Investors are always looking for the next big thing. Recently, Opportunity Zones have become the hot new buzzword. These Zones are based on low-income census tracts across America. More than 75% have been designated in metropolitan areas near transit hubs. This has piqued investor interest.
When I started working in Opportunity Zones, the term did not even have a Wikipedia page. I must give the Economic Innovation Group (EIG) credit for doing most of the legwork and building a solid foundation for
Now we are beginning to see a tremendous number of newcomers enter the space. Since last year, I have watched the list of ‘funds’ double. The level of interest has increased more than tenfold. Every week I receive a dozen deals and several investors interested to do business.
From professionals like Steve Glickman at Develop Advisors (the architect of OZs) we are beginning to see new tools to measure impact. His firm along with ESRI has developed a measurement tool to index Zones across America.
Making Opportunity Zone investments can be a challenge. Reporting is new and the IRS has not finalized guidance. You can self-certify investments (IRS Form 8996) to begin the capital gains deferment process. The word ‘fund’ is a misnomer so individuals do not need to invest in “qualified fund” but simply make qualified investments. With that said, you will want professionals to help with regulations.
Qualifying investments is straightforward for many real estate deals but can quickly become complex with added layers (i.e. hotels, medical centers, etc.). In order to de-risk the investment process, I recommend working with service providers such as Novogradac, CohnReznick, and EisnerAmper. These are the major mid-market accounting firms that have led the Opportunity Zone initiative since the beginning. Each firm has worked on several deals and has dedicated practice groups for Investing in Opportunity Zones.
The most challenging part that has been left untouched is investing in Opportunity Zone businesses. IRS and Treasury have not provided enough guidance in this area yet. There is more grey area when it comes to small business investing but this will lead to direct job growth. The opportunity to invest in small community businesses is unbelievable and we at Golden Door believe the time is now. We are one of the few firms in the industry today screening for the best ideas in Opportunity Zone Small Businesses.
If you are interested to learn more, feel free to contact me.