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Opportunity Zones: New Guidance From Treasury

Written by Claire Altman, Executive Vice President, Capalino+Company

On April 17, 2019, the second round of opportunity zone (OZ) guidance was released by Treasury.  The guidance provides greater clarification regarding OZ investment in businesses operating in an OZ, opening up new investment opportunities which have the potential for major economic development and a greater impact in under-served communities.

The new guidance details definitions of, and what, qualifies as fifty percent of gross income in qualified OZ businesses.  It also provides greater  clarification regarding OZ investments in leased property, as well as expanding the definition of “working capital,” and further refining the definition of “substantial improvement” of property in an OZ.  Additionally,  the guidance  provides investor and fund operations guidelines and  addresses a number of issues regarding a substantial improvement test for unimproved land, original use date, and safe harbor rules. The accounting firm Novogradac provides a useful opportunity zone blog.

Pace University hosted a conference on April 23, “Opportunity Zones: Lifting Underserved Communities with Targeted Investments,” which focused on social impact opportunities as well as affordable housing. During the panel discussion, Maurice Jones, President and CEO of LISC (Local Initiatives Support Corporation), underscored that the most valuable assets in Opportunity Zone communities are the people. For the Opportunity Zone legislation to realize its promise, one must look at what happens to the people.”

Panel member Keith Mestrich, President and CEO of Amalgamated Bank urged developers, investors, and community leaders to ask what are the opportunities in the community? Community leaders need to “tell the story of these communities and to have conversations with the investor class that we don’t normally have. These tax benefits come with certain obligations to insure that there is a social impact.”

Jones and Mestrich both emphasized the importance of partnering with colleges and universities in Opportunity Zones to create an ecosystem that prepares the residents of OZ’s to be full participants in the work force- teaching them hard and soft skills.

At Capalino, we have broad experience in community development as well as mixed-income housing, real estate and business investments. We are well positioned to assist developers in partnering with community groups to help structure investments that meet the needs of local communities and provide the economic benefits investors are seeking. In addition, we are keenly attuned to the importance of long-term sustainability so that investments in OZ communities provide a foundation for jobs and community benefits.

Specifically, we offer the following services and could provide additional ones as clients require them:

  • Assess sites in Opportunity Zones to recommend ways in which Opportunity Zone investments can be utilized (e.g., mixed-income residential, commercial, not for profit uses, community programs, industrial)
  • Assess intended businesses to be located on a site to assess Opportunity Zone investment possibilities for these businesses including community benefits/impact investing
  • Identify investors interested in Opportunity Zone investments to “match” them with Opportunity Zone sites and community stakeholders
  • Assist clients with developing approaches to dealing with target communities to maximize community/local involvement in these projects (e.g., local hiring, MWBE participation, community enhancement features).
  • Coordinate/liaise with City and State agencies involved in Opportunity Zone investments
  • Assist developers in assembling teams to facilitate Opportunity Zone investment projects, including community stakeholders, attorneys, accountants, investment syndicators, and architects
  • Provide our clients with regular updates on Opportunity Zone investment information (e.g., federal guidelines, approaches to investments)
  • Provide consulting services to businesses already in an Opportunity Zone who may be seeking investors
  • Assist in set up and execution of Qualified Opportunity Zone Funds
  • Assist investors to identify the correct investment vehicle to take advantage of the Opportunity Zone benefits.

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