That might help to explain all the real estate transactions and in-hand changes here in Mesa in The Inner Loops and The Outer Loops, or The Outer Fringes, and inside The Old Donut-Hole. All at the same time.
Surprisingly - or not - most of the projects spurred so far by the Opportunity Zone designations are real estate.
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Potentially billions of dollars are waiting on the Treasury’s decisions.
The following is extracted from a report by Jim Tankersley in The New Times 13 March 2019 just before April 2019
“The second tranche of regulations is a moment of truth for investors and communities,” said John Lettieri, the president of the Economic Innovation Group think tank, who was an architect of the Opportunity Zone concept.
The difference in potential investment in the zones between favorable and unfavorable regulations, he said, “is orders of magnitude.”
> In the first batch of regulations, Treasury officials took a more restrictive approach, according to documents obtained through a Freedom of Information request. But those were ultimately overruled by the White House, which prevailed on several points that investors had championed, those records show.
> While investors wait for clarity, the existing regulations have “frozen some of the market for business investment,” said Steve Glickman, another architect of the concept who now runs an Opportunity Zone-related consulting business called Develop L.L.C., and who has produced an Opportunity Zone Index to help investors find and select promising zones for projects.
> The Kresge Foundation established two funds - funds that are committing to a set of rules that would require them to invest in creating living-wage jobs, form community advisory boards and seek to avoid displacing residents from those zones. They will also compile and share data on the quality and impact of their investments, which is not currently required by the federal government.
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The existing regulations have made that calculation relatively easy for real estate investors, who are accelerating previously planned projects in the zones and starting new ones that might not have worked without the special tax treatment.
That activity has already paid off for incumbent landowners in Opportunity Zones, according to research by the real estate firm Zillow: Average sales prices in the zones jumped 25 percent last fall, compared with the year before. . .
“At the end of the day, real estate development is a very important step forward,” Senator Tim Scott, Republican of South Carolina and the principal champion of the Opportunity Zone provision in the tax law, said in a brief speech. “
"Bringing jobs into the community is a leap forward.” . . . real estate investors would like more from the Treasury in the next round of regulations.
In an interview, Quinn Palomino, chief executive at Virtua Partners a private equity group, said she hoped the government would mandate reporting on metrics such as the number of jobs and affordable housing units created in the zones.
“Everyone’s running to this industry,” including a lot of people without the background in real estate development, she said. “It’s pretty scary out there, some of the projects that are coming in. Kind of, two guys in the back of a van, trying to get an Opportunity Zone project done.”
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FAST-FORWARD TO OCTOBER 2019 >
Investors Are Zoning Out on Opportunity Zone Funds
by Justin Bartzsch 10 Oct 2019
LINK > Click or Tap Here
Fundraising for these real estate vehicles is lacklustre as the industry awaits final regulatory guidelines from the US Treasury
Opportunity Zone Funds (OZFs) are designed to enable investors to do well by doing good. Created to spur investment in low-income communities designated as 'Opportunity Zones' by the US Government, OZFs have champions in high places. Tech entrepreneur and philanthropist Sean Parker – who co-founded music sharing service Napster and later became Facebook’s first President – helped to drive the initiative to create these Zones. OZFs have the potential to become “its own asset class, and it could be a very large asset class,” Parker told the New York Times in an interview last year.
But sparking investor interest in a new asset class has not been easy.
Opportunity Zones arose as part of the Tax Cuts and Jobs Act of 2017, and today they span all 50 states, the District of Columbia, and the five US territories. To attract investment, OZFs offer investors significant deferrals on their capital gains taxes. By channelling the gains from an asset sale into an OZF and retaining their interest in the fund for at least 10 years, investors are exempt from paying capital gains taxes on any rise in the value of their OZF investment.
But so far, take up has been slow.
Back in January 2019, when Preqin surveyed investors to gauge their interest in OZFs, 92% of respondents said they were currently not invested in OZFs, citing regulatory uncertainty and the risks of investing in distressed areas. Fast-forward to today, and investor demand remains sluggish.
Back in January 2019, when Preqin surveyed investors to gauge their interest in OZFs, 92% of respondents said they were currently not invested in OZFs, citing regulatory uncertainty and the risks of investing in distressed areas. Fast-forward to today, and investor demand remains sluggish.
A Slow Start to Fundraising Opportunity Zone FundsConsider the fundraising figures for OZFs.
> Right now there are 151 closed-end OZFs in market, a small fraction of the 7,400+ private real estate funds listed on Preqin Pro.
> Of these 151 funds, just 18 have held a final close, accounting for $2.3bn in commitments. > Moreover, $755mn of that capital is committed to just one GP, Federal Capital Partners, whose FCP Realty Fund IV targets value-added investments in the US.
> The remaining 133 OZFs are targeting a total of $20bn in capital, with only 24% having held at minimum a first close.
That means the majority of OZFs now in market have yet to secure significant investor capital.
Investor Demand for Opportunity Zone Funds Will Come Down to PerformanceA major reason for the slow uptake of OZFs is the lack of regulatory clarity.
Investor Demand for Opportunity Zone Funds Will Come Down to PerformanceA major reason for the slow uptake of OZFs is the lack of regulatory clarity.
In January 2018, shortly after the tax cut that gave rise to OZFs was enacted, the US Government shut down. Fund managers that were just getting started with OZFs had to wait for further guidance, and the long delays put off potential investors.
While part two of the regulations is now available, fund managers are still awaiting the final guidelines, which are slated to be released later this year.
Since the regulatory framework has yet to be fully clarified, there are currently only a small number of established firms that have set up OZFs.
Indeed, nearly 70% of the OZFs in market are first-time funds. Their struggle to gain traction mirrors the broader trend seen in the private real estate market: these days larger, more established managers are attracting the lion’s share of investor capital, crowding out emerging managers.
> Industry participants say there are plenty of Opportunity Zone deals to be made, but the supply of capital is limited since the fundraising pace has been slower than expected.
> Another complication is the way OZFs are structured.
OZFs are designed to encourage long-term investment of at least 10 years to realize their full benefit.
Their performance J-curve is expected to be 'low and long' compared with typical private real estate funds, which means investors have to wait longer for distributions.
There are some bright spots, of course.
Since 2018, five funds have successfully raised more than $100mn.1 That is less than a third of the 18 OZFs that have closed, but it is still early days for OZFs. Plus, as the end of the tax year approaches, investors will be assessing their portfolios and fund managers will be hoping that some of their capital gains will be diverted into their OZFs.
A number of OZFs are known to be targeting net IRRs in the high teens to the low twenties, an attractive long-term return for investors on the hunt for yield. If returns are as strong as targeted, investors may well decide that there is money to be made in doing good after all.
For more information on OZFs, read our factsheet which further examines investors' plans for OZFs.
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RELATED CONTENT ON THIS BLOG > https://mesazona.blogspot.com/search?q=Ozones
08 July 2019
The OZ Reporting Framework Here in Mesa
05 March 2019
Spec Industrial Development in One of Mesa's OZones
08 February 2019
Public Pressure Here in Mesa To Address Affordable Housing Issues
31 December 2018
OZones 2019: Can We Clean-Up and Clear-Out What's In The Air?
26 December 2018
Mesa Opportunity Zone Prospectus Available
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FROM THE KRESGE FOUNDATION >
Mission, Money & Markets:
What should unite Opportunity Zones backers and detractors
Editor's note: A version of this blog post also ran on Impact Alpha here. By Aaron Seybert
" . . . Depending on your ideological, political, or economic interests, you can pick the facts and examples around Opportunity Zones that most confirm your bias and dismiss the critiques you disagree with . . ."
I believe anyone who cares about this legislation producing sustainable, positive impact in communities should be asking for mandatory disclosure.
Without the knowledge of where the money came from, who raised it, and where it went, how can we possibly hope to know if this incentive is helping or hurting on the whole?
We should absolutely support the best actors to show a path forward. However, we in philanthropy should just as forcefully demand mandatory reporting at every level and remain extremely sensitive to what we lend our name to. We should fund advocacy organizations, investigative journalism, and think tanks to increase the reputation risk for policy makers and practitioners and insist this debate continues in the public eye.
In the absence of a fully transparent market, I will remain skeptical but engaged.
The history of our country (or of this administration) does not justify defaulting to the assumption that this will work out fine. We seek to partner with other like-minded organizations who are not content to sit on the sidelines and see all the potential benefits as well as the perils.
My modus operandi is: Engage, support the best and brightest, demand transparency, stay vigilant, and be careful who you associate with.
Aaron Seybert is a social investment officer at The Kresge Foundation. Follow his team on Twitter @kresgesocinv.
