourage real estate investment in the region.
MISSISSIPPI’S ECONOMY IN GENERAL, AND BILOXI’S IN PARTICULAR, IS RAPIDLY EXPANDING
Mississippi has recovered and is economically stronger than before Katrina, as measured by gross state product and employment figures. Aside from casinos, detailed below, other industries are growing rapidly. Local employers, including the Northrop Grumman Ingalls Shipyard, Dupont, Triton Systems, Chevron, and GE Plastics are constantly searching for employees. There is a significant military presence in the region as well, including Keasler Air Force Base, which provides $1.2 billion in economic impact annually via 86,000 military and civilian employees and families.
5
Biloxi Casinos
“Biloxi’s casinos reported March 19, $86.2 million in gross gaming revenue in February, the largest February in the city’s gaming history, according to figures released by the mayor’s office.”
- Gulf Coast News (May 19, 2007)
“Harrah’s Entertainment and world-renowned singersongwriter Jimmy Buffett unveil plans for Margaritaville Casino & Resort, a $700-million-plus investment that represents the single largest investment in Mississippi since Hurricane Katrina.”
- Gulf Coast News (May 19, 2007)
For more information on the revival of the post-Katrina casino industry, visit www.gulfcoastnews.com and click on “Current Casino Plans”
6
The need for affordable and habitable housing is critical, and the government has made $260 million available to encourage investors.
FEMA programs are ending, evicting over 30,000 families from temporary trailers, where they have been living since the hurricane disaster. GOVERNMENT ASSISTANCE can help builders and investors develop new properties. Currently, over $260 million is available to encourage the construction of affordable rental housing. MORE THAN 101,000 Mississippians still live in government trailers, and over 40,000 families live in temporary housing with family or friends.
“Yet amid primitive living conditions, promising signs of Mississippi’s comeback are emerging. Federal money to help homeowners rebuild is pouring in, bridges are being replaced and hotel casinos reopened. Schools are ready for children to return.” -USA TODAY (June 25, 2006)
Casinos
Driving Robust Economic Activity
Casinos Driving A Rebirth Of The Once-Ravaged Region The extensive rebuilding after Hurricane Katrina has encouraged the growth of this important economic asset. LARGE-SCALE CASINO EXPANSION is now taking place. After Katrina, laws were changed allowing casinos to be built on dry land, ending the barge-only restriction. Currently 8 casinos are open in Biloxi, with 4 under construction, and 8 more proposed. Casinos are also open and operating in Hancock County, Bay St. Louis, and Gulfport. The casinos employ thousands of people - on average 2200 per casino - who will need affordable housing.
7
• Casino industry expected to require 40,000 employees • 12 Casinos within 30 miles • Will be 3rd largest casino industry in the US - Tourism expanding due to Baby Boomers and casinos - Defense industry infrastructure repaired and growing; significant military presence in the area - Long term outlook is promising, but some challenges remain - Rental absorption far exceeds inventory - Large employers in the area include Northrup Grumman, Chevron, Dupont, Triton Systems, and GE Plastics
THOUSANDS OF PEOPLE will be working at these hotels, and other tourist attractions. They have to live somewhere, and they have to be able to afford their homes! Currently the shortage of affordable housing is acute. This translates into a great opportunity for those who understand the future of the housing and property markets in the Biloxi area.
NASA adding a research facility; shipyard coming in with several thousand jobs
1 BEAU RIVAGE RESORT & CASINO - opened August 2006 2 SILVER SLIPPER - opened November 2006 3 ISLAND VIEW - opened August 2006 4 HOLLYWOOD CASINO - opened August 2006 5 BILOXI GRAND - opened August 2006 6 IP CASINO RESORT AND SPA - opened December 2005 7 ISLE OF CAPRI - opened December 2005 8 PALACE CASINO RESORT - opened December 2005 9 BOOMTOWN CASINO - opened June 2006 10 TREASURE BAY - opens Summer 2007 11 HARD ROCK HOTEL AND CASINO - scheduled to open July 2007 12 ROYAL D’IBERVILLE CASINO AND HOTEL - approved for construction 13 BACARAN BAY CASINO RESORT - $500 million project scheduled for Fall 2008 14 BROADWATER - $1 billion project including casino, golf course, 3,375 condominiums, 1,900 hotel rooms 15 Harrah’s - acquisition of old Casino Magic Resort 16 Proposed - Casino Resort & golf course 17 Proposed - Casino Condo/Hotel & Marina PLUS - several casinos listed above are expanding their facilities to include convention space, ballrooms, and other facilities.
Mississippi Gulf Coast Target Investment Area
Developer is offering a range of single-family homes and a duplex model.
Hancock County
Hancock County is about 20 miles west of downtown Biloxi. We are focusing on Bayside Park in this county. Bayside Park is a new subdivision on the edge of Bay St. Louis. This County was hit hard by the storm, but is making a strong comeback. Most of the commercial stores like Wal-Mart, Lowes and Home Depot have been restored and open for business. There are also several large employers nearby such as the NASA Stennis Space Center, Hancock County Hospital (3 miles) and Dupont Industrial Park (7 miles). This is a scattered lot development with about 7,000 lots available. It is designed as a scattered lot development to keep the aesthetic appeal unique. This is an upcoming area with affordable lots that allow investors to maximize their leverage and cash flow.
9
Concrete Construction
The Washington The Washington0 24,00 $1
starting at
10
Concrete Construction
The Washington II The Washington II00 0
$132,
11
Concrete Construction
The Adams The Adams
05,000 $2
12
Concrete Construction
The Jefferson The Jefferson
4,000 $21
The Lincoln Lincoln The Duplex218,000 The
starting at
Concrete Construction
$
Additional Additional Information Information
All prices, floor plans, and dimensions in this document are subject to change without notice. Use of GO Zone bonus depreciation will vary, depending on each buyer’s individual circumstances. Consult with your tax advisor. Nothing in this document may be relied upon as tax advice, and no statements herein are made for the purpose of tax avoidance. The Mississippi Small Rental Assistance Program must be applied for, and is subject to approval by government agencies. All incentive programs and loan programs are subject to restrictions and change without notice. All information in this document regarding government programs, market demographics, market economics, and future expectations is from third-party sources, and has not been independently verified. Buyers are responsible for conducting their own diligence, and may not rely solely on the information herein. This document contains forward-looking statements; any forward looking statements are based on assumptions, and are speculative. Forward looking statements, by their nature, involve substantial risks and uncertainties, and actual results may differ materially, depending on a variety of factors. Appraisals and property values may change significantly over time.
15