Key Takeaways
- • M31 Capital, a San Francisco-based real estate company, has launched a $25 million Opportunity Fund, Morpheus Qualified Opportunity Zone Fund 1, to acquire vacant and underutilized apartment and mixed-use properties in the San Francisco Bay Area.
- • The fund targets restoring properties as entry-level workforce housing, with a goal of returning up to 150 unused or underutilized rental units to the market.
- • Morpheus 1 will invest across the Bay Area's roughly 80 Opportunity Zones, which offer tax benefits under the 2017 Tax Cuts and Jobs Act contingent on a 10-year hold period.
- • M31 is seeding the fund with its own capital and has about $12 million in soft commitments from existing investors, per ImpactAlpha.
- • M31 does not market Morpheus 1 as an impact fund; it has not set measurable impact targets, though the firm says it is applying emerging Opportunity Zone impact frameworks.
Summary
San Francisco-based real estate company M31 Capital has launched a $25 million Opportunity Fund to buy vacant and underutilized apartment and mixed-use properties in the San Francisco Bay Area and restore them as entry-level workforce housing, according to ImpactAlpha. The vehicle, Morpheus Qualified Opportunity Zone Fund 1, will invest across the region's roughly 80 Opportunity Zones, which were designated under the 2017 Tax Cuts and Jobs Act to provide real estate and investment tax benefits. The legislation requires investments to be held for 10 years to qualify for the full tax advantages.
ImpactAlpha reports that M31 does not represent Morpheus 1 as an impact fund. The firm has not set measurable impact outcomes or built impact into the investment thesis, although M31 is employing emerging Opportunity Zone impact frameworks for the fund at present. Taylor Lembi, M31 Capital's representative quoted by ImpactAlpha, said the company's focus is returning up to 150 unused and underutilized rental units to the market. Lembi argued that the 10-year holding requirement keeps capital in the communities it serves, stating that "the money stays in the communities that need it."
M31 has been involved in $3 billion in real estate transactions, including acquisitions, redevelopments, management and financing, since launching in 2016. Its strategy is to acquire blighted properties, renovate them, and reintroduce middle-income rental units in a metro area with a severe housing shortage. The firm targets workforce housing built in the 1920s and 1930s, which can be converted into studio and one-bedroom apartments for young professionals earning around the area's average salary. Lembi declined to specify an income range for target tenants but said it tracks with median incomes, which ImpactAlpha notes range from $63,000 to $122,000 in the Bay Area.
M31 had already focused on many Bay Area communities later designated as Opportunity Zones, and the company says all Morpheus 1 investments will be economically sound even without the tax incentives. In that sense, Opportunity Zone status affects the fund's capital commitment requirements and potential investor benefits but not its underlying investment thesis. M31 is seeding the fund with its own capital and has soft commitments of about $12 million from existing investors.
ImpactAlpha reports that M31 does not represent Morpheus 1 as an impact fund. The firm has not set measurable impact outcomes or built impact into the investment thesis, although M31 is employing emerging Opportunity Zone impact frameworks for the fund at present. Taylor Lembi, M31 Capital's representative quoted by ImpactAlpha, said the company's focus is returning up to 150 unused and underutilized rental units to the market. Lembi argued that the 10-year holding requirement keeps capital in the communities it serves, stating that "the money stays in the communities that need it."
M31 has been involved in $3 billion in real estate transactions, including acquisitions, redevelopments, management and financing, since launching in 2016. Its strategy is to acquire blighted properties, renovate them, and reintroduce middle-income rental units in a metro area with a severe housing shortage. The firm targets workforce housing built in the 1920s and 1930s, which can be converted into studio and one-bedroom apartments for young professionals earning around the area's average salary. Lembi declined to specify an income range for target tenants but said it tracks with median incomes, which ImpactAlpha notes range from $63,000 to $122,000 in the Bay Area.
M31 had already focused on many Bay Area communities later designated as Opportunity Zones, and the company says all Morpheus 1 investments will be economically sound even without the tax incentives. In that sense, Opportunity Zone status affects the fund's capital commitment requirements and potential investor benefits but not its underlying investment thesis. M31 is seeding the fund with its own capital and has soft commitments of about $12 million from existing investors.
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