By Opportunity Zone Staff
A new set of tax regulations is presenting investors with appealing opportunities while potentially bringing in capital to areas that need it the most. It also gives developers new funding venues for their projects.
The opportunity zone provision was included in the 2017 Tax Cuts and Jobs Act. It allows investors to defer or even completely avoid paying capital gains tax if they put their money in a qualified opportunity fund to help develop low-income areas.
There are now opportunity zones in all 50 states, the District of Columbia and five U.S. territories.
Certified Public Accountant Robert J. Williams said the new rules will affect how developers select their job sites, especially when they’re selling a property with a substantial capital gain.
Ted Farry, president of Conatus Real Estate Inc. in Newport Beach focuses on investment properties and finding tax advantages for his clients. He said he has been watching the new law closely. He too can see it have an impact on developers’ behavior.
“From the geographic standpoint, it will be pretty influential in where new projects take place,” he said. “It provides more fuel in the developers’ vehicle.”
David Sillaman Jr., president and fund director at Sikari Luxe, said his fund was the second one to open in the U.S. His company Eazy Do It specializes in setting up opportunity funds all over the country.
Sillaman said it makes more sense for a developer with a project worth $10 million or more to start a fund associated with the project than to seek funding through several different funds as there is more investor demand than there are opportunity funds.
“They’re going to get a better market share,” he said.
It seems developers all over the country are getting the memo.
“Most of the big projects are launching because of these new rules,” Sillaman said, adding that most of those are large-scale real estate and commercial developments. “The first wave is big money coming in, backing big, big projects.”
In Florida, the Tampa Bay Rays stadium could be getting financing through an opportunity zone fund, according to Tampa Bay Times.
Good City Brewing LLC co-founder Dan Katt said he is planning on funding his real estate development and business ventures through the program, according to the Milwaukee Biz Times.
Sillaman said he’s also seeing developers moving projects into opportunity zones.
“Overall, this is very good news for developers, absolutely,” he said.
Chris Jeter has been following the concept since before it became part of the tax bill and started the 1787 Capital Opportunity Zone Fund last summer with two other managing partners. Jeter, a tax attorney by training, said he’s seen a lot more activity since October and has seen investors and developers making decisions on whether to get involved.
“It’s more interesting now to developers because there’s a larger source of capital to invest,” he said. “Some developers are creating funds just for their projects.”
Jeter, whose office is in North Carolina, said he and his partners are looking at projects that have a private and public aspect. He said the new law is a great way to bring private capital into redevelopment projects.
“Next year, you’ll see projects that wouldn’t have happened without this program,” he said.
These could include hospitals and public transportation aside from commercial and residential real estate.
However, the new law is not a completely done deal yet as the government is still expected to provide additional details. Farry said so far many potential investors are holding off on pulling the trigger until the government releases the final set of regulations.
“The real value will come down to nuts and bolts of how the remaining pieces will get put in place,” Farry said.