RECAP: 2019 FOX Global Investment Forum

2019 FOX Global Investment Forum - Recap


Investing in Opportunity Zones

Steven Kennedy, PwC

Jeff Schaffart

Steven M. Kennedy, Director, PwC
Jeff Schaffart, Shareholder, Koley Jessen

Session Description: 

This session explored Opportunity Zones, a tool designed to stimulate economic development and job creation in economically disadvantaged communities throughout the U.S. Taxable investors have shown strong interest in the potential for preferential treatment of capital gains that are reinvested in qualified opportunity investments, but many questions remain as the regulation continues to take shape. The discussion focused on the evolving rules of Opportunity Zones—from both a tax and legal perspective—and explored the potential benefits of investing in Opportunity Zones to provide clarity for family offices considering the strategy. 


"The Qualified Opportunity Fund program has generated a lot of hype and excitement—it is a new gold rush."
- Stephen M.  Kennedy
"The back-end exclusion is the strongest benefit over the life of the holding, even more than the step-up in basis which has a shortened time window. Families should not feel pressured to rush into a program to try to meet that timeline."
- Jeff Schaffart
Key Takeaways: 
  • The Qualified Opportunity Fund (QOF) program, part of the Tax Cut and Jobs Act of 2017, is a nationwide economic development initiative targeting the most impoverished communities in the United States. “Opportunity Zones” are low-income census tracts designated by state and federal governments, and include both rural and urban communities with an average poverty rate of nearly 31% and an average median family income of only 59% of its area median. 
  • Benefits of a QOF include: temporary deferral of inclusion in taxable income for capital gains re-invested into a QOF, step-up in basis for capital gains reinvested into QOF, and permanent exclusion of capital gains from sale or exchange of a QOF interest if interest is held for at least 10 years. Guidelines were released in October 2018, with an IRS hearing held on Feb. 14 of this year. Additional clarifications are forthcoming.   
  • The provision allows investors to put money into any type of project so long as it is in an Opportunity Zone—a business, infrastructure, etc.—it is especially well suited for real estate developers. The largest tax benefits go to those who stay invested in an Opportunity Zone for at least 10 years. 
  • It is important to consider details of investment opportunities, including single-asset QOF or diversified QOF, geography, asset-type, developer expertise/proven track record, confidence in manager’s ability to comply with QOF requirements, project’s life cycle, ability to structure exit as sale of interest in a QOF, and investment by general/operating partner. Understand the fee arrangements, capital calls, and tax filings as well as the uncertainty and evolving tax guidance.
  • The regulations for investing in operating businesses in QOZs is still unclear—the rules around real estate investing are further along.  But an interesting opportunity may exist for operating businesses in QOZs, depending on the evolution of the regulations.

(FOX Members only)