A recent report by Cushman & Wakefield found that the 138 Opportunity Zone funds it tracks are targeting an aggregate total of more than $44 billion in equity. When some 200 smaller funds are factored in, overall capital inflows are expected to be anywhere from $100 billion to more than $6 trillion. Cushman & Wakefield also cited an MIT study that observed a 20 percent price premium for redevelopment of properties in the Opportunity Zones vs. outside the zones and a 14 percent premium on vacant development sites.
Qualified Opportunity Zones (QOZs) provide a unique opportunity for taxpayers to invest in low-income communities while also offering significant tax benefits. QOZs were included in the 2017 Federal Tax Cuts and Jobs Act (TCJA) and are designed to encourage investment and economic growth in designated low-income communities. While QOZs offer taxpayers significant tax benefits, the provisions are complicated and require careful consideration.
Opportunity zone investors are struggling with a requirement many say is bordering on outlandish—that they more than double the value of the building in which they invest in two and a half years. One solution that plenty are considering, and suggesting to their advisers, is to find ways to lower that starting value on paper.
There’s been a lot of chatter about The Opportunity Zone program and its effectiveness (or not). Though the program is still in its infancy, and a third round of guidance from the U.S. Department of the Treasury is anticipated, analysts have already started to release some metrics about the plan.
In 2017, Congress created the Opportunity Zone program to encourage investment in economically distressed parts of the United States. While the Opportunity Zone program is primarily focused on providing tax breaks for investors, emerging companies may be able to capitalize on the program as well.
The first set of proposed regulations (published in October 2018) clarified many points that are important for QOFs which own real estate located in Qualified Opportunity Zones (QOZs). However, taxpayers hoping to invest in QOFs which conduct other types of business in QOZs were left scratching their heads on several crucial questions. Fortunately, the second set of proposed regulations (published on April 2019) answered many of these questions.
This past April, the U.S. Treasury released a second set of proposed regulations relating to the qualified opportunity zone program. These proposed regulations address a wide range of issues affecting owners of real property located in “qualified opportunity zones” who want to develop their property using capital furnished by qualified opportunity zone program investors.
Opportunity zones are tax-incentivized census tracts in certain low income communities designated by the state and federal government to encourage long-term investment.
The Securities and Exchange Commission and the North American Securities Administrators Association (NASAA) have issued a summary that explains the application of the federal and state securities laws to opportunity zone investments.
Opportunity Zones have inspired hope for many, but also a growing fear. The hope is that the tax break will spur investment in distressed communities where real wages are falling and rents are rising, where small businesses are closing and inequality is widening. The fear, for proponents and critics alike, is that greedy speculators will run up the tab for taxpayers while harming current residents.