Investors in opportunity zones are in a hurry to meet the 2021 deadlines


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From left: Ronald Fieldstone, Scott Meyer, Carlos Rodriguez Jr., Logan Gans, Stevan Pardo and Jaime Sturgis (Twitter, iStock / Illustration by Alexis Manrodt for The Real Deal)

Opportunity zone funds have risen in recent months, including several in South Florida. From left: Ronald Fieldstone, Scott Meyer, Carlos Rodriguez Jr., Logan Gans, Stevan Pardo, Jaime Sturgis (Twitter, iStock / Alexis Manrodt Illustrations / The Real Deal)

This is a critical year for Zone of opportunities investors.

Real estate developers, property owners and funds must take full advantage of the federal tax relief program by the end of December, but they have also taken advantage of the Covid deadline extension. Although national coronaviruses have suspended investment in the opportunities zone for a short time, supporters have still poured billions into funds, attracted by upcoming deadlines, a growing stock market and, more recently, improving the overall economy.

Individual investors, who were to postpone their capital gains in the Qualified Opportunity Zone fund until 31 December 2020, received an extension from the Ministry of Finance on 31 March.

This is over, but more deadlines remain, including one in September and the other at the end of the year. Real estate attorneys and trademark experts say these limits are in a hurry to allow investors to reap the full tax benefits of a government program designed to support development in thousands of vulnerable neighborhoods across the United States.

“You bet they’re in a hurry,” said Miami lawyer Ronald Fieldstone, a partner at Saul Ewing Arnstein & Lehr.

Fieldstone represents the developers of two branded hotels, which have created qualified Opportunity Zone funds in which investors use their capital gains to help bankroll projects. The influx of money that arrived before March 31 provided support to his clients’ projects.

“They have investors ready and backlogs of people in the loop,” Fieldstone said.

It was a similar story for lawyer Steven Pard, who said that the extended deadlines allowed two clients – developers who had independently set up two funds of opportunity zones – to increase their capital increase. Through affiliates, they independently develop a rental complex in Miami and a branded hotel in Hawaii. Pardo, a former developer who is now a Miami-based partner at Pardo Jackson Gainsburg, said the extra time gave clients a chance to “achieve what would be difficult, if not impossible” by the previous deadline.

Pardo, who manages the hotel, construction and litigation of his law firm, said that in recent months there have been more inquiries from potential investors in OZ compared to previous pandemic cases.

The Opportunity Zone fund, which supports hotel development in Hawaii, aims to raise between $ 50 million and $ 150 million, with each investor earning at least $ 250,000, Pardo said. The Miami project support fund aims to raise roughly $ 100 million. He is convinced that both projects will achieve their goals due to the expansion and improvement of the economy.

Extended opportunity

The deferral as at 31 March applied to individual investors who realized capital gains from the sale of real estate, shares or another business from 4 October 2019 to 2 October 2020. These investors originally had 180 days from the time they realized the profits. The term also applied to LLCs, partnerships and other business-related transfer entities that made capital gains in 2019.

Pass-through entities that realized capital gains in 2020 must invest in qualified tax deferral zone funds by 9/11.

In order for investors to receive a full 15% return on their capital gains tax, they would have to invest seven years in a qualifying opportunity zone fund by 31 December 2019. Now, to gain a 10% advantage, investors have by the end of 2021 invested their money in the fund for five years.

In South Florida, where property prices have risen sharply along with the stock market, investors have made higher capital gains in recent months and sent them to hunt tax ports to protect those gains. Some have chosen opportunity zone funds and benefit from extended investment periods.

On March 15, Coral Gables-based Driftwood Capital began the second increase in two hotel properties in the Opportunity Zone. One of them was the dual Tru by Hilton / Home2Suites by Hilton complex in Fort Lauderdale jointly developedand the other was the Staybridge Suites in Wilmington, Delaware. Driftwood targeted individuals who want to reinvest their capital gains, with a minimum contribution of $ 50,000 each. Driftwood planned to raise money last year, but due to the economy Covid pushed the bids back, said President and Chief Operating Officer Carlos Rodriguez Jr.

The reaction of investors was strong, said the company’s sales director Alejandro Navia.

Since launch, Driftwood has received 90 percent of the $ 7.4 million investment target for the Hilton project – the remaining amount it needed. At Staybridge Suites, a conversion project, investors contributed about half of the $ 10.5 million target.

“When we see the success of these two, we can look at the continuation of syndication by individual assets or we can start testing the real one [OZ] fund before selecting several projects, “said Rodriguez.

“Golden handcuffs”

Opportunity zones – part of a federal tax review in 2017 – were created to stimulate investment in economically neglected neighborhoods, but critics say it largely allows for luxury development in affluent areas. In January 2020, the Ministry of Finance opened an investigation to who benefited from the program.

As Presidential candidate Joe Biden expressed reservations about the OZ program and cited the need stricter reporting requirements. As president, he did not address this issue.

Lawyer Logan Gans said the imposition of additional restrictions could discourage some investors.

“We are not sure whether luxury building projects will receive the same type of benefits or change,” the current law said, said a Shutts & Bowen partner.

Many companies have started funding opportunity zones since their inception. The program was partially launched due to unclear regulations; these rules were finalized in December 2019. And although it was not as wildly popular as originally predicted, more than $ 12 billion According to Novogradac, it was invested in trademark funds from January to August 2020.

Fort Lauderdale broker Jaime Sturgis said real estate in Opportunity zones is not always easy to sell. The buyer will look at the property in the opportunity zone, consider using the program to help with payments for upgrades, but then bypass the option, he said.

Accident codes include requirements that set a minimum threshold for property improvements. In some cases, the owners believe that this would lead to “excessive improvement” of the property, said Sturgis, founder and CEO of Native Realty.

Tru by Hilton / Home2Suites by Hilton in Fort Lauderdale

Tru by Hilton / Home2Suites by Hilton in Fort Lauderdale

Some investors are also discouraged by the 10-year retention period required for full tax benefits, he said. These rules have been established to ensure that investments are maintained in designated communities and are not used as short-term tax avoidance. But Sturgis said some “consider zones of opportunity to be golden bonds.”

This was the case of developer Michael Swerdlow, who is building an affordable 578-unit housing project with the Target anchor store in the Miami neighborhood of Overtown. He decided not to participate in the program and said he did not return.

“Investors get tax benefits, so you think that would lead to a better solution for the borrower,” he said.

The Opportunity Zone program is open to a wide range of business investments, but a report at the end of last year found that most of the money had disappeared exclusively for real estate projects.

Inspired by investing

Based in Miami PTM partners, which focuses on investing in opportunity zones and creating its own qualified resources, said it also took advantage of the extension of the deadline to 31 March.

The company launched the PTM Partners Opportunity Zone Fund II in September to increase $ 250 million until the end of this year. He uses the money for multi-family projects in Miami and Northern Virginia, as well as a last mile distribution center in New York. Fund II began to invest capital in projects.

Six investors rushed to invest in Fund II before March 31, said Scott Meyer, PTM’s chief investment officer. He said the company had “seen a significant inflow” of investment in the last week of March, but declined to say how much the fund had won so far.

The expansion “inspires people to invest,” said Reid Thomas of NES Financial, which manages Opportunity Zone funds, EB-5 investments and 1,031 deferred tax exchanges. Thomas, the company’s chief financial officer, said the biggest increase in investors – especially from Florida – was just before the new year, which is the previous deadline for a full tax benefit for OZ.

Regarding PTM’s real estate development, Meyer said CEO Michael Tillman and chief operating officer Nicholas Pantuliano invested their own capital gains in the funds. The trio contributes 1 percent of the capital and serves as general partners of the fund.

“The pandemic affected the whole economy and it was not pleasant for people to invest in 2020,” he said. Now Meyer added: “We have definitely seen more interest in both the fundraising and transaction flow side. Deadlines immediate decisions. “


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