Opportunity Zones During a Downturn

May 27, 2020
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OZ During Downtown

There’s no denying the economic impacts of the coronavirus pandemic. Many investors are selling assets and are being confronted with resulting unplanned tax impacts. Real estate investors are looking for alternatives to failed or uncertain 1031 exchanges. Investors with recently realized gains are now looking for new options with appropriate risk and more appealing tax incentives. Opportunity Zones potentially provide a solution to these financial concerns while also promoting positive impact.

Benefits of Patient Capital

To realize the full tax benefit of these investments, a 10+ year hold of the investment is required. Opportunity Zone investments incentive a long-term hold purposefully designed to avoid the pitfalls of short-term investing. Deals well-structured for the Opportunity Zone incentive can weather a downturn and are inherently designed to enable flexibility on the timing of an exit. Investments such as the attainable housing projects in our second fund offer consistent income, low occupancy risk, and relatively predictable gains.

Opportunity Zones offer investors a minimum of 180 days from realization of their gains to invest them in an OZ Fund. In the case of most partnership or 1231 gains from 2019, investors have until July 15, 2020, to invest in an OZ Fund. This generous investment window allows investors the time they need to choose the best investment for them.

More Capital Working Toward Equitable Recovery 

Before placing your money in a conservative low-yield account or placing capital in traditional markets, consider Opportunity Zone investments that can produce strong returns while driving positive social impact. By utilizing OZ incentives to defer capital gains tax, investors can place greater investment in OZ communities of their choice today. This supports a faster and more equitable economic recovery.

Following the Great Recession in 2008, economic recovery was very uneven, with already distressed communities being less likely to experience economic resurgence. There is significant speculation and concern that recovery from the coronavirus-induced downturn will be uneven as well. Opportunity Zones were created to encourage a more equitable recovery by incentivizing investment in overlooked communities. Though Opportunity Zones were originally designed in response to the Great Recession, realizing the intent of this tax incentive is even more important now. As awareness of Opportunity Zones grows, return-seeking investors are taking note.