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Opportunity Zones


Opportunity Zones are now one of “The Biggest Things” in the real estate world and Duval & Stachenfeld is the industry leader in the Opportunity Zone space.


As our Chairman, Bruce Stachenfeld, has mentioned in a recent article, no matter where you sit in the real estate world you need to have an Opportunity Zone strategy.

With one of the largest, most prestigious real estate practices in the world and a powerhouse tax practice, D&S is uniquely positioned to advise clients in all areas relating to opportunity zone transactions, including formulating and effectuating a strategy. 

Our tax attorneys, led by Tax Practice Group co-chair Jessica Millett, have been at the forefront of these cutting edge transactions since the signing of the 2017 Tax Reform Act. 

Jessica’s involvement has included an ongoing dialogue with the government since the beginning, participation in many industry groups, writing detailed (but easily understandable) white papers, advising clients on strategy, delving deeply into the most complicated of real estate deals that are predicated on Opportunity Zones, and speaking to groups both large and small.

For these reasons we have internally renamed Opportunity Zones as Jessica Zones. 

  
What are we doing at Duval & Stachenfeld to help our clients and friends of the firm? 

We are doing the following:

  • Industry Leading Expertise:  We have developed extensive expertise around this statute and its implications for the real estate industry.  We are on top of the tax and real estate issues.  We are already representing clients developing Opportunity Zone investment strategies and transactions – including representing a client with what we suspect is the largest Opportunity Zone transaction ongoing in the U.S. – and advising numerous clients on their Opportunity Zone strategies.

  • Our Mission to Help Our Clients Grow Their Businesses:  We are making ourselves a useful hub for putting together the most critical components of an Opportunity Zone transaction.  Namely, we have been melding real estate players with real estate projects in Opportunity Zones with potential investors.  This dovetails nicely with our core mission to help our clients grow their business and complements nicely our existing efforts.

  • Thought Leadership:  Our May 2018 White Paper explains the OZ Program in detail, including the tax benefits available to investors.  Our subsequent August 2018 White Paper is an Opportunity Zone Roadmap for anyone moving ahead with structuring a Qualified Opportunity Fund.  And Bruce – writing as The Real Estate Philosopher – has been writing about the real estate business implications of Opportunity Zones and their effect on the real estate industry.

 

Why are Opportunity Zones Potentially So Game-Changing in the Real Estate World?

For those not following Opportunity Zones closely, there is a “good” benefit, a “great” benefit, and an “off-the-charts-benefit” to the real estate world:

  • The “good” benefit is for the investor if it has gains on a sale of an asset, the investor can effectively “exchange” the gains into investments in an opportunity zone and defer the tax on the gains for up to 8 years and even legitimately avoid some of the gains.

  • The “great” benefit is for the investor that if it invests in a Qualified Opportunity Fund and holds it for ten years then the gain on the investment is tax free

  • This is all excellent, but the “off-the-charts benefit” is to the real estate world in that gains from non-real estate assets can be exchanged into Opportunity Zones.

 

Here are a few ways Opportunity Zones will impact the real estate world:

  • Wealthy individuals who heretofore have had little or nothing to do with real estate but have capital gains will be looking at making investments in opportunity zone transactions. 

  • Sponsors with the capability of putting together deals in Opportunity Zones will be able to achieve a less expensive and more readily available source of capital. 

  • Opportunity or investment funds will need to consider how they can capitalize on Opportunity Zones rather than view the wall of money as competition for their own capital-- perhaps they will need to consider raising their own Opportunity Zone funds? 

  • Lenders may be in a position to capitalize as there are some severe timing issues pertaining to how the money has to be invested into the Opportunity Zone investment in order to qualify.  A quick note here is that one cannot put in equity for an Opportunity Zone transaction and repatriate it back and keep the tax deduction.  However, a lender may provide legitimate debt, which may be later paid off with Opportunity Zone investment dollars.  This means that lenders that understand opportunity zones – and can be flexible – will be in great demand. 

  • Lastly, if one is a non-profit out to do some “good things” – perhaps in blighted areas – this can be a way to achieve its mission without the necessity of raising money for it.

If you would like to discuss further how D&S can help you on an Opportunity Zone transaction, please contact the D&S Opportunity Zone Team:

 

Jessica Millett for tax advice   

Terri Adler for real estate advice

Bruce Stachenfeld for strategic real estate business building advice

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