Hooper says opportunities will open up in regions that historically have low capital investment.
PORTLAND, OR—Many large institutional funds, fund managers and commercial investors are exploring the tax benefits of Opportunity Zones, and most intend to make this part of future commercial real estate investment strategies. In fact, a new marketplace has been launched to provide the average accredited investor with access to newly formed Opportunity Zone fund investments.
RealCrowd's offering will focus solely on investments offered by third-party real estate sponsors that intend to be qualified Opportunity Zone fund projects, according to Adam Hooper, co-founder and CEO of RealCrowd. Hooper points out that Opportunity Zone projects are still in the infancy stages and regulations related to these investments continue to be defined and clarified by the US Treasury.
“That said, there are tax benefits that cannot be ignored by everyday accredited investors,” says Hooper. “One of the hallmarks of our platform is that we provide investors with access to opportunities that were previously only available to the most elite or largest investment firms. Opportunity Zone investments certainly fall into this category. Without this new marketplace, many investors would miss the opportunity to take part in what is likely to become a key investment strategy over the next decade. Our role is to extend these benefits to all accredited investors.”
Established by Congress in the Tax Cuts and Jobs Act of 2017, Opportunity Zone legislation is a new community development program to encourage long-term investments in low-income urban and rural communities across the country. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the US Treasury via that delegation of authority to the Internal Revenue Service.
Opportunity Zones are designed to spur economic development by providing tax benefits to investors, according to the IRS. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund/QOF until the earlier of the date on which the investment in a QOF is sold or exchanged or December 31, 2026. A QOF is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.
If the QOF investment is held for longer than five years, there is a 10% exclusion of the deferred gain. If held for more than seven years, that 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least 10 years, the investor is eligible for an increase in the basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.
The program provides investors with the opportunity to defer and even eliminate capital gains tax in exchange for investment in these regions. Moreover, Opportunity Zones are giving a boost to lending in general, Hooper says.
“Opportunity Zones will provide a new opportunity for lenders in the market,” Hooper tells GlobeSt.com. “The new regulation will open up investment opportunities in regions that traditionally have experienced a very small amount of capital investment. As experienced developers and investors enter these markets under the new Opportunity Zone regulations, lenders will find new on-trend projects in which to invest capital.”
As Hooper mentions, investors in the Opportunity Zone program and crowdfunding often overlap.
“The tax benefits associated with investing in Opportunity Zones appeal widely to high net-worth individuals or individuals with capital gains. Many of these investors take part in investing through crowdfunding,” Hooper tells GlobeSt.com. “In addition, crowdfunding platforms will increasingly provide online opportunities to quickly connect sponsors looking to raise capital for Qualified Opportunity Funds, as well as investors looking to invest in the space in order to capitalize on the tax benefits. RealCrowd is an early leader in this sector and others are likely to follow suit.”
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
