Kunst, a real estate development company in Cincinnati, Ohio, is raising a $10 million fund to invest in more downtown Cincinnati buildings. Unlike the story that we all keep hearing—that cities have died with COVID—Kunst knows that is not the case.
Since 2014, Kunst has raised more than $2.2 million in prior funding, which it has invested in 11 historic multi-unit buildings in Over-the-Rhine and the central business district in Cincinnati, the two main downtown neighborhoods, which since the early 2000s have undergone a major revitalization.
The company is poIsed to grow, especially since there are still many vacant buildings in need of investment in downtown Cincinnati. Over-the-Rhine—now Cincinnati’s most expensive neighborhood—remains especially popular for renters, even through the pandemic.
Founded in 2014, Kunst invests in and redevelops buildings with a narrow focus on historic downtown properties, turning vacant structures into multi-family apartments which have an occupancy above 97 percent. To date, it has renovated four buildings in Over-the-Rhine, resulting in 30 new apartments plus commercial space. Within this year and next, seven ongoing projects will bring an additional 56 apartments and two commercial spaces to the downtown area.
Founder and chief executive officer John Blatchford is now raising a fund to develop around 250 apartments across 10 buildings in Over-the-Rhine and downtown. A typical Kunst project requires $300,000 to $500,000, depending on the size, with larger buildings requiring more capital. For its $10 million fund, Kunst is looking for investors to contribute $50,000 or more. The fund will close March 31, 2021. Kunst will take only a general contractor and a startup fee, leaving behind all other fees typical to real estate investing.
“Our goal is really, really simple: to help rebuild a great city and to make investors amazing returns on their investments,” says Blatchford. “On the buy side, there are a lot of distressed properties downtown. Office and commercial use there is down for the foreseeable future because of COVID, so it is a great time to buy properties for a good price and renovate them into multi-units, which are still in high demand here even with COVID. People always need a place to live.”
The company holds buildings for the long term (10+ years) and has made extensive use of historic preservation tax credits, winning them for every project—$3.5 million thus far. The majority of Kunst projects are also in Opportunity Zones, and all have earned city commercial tax abatements.
“These incentives,” Blatchford says, “take a lot of market risk out of the projects and make the projects really profitable for us and our investors.”
Kunst’s use of these incentives sets it apart from other Cincinnati developers. Historic tax credits not only subsidize a considerable portion of the renovation but they also result in unique and handsome apartments that are particularly popular with renters. Furthermore, Kunst is able to offer apartments at accessible prices while still earning competitive returns for its investors.
“It’s all about density,” Blatchford comments. “We turned one building in Over-the-Rhine into three three-bedroom apartments, allowing nine different people—strangers to each other—to each rent a private 300-square-foot-room for around $500. Suddenly, living in Over-the-Rhine becomes affordable again for many people.”
Kunst offers apartments that are smaller—300 to 700 square feet on average—and since people pay per square foot, they pay less for rent. That density not only encourages affordability in downtown Cincinnati but it encourages community.
“We want to help bring as many people back to the urban core as possible,” Blatchford says. For investors, even though a Kunst resident is paying, for example, only $500 a month, the building’s density means that multiple people are paying that amount, making the building highly profitable.
The Over-the-Rhine neighborhood—once a dense immigrant enclave—reached a peak population of 44,475 in 1900 and thereafter lost population as Cincinnatians moved to outer suburbs throughout the 20th century. The downtown central business district suffered a similar fate, with businesses moving to suburbs. Despite the in-migration of Appalachian and African-American families to Over-the-Rhine, it never regained its peak population.
Over-the-Rhine’s nadir was in the 1990s, when the population had shrunk to under 10,000 and the average median income was just $5,000, compared to the city’s $21,006 median income. At that time, over one-fourth of the neighborhood’s buildings sat vacant.
Reinvestment in Cincinnati’s downtown basin began around 2000 when—like other Midwestern cities—the city of Cincinnati and private developers realized the area’s potential for growth and improvement. Public and private development targeted Over-the-Rhine—a national historic district and one of the most intact in the nation—for redevelopment which has since spurred many people and businesses to move to the basin. Kunst has been a part of this renaissance since its founding in 2014.