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What Treasury’s Opportunity Zones Mean for CRE?

The Treasury released its regulations regarding Opportunity Zones, the new tax policy set to encourage investment in underserved markets across the U.S. Connect Media asked Adam Hooper, Co-Founder and CEO of Portland, OR-based RealCrowd, to share what these new regulations are about, the tax benefits to investors, how opportunity funds work and what the expected impact on CRE will be in our latest Q&A.

Q: Now that the regulations are released, what are the key factors investors need to know about Opportunity Zones and their tax benefits?
A:
The regulations released last week address many of the unanswered questions investors had regarding Opportunity Zones. Key questions answered include:

• What gains qualify for tax benefits?
Only capital gains are eligible for reinvestment into Opportunity Zones.

• How long will Opportunity Zone investment be an option?
The last date to make an Opportunity Zone investment is EOY 2026.

• How long do investors have to hold Opportunity Fund investments to benefit from the exclusion of tax on the appreciation?
Investors must hold their investment in an Opportunity Fund for a full 10 years to exclude taxable gains on the appreciation of the investment.

Q: What is included in the substantial improvement requirement?
A:
The original legislation required that 100 percent of acquisition basis will need to be reinvested into improvements. We now know this requirement only applies to building value. Land value is not included, and does not have to meet the basis improvement requirement.

This is a major win for commercial real estate investors.

For example, if an investor purchases a property in an Opportunity Zone where the land is worth $5 million, and the building is worth $500,000, only the $500,000 will need to be reinvested in order to qualify.

This clarification is likely to result in more activity, as investors plan for reinvestment and redevelopment.

Q: What is the time frame to invest the money raised into an Opportunity Fund?
A:
The latest proposed regulations from the Treasury provided a “working capital safe harbor” that allows for funds to be invested over a 30-month period. To qualify for the safe harbor, the Fund has to retain a written strategy and plan as to how the money will be deployed over that timeline.

For example, if a manager raises a $250 million fund, they don’t have to invest all of that money within the first six months as was the initial concern for capital deployment. The safe harbor provides much more flexibility for managers to deploy the capital in a responsible way.

As a whole, while there are still questions to be answered, the new regulations are shaping up to have a very positive impact on investment activity over the next several years.


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For comments, questions or concerns, please contact Dennis Kaiser

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About Dennis Kaiser

Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services. In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company. In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix. Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator. Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements. Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.

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