On January 10, 2019, we held a CoffeeTalk to hear more about Opportunity Zones.  A special thank you to our panelists: Bobbi Jo Lazarus, Elliott Davis, Dennis McGlory, SunCap Property Group, and Clark Spencer, Grubb Properties.  Several of the takeaways are highlighted below:

RECAP:  CoffeeTalk:  Opportunity Zones

Overview –
Opportunity Zone program was established in 2017 by Congress to encourage long-term investments in low-income areas nationwide.

• Capital gains re-invest, for tax purposes.
• Zone qualifications have certain requirements established by the US Government
• The misconception that Opportunity Zones are rural areas – many are in desirable urban areas
  • The zones were drawn based on the 2010 census, so many areas have already drastically changed since then.
  • Zones are not anticipated to be redrawn or changed, but adding disaster zones is under consideration.
• Benefits:
  • Gain deferral
  • Partial forgiveness
  • Additional forgiveness
• Qualifications:
  • Investors have to have a capital gain and must reinvest that gain into a fund
  • Investors can be an entity or an individual
  • The 180-day window from capital gain to investment
  • Not “all or nothing” – can invest part of the capital gain
  • At the fund level, 90 percent of assets must be invested in the OZ property

SunCap Property Group Example:

• SunCap Property Group is developing a mixed use property in Morgantown, WV (apartments, retail)
• Not a large project – another common misconception that it has to be a large project. Small can have impact!
• One block over would be outside the opportunity zone – got very lucky.
• Unsure it would qualify as an Opportunity Zone at first, but it was a good investment regardless. The OZ factor was the icing on the cake – made a good deal great.

Grubb Properties Example:

• Property in Winston Salem, NC on 4^th Street in an OZ.
• Vibrant district – not what one would think of as an Opportunity Zone.
• The city is also offering an incentive to invest here, so Grubb will end up with a 15 year tax abatement.
• Grubb plans to work with community partners to fight gentrification.

Some OZ Program Issues:

• IRS OZ regulations are proposed, but not finalized. The current Federal Government shut down is not helping.
• People are having a tough time interpreting the regulations/requirements and how to get around them to invest in opportunity zones & make money.

Summary Notes

• This is the icing on the cake; meaning it does not make a bad (or even marginal) deal good, simply a good deal better
• Applicable for even small deals; not exclusive to mega investment funds
• There are lots of nuances and the IRS is still working on final regs; best to consult with a ‘Bobbie Jo’
• For municipalities, need to be aware of OZ locations and ensure their ordinances/policies (including development review process) can be flexible to accommodate such demands as the 31 months

To access the event PowerPoint, click here.

Notes provided by Nadia Schmidt, Holder Construction Company and Amy Jo Denton, McAdams.