Tag: Opportunity Zones (OZs)

Final Opportunity Zones Regulations Remove Uncertainty, Should Mobilize Real Estate Investment in Low-Income Communities

Posted on by Trey Jackson

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The Treasury Department yesterday released final regulations implementing Opportunity Zones (OZ) tax incentives.  The details of the 544 pages of regulations are still under review, but the highly anticipated rules appear to embrace key Roundtable recommendations aimed at spurring capital formation and economic development in low-income communities.  (Roundtable comment letter, July 1, 2019)

The final regulations provide helpful guidance in several areas that should remove taxpayer uncertainty and allow productive real estate investments in low-income communities to move forward. 

Specifically, the final rules:

  • Clarify the types of gains that may be invested in opportunity funds and when.  For example, they amend a general rule in the proposed regulations that only capital gain may be invested in an opportunity fund.  The rules allow a taxpayer to invest the entire amount of gain from the sale of business property, which can include gain from the sale of real estate.
  • Clarify when gain may be excluded from tax after an investment is held for a 10-year period.  The proposed rules did not allow an investor to exclude gain when the subsidiary of an opportunity fund sold an asset.  The final regulations liberalize these rules, which should greatly facilitate the formation and operation of real estate-focused opportunity funds that invest in multiple properties.
  • Include important changes to how an investment is measured when testing whether an opportunity fund has substantially improved real estate.  The rules provide opportunity funds with greater flexibility to aggregate multiple assets.  For example, they permit a group of two or more buildings located on the same parcel(s) of land to be treated as a single property—thus eliminating the need to increase the basis of each building by 100 percent.
  • Allow a vacant property to be treated as being put to its original use in an opportunity zone if the property has been vacant for a continuous period beginning one year prior to the census tract’s designation as an opportunity zone.  The proposed regulations would have required a property to be vacant for five years.  A property that meets the original use requirement is not subject to the substantial improvement requirement.
  • Provide important refinements to the previously proposed working capital safe harbor.  The safe harbor provides opportunity funds with a minimum of 31 months to invest their working capital in qualified opportunity zone property, rather than the six months suggested in the statute. This longer runway aligns better with the practical realities of real estate investment.  The final regulations ensure that an opportunity fund that is using working capital to improve real estate will be able meet the opportunity zone requirement that it be engaged in a trade or business.

The most recent Roundtable regulatory recommendations were submitted on July 1, 2019.  The Roundtable also submitted prior letters on the OZ tax incentives in June 2018 and December 2018. 

The Roundtable has strongly supported the Opportunity Zone tax incentives since their enactment as a potentially powerful catalyst for transformative real estate investment in economically struggling parts of the country.  (GlobeSt.com interview with Roundtable President and CEO Jeffrey DeBoer and Roundtable SVP and Counsel Ryan McCormick –July 16, 2018).

The Roundtable’s Tax Policy Advisory Committee and its Opportunity Zone Working Group will be analyzing fully this week’s 544 pages of rules and will report on the details during The Roundtable’s Jan. 28-29 State of the Industry meeting. 

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White House Reviewing Final OZ Tax Regulations; Senate Legislation Introduced on Reporting Requirements

Posted on by Trey Jackson

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The White House’s Office of Management and Budget (OMB) is reviewing a set of highly anticipated final rules for the Opportunity Zones program created by the 2017 Tax Cuts and Jobs Act, according to a Dec. 6 OMB notice.  The rules will address requirements of qualified opportunity funds that invest in opportunity zones (OZs).

  • OZ investors are looking for clarifications on a number of open issues that will help qualified opportunity funds drive economic development in economically distressed communities nationwide.
  • Treasury released its first set of proposed OZ rules in Oct. 2018, followed by expanded guidance in April 2019.  The Treasury rulemakings have reduced investor uncertainty and encouraged capital formation, job creation and productive real estate.  However, certain questions remain that warrant additional guidance, such as whether an existing owner can retain a carried interest when selling property to a related Opportunity Fund.
  • The Real Estate Roundtable on July 1, 2019 submitted recommended clarifications for final OZ tax regulations, which may be issued by the Treasury Department before the end of this year (Roundtable Comment letter, July 1).  The Roundtable also submitted prior letters on OZ tax incentives in June 2018 and December 2018.)
  • In Congress, GOP senators on Dec. 6 introduced a bill that would expand information reporting requirements for OZ investments, including requiring investors to report the number of full-time workers employed by opportunity zone projects. (BGov, Dec. 8 and Sen. Marco Rubio news release, Dec. 9)
  • The Senate’s “Improving and Reinstating the Monitoring, Prevention, Accountability, Certification, and Transparency Provisions of Opportunity Zones (IMPACT) Act” would “… help show communities and investors that the initiative is working, as well as help root out any fraud or abuse,” according to Sen. Tim Scott (R-SC), the lead sponsor of the bill.  (The Hill, Dec. 6)
  • Democratic lawmakers in the Senate and House have also recently proposed measures that would require more reporting requirements about Opportunity Zone investments – as well as reform the tax incentive, and formally investigate recent allegations of wrongdoing related to the program. (Roundtable Weekly, Nov. 8)
  • The Roundtable has strongly supported the Opportunity Zone tax incentives since their enactment as a potential powerful catalyst for transformative real estate investment in economically struggling parts of the country.  (GlobeSt.com interview with Roundtable President and CEO Jeffrey DeBoer and Roundtable SVP and Counsel Ryan McCormick –July 16, 2018).

Through its Tax Policy Advisory Committee and Opportunity Zone Working Group, The Roundtable will continue to contribute to the implementation and oversight of the Opportunity Zone incentives, offering constructive comments and recommendations to Members of Congress and Treasury officials. 

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Lawmakers Seek Greater Opportunity Zone Oversight and Information Reporting, Float Possible Reforms

Posted on by Trey Jackson

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In response to allegations that the Treasury Secretary improperly intervened in the designation of certain census tracts as Opportunity Zones, key Democratic lawmakers put forward proposals this week to enhance Opportunity Zone information reporting, reform aspects of the tax incentives, and formally investigate the reports of wrongdoing.

  • The allegations, published in the New York Times, have been denied by both Treasury Secretary Steven Mnuchin and Michael Milken, the implicated private investor.  (Bloomberg, Oct. 29, 2019) (Letter from Michael Milken to the Milken Institute Community)
  • On Monday, the Chairman of the House Ways and Means Committee Richie Neal (D-MA) and the Ranking Democrat on the Senate Finance Committee Ron Wyden (D-OR) announced they were launching an investigation to determine “whether political appointees interfered in the process to potentially steer millions in tax breaks to longtime associates.”  (Letter to Treasury Secretary Mnuchin requesting a wide range of documents and records.)
  • The same day, Chairman Neal, Senator Wyden, Ways and Means Oversight Subcommittee Chairman John Lewis (D-GA), and Senator Cory Booker (D-NJ) sent a letter asking the Government Accountability Office (GAO) to collect and analyze information about how the Opportunity Zones incentive has been implemented by Treasury and the IRS, how census tracts were designated as Opportunity Zones, what compliance measures were used to ensure adherence to the law, and how the Treasury Department can measure the effectiveness of the tax incentive.
  • Just two day later, on Wednesday, Senator Wyden introduced the Opportunity Zone Reporting and Reform Act (S. 2787).  Under the bill, in addition to requiring greater taxpayer reporting, certain previously certified census tracts would no longer qualify as Opportunity Zones.  Several types of real estate assets would be blacklisted and ineligible for investment (e.g., self-storage property, stadiums, casinos).  In the case of opportunity funds that are renovating or rehabilitating existing structures, the bill would increase the level of new investment required to qualify for benefits.
  • The Wyden bill would exclude multifamily housing as an eligible Opportunity Zone investment unless 50 percent or more of the housing units are rent-restricted and occupied by tenants whose income is 50 percent or less of the area median income.  (Detailed Summary)
  • If enacted, the restriction on multifamily housing could have a profound negative impact on future Opportunity Zone investment.  New research indicates that multifamily construction starts represented over one-half (53.2%) of the total commercial real estate investment in Opportunity Zones over the last 18 months.  (CBRE, Multifamily Development: A Bright Spot in Opportunity Zone Initiative, Nov. 6, 2019)
  • Also on Wednesday, Representatives Ron Kind (D-WI), Mike Kelly (R-PA), and Terri Sewell (D-AL) unveiled bipartisan draft legislation to enhance reporting requirements for opportunity funds.  The Opportunity Zone Accountability and Transparency Act would require opportunity funds to submit annual information reports that would be publicly available.  In the case of real estate investments, funds would report information such as: the aggregate amount invested, structures’ square footage, the number of residential units, the number of low-income residential units, and the number of employees, Failure to report information accurately could trigger a penalty up to $200,000.

Since its enactment, The Real Estate Roundtable has strongly supported the Opportunity Zone tax incentives as a potential powerful catalyst for transformational real estate investment in economically struggling parts of the country. Through its Tax Policy Advisory Committee and Opportunity Zone Working Group, The Roundtable has played an active role throughout the lengthy rulemaking process, offering constructive comments and recommendations to Treasury officials. (GlobeSt.com interview with Roundtable President and CEO Jeffrey DeBoer) (Roundtable Weekly, Dec. 21, 2018)

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Roundtable Proposes Modifications to Treasury’s Opportunity Zone Rules

Posted on by Trey Jackson

The Real Estate Roundtable on July 1 submitted recommended clarifications for final Opportunity Zones tax regulations, which are expected from the Treasury Department before the end of 2019.  (Roundtable comment letter , July 1) 

The Real Estate Roundtable on July 1 submitted recommended clarifications for final Opportunity Zones tax regulations. 
  • This month’s Roundtable 12-page comment letter to Treasury and the IRS encourages the government officials to include 10 key clarifications in their final regulations. (The Roundtable submitted prior letters on OZ tax incentives in June 2018 and December 2018.) 

    The recommendations would: 

  1. clarify that gross section 1231 gain (gain that relates to property used in a trade or business) is eligible for investment in an Opportunity Fund; 
  2. further facilitate the use of “aggregator funds” for multi-asset Opportunity Funds; 
  3. allow existing owners to retain a carried or profits interest when selling property to related Opportunity Fund; 
  4. clarify that the working capital safe harbor applies during the construction of qualifying property; 
  5. encourage investment in languishing Opportunity Zone properties by treating investment in vacant property favorably; 
  6. promote ambitious and transformative projects by allowing assets to be aggregated together under the substantial improvement test; 
  7. ensure that property that straddles inside and outside of an Opportunity Zone qualifies; 
  8. treat property that will be demolished as “unimproved land” for Opportunity Zone purposes; 
  9. confirm that investors qualify for the tax benefits when an Opportunity Zone business sells an asset after 10 years; and 
  10. make certain additional clarifications related to Opportunity Zones and REITS.  

  • Cushman & Wakefield’s new publication –  ” In the Opportunity Zone: Location. Timing. Capital ” – reports that capital inflows into OZs could increase by $100 billion.  

    Roundtable President and CEO Jeffrey DeBoer states in the letter, “Partnering with local leaders and entrepreneurs, real estate-focused opportunity funds will spur long-term, patient investment that drives productive economic activity.  Real estate projects financed through opportunity funds will generate well-paying jobs, improved infrastructure, and a built environment that helps attract and retain new businesses and employers. Regulatory clarifications along the lines described above will help ensure that the Opportunity Zone incentives fulfill their ambitious objectives.”  

  • Cushman & Wakefield’s new publication – “In the Opportunity Zone: Location. Timing. Capital” – reports that capital inflows into OZs could increase by $100 billion.  The company is tracking 138 large CRE funds targeting more than $44B in equity that intend to invest in multiple product types.  The report also states Opportunity Zone prices are rising 14% for redevelopment projects and 20% for land sites. (Commercial Property Executive, July 8) 

Additionally, Forbes and the Sorensen Impact Center at the University of Utah have launched a nation-wide competition to feature the top leaders, investors and entrepreneurs who are pioneering creative approaches to equitably revitalize distressed OZ communities throughout the nation.  Applications and nominations for the Forbes OZ 20 close Aug. 31.  (Forbes, July 11) 

 

Bipartisan Senate Legislation Proposes Reporting Requirements for Opportunity Funds; Freddie Mac Releases Analysis of OZs

Posted on by Trey Jackson

Bipartisan Senate legislation introduced May 8 would direct the Treasury Department to collect data and issue annual reports on Opportunity Zone (OZ) tax incentives. Reporting requirements were included in the original Investing in Opportunity Act before Congress passed it as part of tax reform in December 2017.

The Opportunity Zones bill (S. 1344)—introduced by Sens. Cory Booker (D-N.J.), Tim Scott (R-S.C.), Todd Young (R-Ind.), and Maggie Hassan (D-N.H.)­—would require data on the number of opportunity funds created, their asset classes, their holdings, and their economic ripple effects in the designated OZs where they invest. (BGov, May 8)

  • Congress approved the creation of Opportunities Zones-economically distressed areas characterized by high poverty and subpar employment opportunities-and tax incentives to encourage redevelopment in these lower-income communities.
  • The program allows for capital gain related to a current sale or transaction to be deferred until December 31, 2026 – if investors place their capital gain into a fund that makes qualified investments in Opportunity Zones.  Individuals and entities can contribute to these Opportunity Funds.
  • The bill (S. 1344)—introduced by Sens. Cory Booker (D-N.J.), Tim Scott (R-S.C.), Todd Young (R-Ind.), and Maggie Hassan (D-N.H.)­—would require data on the number of opportunity funds created, their asset classes, their holdings, and their economic ripple effects in the designated OZs where they invest. (BGov, May 8)
  • “Already leaders in rural and urban communities across the country are beginning to use Opportunity Zones as a valuable new tool to drive high-impact investment into their communities,” Sen. Booker said. “This legislation will restore and strengthen transparency measures to ensure [the Opportunity Zones program] lives up to its original promise and delivers real impact to those who need it most.”  (Sen. Booker news release, May 8)
  • “Opportunity Zones have been a unifying message for both Republicans and Democrats,” Sen. Scott said. “It’s imperative that we create reporting requirements to allow us to accurately measure the success of the initiative…” 
  • The Treasury Department last month released a highly-anticipated, second set of Opportunity Zone (OZ) regulations that seek to provide certainty to potential OZ investors and drive economic development in economically distressed communities nationwide. (reference: 169-page Treasury regulations and IRS news release, April 17 / Roundtable Weekly, April 19) 
  • No action on S. 1344 is imminent, though Congress could consider tax legislation this summer or fall. 

Freddie Mac has released an analysis of its own financial data to show multifamily market characteristics in Opportunity Zones.  Notable among the reports many findings were the following: 

Freddie Mac has released an analysis of its own financial data to show multifamily market characteristics in Opportunity Zones.

  • Housing units in OZs tend to be relatively old-28.7% of the multifamily rental stock was built prior to 1960 (compared to a rate of less than 20% elsewhere).
  • The population density of OZs is low-about two-thirds of the national rate
  • Of the 117 opportunity funds identified by the National Council of State Housing Agencies as of April, 76% have an investment focus on multifamily residential development. 

The report concludes that census tracts designated by governors as OZs “overlap quite well with areas that Freddie Mac targets for affordable housing assistance.” 

The OZ program’s goals and incentives were the focus of a Jan. 29 discussion during The Real Estate Roundtable’s State of the Industry Meeting, which featured Sen. Scott and Roundtable member Geordy Johnson (CEO, Johnson Development Associates, Inc.). (Roundtable Weekly, Feb. 15)

Treasury Issues Highly Anticipated and Favorable Opportunity Zones Guidance

Posted on by Trey Jackson

The Treasury Department on Wednesday released a highly-anticipated, second set of Opportunity Zone (OZ) regulations that seek to provide certainty to potential OZ investors and drive economic development in economically distressed communities nationwide. (reference: 169-page Treasury regulations and IRS news release, April 17) 

President Donald Trump with Scott Turner, executive director of the White House Opportunity and Revitalization Council,  at the April 17 Opportunity Zone Conference with state, local, tribal and community leaders. (Official White House Photo by Shealah Craighead)  

  • A White House Opportunity Zones event on Wednesday featured President Trump, Treasury Secretary Steven Mnuchin and officials from local governments around the country.  (White House Remarks and  Video, April 17)
  • The Treasury Department designated more than 8,700 low-income census tracts as Qualified Opportunity Zones last June. (IRS Notice 2018-48).  Treasury estimates that Opportunity Zones will boost investment in these targeted areas by $100 billion.  According to White House Chief Economist Kevin Hassett (citing Zillow data), property values in Opportunity Zones have appreciated by about 20 percent since zone designations were made in early 2018. 
  • Roundtable President and CEO Jeffrey DeBoer said, “We are pleased that these proposed regulations provide answers to many key structural and operational questions that have concerned potential opportunity zone investors, developers, and business owners.   The opportunity zone program, designed to stimulate investment in economically struggling communities nationwide, has tremendous potential.   We look forward to continuing to work with policymakers to reduce unnecessary, counterproductive aspects of the new law.”

The Roundtable previously submitted two comment letters to policymakers on Opportunity Zones, one in June 2018 and one in December 2018. (Roundtable Weekly: Oct. 19, and  Dec. 21). The rules issued this week expanded on the previously proposed regulations and address a variety of OZ investment issues.  Positive developments in the newly proposed regulations include the following:

The  169-page Treasury regulations and IRS news release, April 17

  • Opportunity Funds that own more than one property can sell assets individually after a 10-year holding period and fund investors can exclude the gain, without a requirement that the fund investor sell his or her interest in the fund.  In addition, the regulations clarify that multi-asset Opportunity Funds that choose to set up separate funds for individual assets can reduce the administrative burden on their investors through the use of a “feeder” fund that aggregates the fund interests;
  • Opportunity Funds can make nontaxable, debt-financed distributions to fund investors during the 10-year holding period, provided they comply with “disguised sale” rules that limit distributions made during the first 2 years;
  • Land (improved and unimproved) is qualified opportunity zone business property provided it is used in an active trade or business, and it does not have to meet the “original use” or “substantial improvement” requirements that apply to structures;
  • The working capital safe harbor, which provides up to 31-months for Opportunity Funds to deploy capital, is further liberalized.  Specifically, the regulations clarify that: (1) subsequent contributions of capital to the same Opportunity Fund are subject to a new 31-month period, and (2) the 31-month period is extended if the delay is due to waiting for government action or approval;
  • Leased property, including property leased by an Opportunity Fund from a related property, can qualify as opportunity zone business property if certain requirements are met.  This clarification in particular should help existing owners of property in Opportunity Zones participate in the tax incentives without having to sell or dispose of their ownership interest; 

Roundtable President and CEO Jeffrey DeBoer said, “We are pleased that these proposed regulations provide answers to many key structural and operational questions that have concerned potential opportunity zone investors, developers, and business owners.”

  • Real estate that straddles an Opportunity Zone border can qualify as opportunity zone business property as long as the portion of the property that is inside the zone is substantial relative to the total property;
  • While the sale of an asset during the 10-year holding period is generally a taxable event for the Opportunity Fund investors, the regulations infer that a fund could do a like-kind exchange and as long as the replacement property is qualified opportunity zone business property, the gain would be deferred for the investors;
  • Lastly, the regulations include a number of changes that aim to facilitate investment in operating businesses, which should increase tenant demand for commercial real estate located in Opportunity Zones.

The IRS has scheduled a public hearing on the second set of proposed rules for July 9, 2019. Comments are due 60 days after the proposed rules are published in the Federal Register. A third set of proposed guidelines is expected on Opportunity Fund’s reporting requirements to measure the effectiveness of the program.

The OZ program’s goals and incentives were the focus of a Jan. 29 discussion during The Real Estate Roundtable’s State of the Industry Meeting, which featured Sen. Scott and Roundtable member Geordy Johnson (CEO, Johnson Development Associates, Inc.). (Roundtable Weekly, Feb. 15) 

The Roundtable’s Tax Policy Advisory Committee (TPAC) plans to continue its work with policymakers on the OZ program and regulations affecting Qualified Opportunity Funds.

 

 

IRS Holds Hearing on Opportunity Zones; Roundtable Working Group Meets With Treasury Officials on OZ Regulations

Posted on by Trey Jackson

An IRS hearing this week focused on how Opportunity Zone regulatory guidance may affect long-term investments in certain low-income communities.  The hearing, originally scheduled for Jan. 10, was rescheduled due to the government shutdown in December. 

An IRS hearing this week focused on how Opportunity Zone regulatory guidance may affect long-term investments in certain low-income communities.

  • Earlier in the week, a delegation from The Real Estate Roundtable’s Opportunity Zone Working Group met with Treasury officials to discuss proposed and forthcoming tax regulations.  The meeting addressed key areas where additional guidance could help ensure the Opportunity Zone tax incentives succeed in stimulating productive, job-creating real estate investment in the designated low-income communities. Among the issues discussed:
    • Determining what constitutes the original use of property for Opportunity Zone purposes, and in particular, whether a Qualified Opportunity Fund can purchase a newly constructed building before it is placed in service;
    • Clarifying how land is treated for purposes of the Opportunity Zone asset test, and how to account for leased property;
    • Facilitating contributions of real property to Opportunity Funds by current property owners
    • Ensuring that capital gain in multi-asset Opportunity Funds can qualify for the tax incentives;
    • Clarifying the tax consequences of refinancing and debt distribution transactions, particularly those that involve appreciated Opportunity Zone assets;
    • Encouraging capital formation and growth in Opportunity Zones through favorable gain reinvestment, roll-over, and holding period rules at the investor, fund and business level; and
    • Enhancing the 31-month working capital safe harbor through additional safeguards and relief for fund investors making a good faith effort to deploy their capital. 

Sen. Tim Scott (R-SC) led the effort in Congress for enactment of the Opportunity Zones program.

Similar issues were raised by 23 witnesses at the five-hour IRS hearing on Thursday.  (Bisnow, Feb. 14). 

  • A letter on Feb. 5 from Senators Chris Coons (D-DE) and Michael Bennet (D-CO) to Treasury Secretary Steven Mnuchin raised additional issues and expressed concerns regarding the potential for waste and abuse, including in the context of real estate investment. (Delaware Business Now, Feb. 6).
  • The Opportunity Zone program’s goals and incentives were the focus of a Jan. 29 discussion during The Roundtable’s State of the Industry Meeting, which  featured Sen. Tim Scott (R-SC) – who led the effort in Congress for enactment of the program – and Roundtable member Geordy Johnson (CEO, Johnson Development Associates, Inc.).
  • The Real Estate Roundtable provided formal comments on Dec. 19, 2018 that encouraged Treasury and the IRS to clarify certain tax issues for potential Opportunity Zone (OZ) investors and Qualified Opportunity Zone managers.  The letter was the second round of Roundtable comments following Treasury’s initial set of proposed OZ regulations issued last October. (Roundtable Weekly, Oct. 21, 2018 and  Dec. 19, 2018)

The highly-anticipated, second set of Treasury OZ regulations are expected in the coming weeks.  Another public hearing will follow before rules for the program are finalized.

 

Industry, Investors Await Opportunity Zones’ Clarifying Guidance Amid Shutdown Delay

Posted on by Trey Jackson

The government shutdown is slowing progress on tax guidance important to real estate, including Opportunity Zone incentives.  The IRS cancelled a Jan. 10 administrative hearing on the October proposed regulations.  However, under a special two-year IRS appropriation for tax reform implementation, and the agency’s own contingency plan, background work continues on Opportunity Zone rules and other  critical regulatory guidance.”

The  Wall Street Journal reported on Jan. 15 that “there has been a surge in site acquisitions in the zones last year as developers planned for a surge of investments. There were 58% more deals [in] the zones in the third quarter of 2018, compared with the same quarter in 2017.”  (WSJ, Jan. 15 and Real Capital Analytics.)

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  • The Wall Street Journal reported on Jan. 15 that “there has been a surge in site acquisitions in the zones last year as developers planned for a surge of investments. There were 58% more deals [in] the zones in the third quarter of 2018, compared with the same quarter in 2017.”  (WSJ, Jan. 15 and Real Capital Analytics.)
  • John Lettieri, chief executive of the Economic Innovation Group, a public policy organization that advocated for the inclusion of opportunity zones in last year’s tax overhaul, told The Journal, “The sooner you get regulatory clarity, the more benefit is available to investors and the sooner they can stand up a marketplace.” (WSJ, Jan. 15)
  • The Real Estate Roundtable on Dec. 19 provided formal commentsthat encourages Treasury and the IRS to clarify a number of tax issues that would remove uncertainty for potential opportunity zone investors and opportunity fund managers.  The letter was the second round of Roundtable comments on opportunity zones following Treasury’s publication of proposed regulations last October. (Roundtable Weekly, Oct. 21, 2018 and Dec. 19, 2018)
  • Roundtable Senior Vice President & Counsel Ryan McCormick participated this week in a CBRE conference call presentation on qualified opportunity zones.  Joining McCormick was Steven Kennedy (Director, PwC), a member of The Roundtable’s Tax Policy Advisory Committee Working Group on Opportunity Zones, and experts from CBRE’s capital markets and research team. The Jan. 16 CBRE PowerPoint presentation can be downloaded here.
  • Also this week, Jared Bernstein, a former chief economist to former Vice President Joe Biden, authored an op-ed in the Washington Postin support of the opportunity zone program.  Bernstein and Kevin Hassett, current chairman of the White House Council of Economic Advisers, wrote the original paper that put forward the opportunity zone concept.  In the Jan. 14 op-ed, Bernstein states, “[M]ost OZ communities have faced disinvestment and depopulation for so long, they have both the need and capacity to absorb new investment, development and people without displacing local residents … I suggest we give OZs a chance, while scrutinizing their progress.”

The future of the OZ program will be discussed by Sen. Tim Scott (R-SC) – who led the effort in Congress for enactment of the opportunity zone program – and Roundtable member Geordy Johnson (CEO, Johnson Development Associates, Inc.) on Jan. 29 during The Roundtable’s State of the Industry Meeting in Washington, DC.  Opportunity Zones will also be a focus of The Roundtable’s TPAC meeting on Jan. 30.

Roundtable Comment Letter Recommends Additional Guidance from Treasury and IRS to Accelerate Capital Investment in Opportunity Zones

Posted on by Abigail Grenadier

This week the Real Estate Roundtable provided formal comments regarding opportunity zones to the Treasury Department and the IRS.  The letter encourages Treasury to clarify a number of tax issues that would remove uncertainty for potential investors and opportunity fund managers.  This is the second Roundtable comment letter on opportunity zones, following Treasury’s publication of proposed regulations in October. ( Roundtable Weekly, Oct. 19)

This week the Real Estate Roundtable provided  formal comments  regarding opportunity zones to the Treasury Department and the IRS.

  • The October proposed rules provided a strong foundation for opportunity fund formation and investment.  Building on the rules, the Roundtable letter prioritizes five areas where additional guidance from Treasury would accelerate the pooling of capital and job creation in opportunity zones.  The letter recommends that Treasury:
    1. Remove barriers to the formation of multi-asset opportunity funds through flexible exit rules;
    2. Clarify the circumstances in which land and previously vacant buildings constitute qualified opportunity zone business property;
    3. Allow appropriate refinancing of opportunity fund assets and avoid overly restrictive debt-distribution rules;
    4. Encourage continued investment in opportunity zones with flexible gain reinvestment, roll-over, and holding period rules at the investor, fund, and business level; and
    5. Provide additional protections in the working capital safe harbor and the substantial improvement rules for taxpayers making a good faith effort to comply with opportunity zone requirements.
  • “Real estate development and redevelopment is a key component of any region’s economic strength and growth, wrote Roundtable President and CEO Jeffrey D. DeBoer. “The Roundtable foresees opportunity fund investors and fund managers actively partnering with local leaders and entrepreneurs on projects that both drive economic activity and respond to the needs of communities. Additional guidance along the lines described above will help ensure that the opportunity zone incentives fulfill their ambitious objectives.”
  • The Treasury Department could issue a second set of proposed regulations on opportunity zones as soon as January, according to Treasury Assistant Secretary David Kautter (Roundtable Weekly, Dec. 14).
  • The underlying legislation directs Treasury to report to Congress on opportunity zones’ effectiveness.  The  Roundtable letter encourages Treasury to consider, as part of its reporting, the aggregate impact of opportunity zone investments on the overall health and wellbeing of targeted communities, including the impact on the local tax base, surrounding infrastructure, and their ability to attract and retain employers.

The Roundtable comments are the product of an active Tax Policy Advisory Committee (TPAC) Opportunity Zone Working Group that includes leading real estate developers, owners, investors, lenders, industry organizations, and outside advisors. The TPAC working group will continue to work closely with government officials to help ensure the program fulfills its ambitious objective of stimulating economic development and job creation in low-income communities.

White House Executive Order Aims to Stimulate Opportunity Zone Investment by Channeling Federal Resources; Additional OZ Regulations Expected in January

Posted on by Trey Jackson

President Trump on Dec. 12 signed an Executive Order that seeks to facilitate long-term equity investment in new Opportunity Zones and other low-income communities.  The order formally established the White House Opportunity and Revitalization Council.  (White House statement and PBS Video, Dec. 12)

President Trump on Dec. 12 signed an Executive Order that seeks to facilitate long-term equity investment in new Opportunity Zones and other low-income communities.   (White House statement and PBS Video)

  • Congress created Opportunity Zones in the 2017 Tax Cuts and Jobs Act to encourage long-term, capital investment in economically struggling, low-income communities.  Opportunity Funds that invest in tangible business property, such as real estate, located in a qualifying zone are eligible for tax benefits that are tied to the investment holding period.  The capital gain on an Opportunity Fund investment is excluded from tax altogether if the asset is held for 10 years or more. 
  • In June 2018, the Treasury Department designated 8,761 communities in all 50 States, the District of Columbia, and five Territories as Opportunity Zones.  (IRS Notice 2018-48 and Roundtable Weekly, June 22) 
  • The new Council will lead joint efforts across executive departments and agencies to implement reforms that streamline existing regulations, optimize the use of federal resources, and align the requirements for public and private investment programs in economically distressed communities. The Council will also present the President with a number of reports identifying and recommending ways to encourage investment in these areas.   (White House statement, Dec. 12).  The White House signing was live streamed and included comments from Sen. Tim Scott (R-SC), the original author and sponsor of Opportunity Zone legislation.  (New York Times, Jan. 29, 2018)
  • The Council-chaired by Secretary of Housing and Urban Development Ben Carson-will be comprised of officials from 13 Federal agencies and include Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross.

Second Round of Opportunity Zone Regulations Expected in January

  • The Treasury Department released its first round of Proposed Regulations governing the Opportunity Zone program in October.   An Oct. 26 GlobeSt.com interview with Real Estate Roundtable President & CEO Jeffrey DeBoer and Roundtable SVP and Counsel Ryan McCormick focused on the initial regulatory guidance and its implications for the real estate industry.

    The next round of Opportunity Zone regulations may be released in January, according to Treasury Assistant Secretary for Tax Policy David Kautter, above.  (Tax Notes, Dec. 14). 
  • The next round of Opportunity Zone regulations may be released in January, according to Treasury Assistant Secretary for Tax Policy David Kautter.  (Tax Notes, Dec. 14)
  • The day after the White House Executive Order signing, Kautter told reporters that it would be “about January before we come out with additional guidance.”  Kauter noted, “The first set of regulations was designed to provide rules for getting funds up and operating, and the second set of rules is more about the operational aspects of the funds themselves.”
  • According to the New York Times, an anonymous administration official said Tuesday that the coming regulations would include reporting requirements for investments in Opportunity Zones to evaluate the program‘s impact.  (New York Times, Dec. 12)

The Roundtable’s Tax Policy Advisory Committee (TPAC) recently convened a panel on Opportunity Zones that included the tax counsel for Senator Tim Scott (R-SC).  TPAC’s Opportunity Zone Working Group is developing additional comments on how the industry can help the program fulfill its ambitious objective of stimulating economic development and job creation in low-income communities. (Roundtable Comment Letter, June 28 and Roundtable Weekly, July 20)