Updates On Opportunity Zones 2019

06 January 2019

Updates On Opportunity Zones 2019

The hot topic of OZones has been featured multiple times of this blog for months, as faithful readers this site know well.
However, there's always more information to put in front of your eyes all the time.
Highlighted today are two reports from 03 January 2019, backed up with inserts of streaming vids [Trump signing the Opportunities & Jobs Act on December 12, 2017] + an audio to save you time on what is a lengthy and detailed post today that also features links to what the City of Mesa has published online with an excellent aerial Map.

Tomorrow's Mesa City Council Study Session at 5:15 pm starts off with a look at the City's Annual Financial Review for the fiscal years ending June 30, 2018.
The regular meeting will be presenting and discussing various ordinances and resolutions about more proposed real estate developments downtown that are within the OZone.

Where Opportunity Zones stand, heading into 2019

The stage is set for Sean Parker’s pet project—now it’s time for the money to start rolling in

By Jeff Andrews Jan 3, 2019, 5:00pm EST

"When Trump’s tax overhaul became law a year ago, the real estate industry’s attention was focused on caps to the mortgage-interest deduction, plus state and local tax deductions—which the industry predicted would put the housing market in peril. (It didn’t.)

After the dust settled in the spring, the industry realized a hidden gem had been tucked away in the law: Opportunity Zones.

The brainchild of Silicon Valley financier Sean Parker,
Opportunity Zones allow investors to obtain massive tax advantages if they invest capital gains—money made on the sale of assets like a home, a business, or a piece of art—into “distressed” areas of the country where the post-financial crisis recovery passed by.

While the provision theoretically allows investors to put money into any type of project so long as it’s in a designated zone—a business, infrastructure, whatever—most observers believe it is especially attractive to real estate developers, partly because the largest tax benefits go to those who stay invested in the zone for at least 10 years.

Advocates for the program believe this could be a game-changing community development tool.

Given the horizon for these investments is quite far off, where do things currently stand?

While the Treasury guidance was mostly inside baseball for financial professionals, it seemed to open the flood gates for activity around Opportunity Zones, as firms announced their intention to jump into the space en masse. The firms interested tend to be private equity firms, which have experience in raising money for long-term financial projects—many of which already specialize in real estate development.

If the pitches arriving in the reporter's inbox are any indication, firms have been awfully busy making slide decks to pitch their Opportunity Zone projects to investors. Some ahead-of-the-curve outfits have already raised money, for example, private equity firm Virtua Partners, which is close to breaking ground on three Opportunity Zone projects in Arizona.

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One Opportunity Zone Fund Breaks Out Investor Participation

Institutional investors are interested in Opportunity Zones as many have ESG mandates.

By Erika Morphy | November 19, 2018 at 07:37 AM

Derek Uldricks [>] breaks the investors into three groups, two of which are largely motivated by the Opportunity Zones’ generous tax incentives.

There is a third, somewhat surprising, group of investors in these funds beyond the qualified purchasers and family offices, Uldricks says: institutional investors. Institutional investors will not get the same tax benefits as taxable investors, clearly, but they are still expressing interest because many of them have mandates for ESG (environmental, social governance) and an investment in an Opportunity Zone can check that box. “They don’t care much about the tax benefits; they just want to underwrite deals that have a social impact.”

Penciling In Affordable

For many institutional funds ESG may translate into affordable housing.
One investment Virtua has made via one of its Opportunity Zone funds suggests that such investment opportunities could increase under the program.
Uldricks tells of an apartment building it is developing in Tempe, AZ, which is next to Arizona State University. There is an allocation to affordable housing within the apartment, which both Tempe and the university encouraged.
As it happened, Virtua already had this transaction in its pipeline but when it became clear that it qualified under the Opportunity Zone guidelines, “it became much quicker for us to raise the capital for that transaction,” Uldricks says. Also, he adds, without the Opportunity Zone qualification it is debatable whether the company would have been able to pencil in the affordable component.

The floodgates opened when the US Treasury Department released long-awaited proposed rules regarding the Opportunity Zones established under last year’s tax overhaul earlier this year.
“Investor interest has been, we’ll call it insatiable,” says Derek Uldricks, president of Virtua Capital Management, which launched one of the first Opportunity Zone funds earlier this year, even before the proposed clarifications were released . . .

Source: https://www.globest.com/

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Others were taking a wait-and-see approach but are now getting organized, such as Anthony Scaramucci, the short-lived communications chief for President Trump. His SkyBridge Capital firm hopes to raise money to invest in hotels in Oakland, industrial real estate, and a mixed-use multifamily/retail development in Washington, D.C.

Jared Kushner, the president’s son-in-law, has also been linked to Opportunity Zones through a private equity firm he holds a passive stake in called Cadre, although he holds no operational role at the company.

. . . Which brings us the primary criticism of the program.
because these projects will take years to build and more years for their impact to play out, we won’t know how Opportunity Zones affected people one way or the other for potentially another decade. Right now, investors and developers are still just getting organized.________________________________________________________________________
From Bloomberg News

Will ‘Opportunity Zones’ Help the Rich, the Poor or Both?

By Noah Buhayar ‎January‎ ‎3‎, ‎2019‎ ‎10‎:‎00‎ ‎PM

(Blogger Note: If this is one of your TLDR - Too Long Didn't Read - challenges, there's a 04:54 minute audio you can listen to at the underlined link above the article headline)

"Buried in the Republican tax overhaul that President Donald Trump signed into law in late 2017 are incentives for investors who fund businesses or develop real estate in new “opportunity zones.” Banks, private equity firms, insurance companies and wealthy individuals are now rushing to take advantage. Critics have raised questions about whether the tax breaks will spur development in places that really need it or just stimulate growth in communities that were destined to see investment anyway. . .

1. What’s an opportunity zone?

2. Why so many?

Economic growth in the U.S. has been uneven. A handful of cities are booming, while much of the country -- from rural counties to aging Rust Belt towns -- get left behind. Giving investors an incentive to plow some of their $6 trillion in unrealized capital gains into these distressed communities could help jump-start growth, create jobs and lift incomes. Nearly all of the opportunity zones have poverty rates north of 20 percent or family incomes that are lower than 80 percent of the state or metro median.
3. What’s the problem?
There’s a debate over whether investors will pile into places that were already seeing development. An analysis by the Urban Institute found that most of the zones are in fact hurting -- fewer than 4 percent had experienced an influx of wealthier, college-educated people that would signal gentrification . . .
> CRITICS also note that there’s no requirement that investments in opportunity zones benefit the community.
4. Whose idea is this?
It was hatched in a 2015 white paper by Jared Bernstein, who was an economic adviser to Joe Biden when he was vice president, and Kevin Hassett, who is now chairman of the Council of Economic Advisers for U.S. President Donald Trump. They wrote it for the Economic Innovation Group, a think tank co-founded by Sean Parker, the Napster creator and first president of Facebook Inc. A group of Republicans and Democrats introduced bills in the House and Senate to create opportunity zones in 2016, but the measures never reached a floor vote. One of the sponsors, Senator Tim Scott, a Republican from South Carolina, successfully pushed for a modified version that was tucked into the tax overhaul.
5. What are the tax breaks?

How Profits Grow in an Opportunity Zone

If a $100,000 capital gain is invested in an Opportunity Zone project, the amount subject to tax falls if the owner waits before selling

Source: Congressional Research Service

Assumes project value grows at 7 percent per year

8. What will the zones cost?

When the bill was being considered, the Joint Committee on Taxation told Congress that the opportunity zone tax breaks would cost about $1.6 billion through 2027. But the figure would rise after that, as developers claim capital-gains exemptions on the sale of projects in opportunity zones held for more than a decade. Since the program is open-ended, the final tally will ultimately depend on how much money investors plow into opportunity zones and the gains that they realize.

The Reference Shelf

FAQ from the IRS on opportunity zones and a report from the Congressional Research Service.
Federal Reserve Bank of St. Louis’s Opportunity Zone Explorer.
A Pew report on how investment may bypass rural communities.
Bloomberg Businessweek on the potential and peril of opportunity zones.
Forbes cover story on how opportunity zones became law.

MesaZona > Table of Contents : Here's The Menu. Enjoy

06 January 2019

Updates On Opportunity Zones 2019

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