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Selecting the Right Opportunity Zone
Though the tax deferral portion of the Opportunity Zone program is attractive to many investors, KPMGs H. Robert Boehringer III sounded a note of caution. Namely, “there must be a business case and sound due diligence to support the ultimate project decision,” he wrote in a recent article for Area Development Magazine. “The fact that an investment is located within an Opportunity Zone will not alone guarantee success.”
Not all Opportunity Zones are created equal. While location analysis and site selection for new investment projects is a complex task even under typical circumstances, locating an Opportunity Zone investment can be more challenging. Boehringer noted that successful investment in these zones will require a well-versed project team, along with multiple factor analyses and an ability to make timely decisions.
With 8,700 designated Opportunity Zones in the United States, Boehringer suggested several considerations to selecting the right investments, in the right locations, for the right project, as follows:
- The location should be compatible with the targeted investment outcome.
- The site should be capable of meeting Opportunity Zone site constraints.
- The investor should understand the state and local tax implementations of Opportunity Zone investments.
- The investor should understand if the desired social contribution can be achieved through the Opportunity Zone investment.
- An exit strategy should be in place.
Boehringer went on to say that developers also need to step up and do more than market available sites and a community’s specific attributes. Those developing within the designated zones need to create what Boehringer called the “required Opportunity Zone investor mindset.”
“Economic developers must also be prepared to explain their project sites in a way they haven’t in the past,” he added. And finally, time is of the essence on potential Opportunity Zone investments. “For investors with 2018 gains, the clock is ticking, meaning there is little time to ready sites and material, if the work has not already started,” Boehringer commented.
For comments, questions or concerns, please contact Amy Sorter
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