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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.


 

“Opportunity-zone investments could be the biggest thing to hit the real-estate world in perhaps the past 30 or even more years.”  Notably, The Wall Street Journal quoted Bruce Stachenfeld and Jessica Millett on October 2, 2018 in their article, Big Stock Windfall? New Rule Defers Taxes With Real Estate Investment

Opportunity Zones are a game changer for real estate largely due to the way it allows non-real estate parties to, for the first time, really move into the real estate world.  

With close to 50 attorneys, paralegals and non-lawyer professionals working in the D&S Opportunity Zone Practice Group, we are leaders in the space for tax, real estate and strategic business building advice. 

  
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.  The D&S Opportunity Zone Practice Group melds:

    • Unparalleled Opportunity Zone Tax Expertise:  A top real estate tax practice that is deeply focused on Opportunity Zones.  This is led by our Tax Practice Group Co-Chair, Jessica Millett, who has been nicknamed “The Wizard of OZ”.

    • The Pure Play in Real Estate Law®:  A top-level real estate practice that is steeped in structuring, handling and effectuating numerous Opportunity Zone transactions, including individual transactions, funds and everything in between.  This is led by our Managing Partner and Real Estate Practice Group Chair, Terri Adler, who many herald as the plain-old top real estate lawyer in New York City.

  • 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.  For Opportunity Zones we have focused this in two ways to benefit our clients:

    • Creating an Opportunity Zone HUB for our Clients and Friends of the Firm:  This Opportunity Zone Hub connects clients and friends of the firm specifically for Opportunity Zone transactions, including sponsors, investors, wealth managers, lenders, and other players. 

    • Creating Ideas and Strategies for Opportunity Zone Investment:  There is the obvious of course (i.e., development of property in an Opportunity Zone), and there is the less-obvious; namely, by way of example, operating businesses that can be created within Opportunity Zones.  Our view is we have only scratched the surface of what can be accomplished.  The end will be a combination of creativity while still adhering to the statute’s purposes and requirements.

  • Thought Leadership:  To date, we have issued three white papers on Opportunity Zones: (i) our May 2018 White Paper explains the OZ Program in detail, including the tax benefits available to investors; (ii) our August 2018 White Paper is an Opportunity Zone Road Map for anyone moving ahead with structuring a Qualified Opportunity Fund; and (iii) our October 2018 White Paper is a thoughtful analysis of the Proposed Regulations (released on October 19, 2018) that offers guidance, ideas and useful intellectual capital.  Lastly, Bruce Stachenfeld – 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.

Please click here to view our Opportunity Zone Practice Group Overview.

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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