The Premiere Episode Of “Opportunity Zones Office Hours”

Join Jimmy Atkinson at OpportunityDb the first Monday of every month at 3:00 PM Eastern Time, to get your Opportunity Zones questions answered live.

In this month’s episode, Jimmy answered questions about the OZ map, interest rates, which benefits have expired, launching a real estate fund, Jimmy’s wish list of ways to improve OZs, and more.

Featured OZ Questions On This Episode

  • Is my property located in an Opportunity Zone?
  • Commercial interest rates are dropping quickly, weekly right now. Have you noticed any uptick in interest or activity in the OZ space?
  • Do QOZ Funds solicit project recommendations?
  • Any advice for a real estate owner/operator who would like to explore more about launching their own first private real estate fund?
  • Can you summarize the benefits of a new OZ investment in 2024 and beyond? Which benefits have expired?
  • What lobbying efforts are being made to improve and incentivize investment in Opportunity Zones for the next administration? What is on your wish list?
  • Are there any working groups working on fixing the current problems with the OZ program?
  • Is it possible to sell shares in a Qualified Opportunity Fund before holding for 10 years?

Featured On This Episode

About The Opportunity Zones Podcast

Hosted by OpportunityDb founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

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Show Transcript

And we are live. Welcome, everyone, to the premiere episode of Opportunity Zone Office Hours. I’m Jimmy Atkinson, founder of OpportunityDB and OZ Insiders. I’m going to be taking your Opportunity Zones questions live today. In just a moment, we’ll get started with that. If you have any Opportunity Zone questions, you can submit them by using the chat.

Now, are you looking to take your Opportunity Zones strategy to the next level but don’t know where to go? OZ Insiders offers comprehensive premium content and networking to help you get started. Our monthly masterclass meetings cover a wide range of topics, from fundamentals to advanced, ensuring that you have what you need to thrive within the Opportunity Zones ecosystem.

As a member of OZ Insiders, you’ll get access to our exclusive online community and monthly group masterclass calls, providing you with valuable OZ networking opportunities and guidance from the best Opportunity Zones professionals in the business. Whether you’re just beginning or looking to get to the next level, we have what you need. Visit ozinsiders.com to learn more. That’s ozinsiders.com.

We’ve got a lot of great events coming up on our schedule. Our masterclass next month will feature Angela Wong talking about direct marketing best practices for OZ funds. We have Chris Loeffler joining us in October for Distressed OZ Real Estate Investing Strategies. And then our third and final in-person meetup and dinner of 2024 in Washington, D.C., is coming up on November 5th in a private dining room at a restaurant in Washington, D.C.

So, if you’re looking to take your Opportunity Zone strategy to the next level or if you’re just beginning your journey, please consider joining us as a member of OZ Insiders. You can learn more at ozinsiders.com. And again, welcome to the premiere episode of Opportunity Zone’s Office Hours. You can join me on the first Monday of every month at 3 p.m. Eastern time to get your OZ questions answered live. Except for today—today’s is on a Tuesday due to yesterday’s Labor Day holiday, but going forward, you can join me live on the first Monday of every month right here at 3 p.m. Eastern time.

Whatever questions you have about Opportunity Zones, I’m here to answer them for the next thirty minutes. Just type your questions into the chat.

We’ve got a “Good afternoon, Andy” from the chat. Andy says, “Good afternoon, Jimmy.” So I’m saying, “Good afternoon, Andy.”

I took a road trip over the weekend. My son and I took a road trip down to College Station, Texas. We’re both big Notre Dame football fans. You can see the helmet over my shoulder here. We went down there for the Notre Dame-Texas A&M game. Every time I go on a road trip, it gets me thinking as I’m looking out the window. I wonder if this is in an opportunity zone. I wonder if that’s in an opportunity zone. Wouldn’t this be cool if this was an opportunity zone? This looks like it should be an opportunity zone.

A lot of thoughts about OZs swirl through my head—maybe not all the time, but particularly when I’m out and about, driving through a new area, I kind of think, “I wonder if this is an opportunity zone.”

One of the most frequent questions I get is, “Hey, Jimmy, is my property located in an opportunity zone?” I always point them to the map. You know, we’re fortunate that we have this great technology, the internet, and these mapping capabilities now. With these mapping apps, you can see at a glance whether an area is in an opportunity zone by just heading over to my map at opportunitydb.com/map.

I understand that the federal government, the Department of Housing and Urban Development (HUD), used to have an Opportunity Zones map, but it hasn’t been working for the last couple of years. I think they stopped paying their bills, maybe. I’m not really sure what happened to their mapping app. But my map works. If you head to opportunitydb.com/map, I’ve got it zoomed in on College Station right now.

This is Texas A&M’s campus right here. Here’s their football stadium, Kyle Field, which is located just across the street from an Opportunity Zone. There’s actually quite a bit of Opportunity Zone locations in and around College Station and the neighboring town of Bryan. One of the groups that we work with regularly, Caliber, has a multifamily development in Bryan, and it’s an Opportunity Zone deal that they’re working on currently.

So there’s a lot of opportunity all over the country, obviously. But because I was down in College Station for the big football game on Saturday, it got me thinking about College Station and the Opportunity Zones located down there.

Please do head over to opportunitydb.com. If you’re ever curious if your location or property is in an Opportunity Zone, you can just use the search tool there. Click the magnifying glass and type in any address you want. Look at all the Opportunity Zones in Texas.

Let’s go to the questions here. The first question comes from Andy. Andy got in early. “I’m hearing that commercial interest rates are dropping quickly, weekly right now. Have you noticed any uptick in interest or activity in the OZ space?”

Great question, Andy. I think a lot of us are probably familiar with the interest rate run-up over the past couple of years. We’ve gotten out of the ZIRP policy, the zero interest rate policy, that we enjoyed and got a little too comfortable with for a very long time—more than a decade, really, nearly continuously. There was a little blip up in interest rates during the COVID pandemic. But the last couple of years, interest rates have not been zero, and it has hurt the real estate market.

There are a lot fewer transactions, a lot less investment volume. The industry just can’t cope with the fact that interest rates are hovering—the Fed funds rate is hovering in the fives right now. All that said, we are expecting interest rates to drop. We’ve been expecting a drop at some point here in 2024. They’ve been holding steady for over a year now. We’ve had the same federal funds rate, but interest rates are starting to come down.

Federal Reserve Chairman Jerome Powell just said last week that they are most likely going to drop interest rates at their September meeting coming up in just a couple of weeks. So that was welcome news. I do think we’re probably going to get an interest rate cut or two before the end of the year. And by the time we round the corner into 2025, I think we’ll have the Fed funds rate lowered by probably fifty, maybe seventy-five basis points as we head into the new year. This would spell quite a bit of relief for not just Opportunity Zones but for the real estate market in general, as it should just make the cost of capital that much cheaper, which should unlock a lot of transaction volume and investment volume.

Now, the second part of your question, “Have you noticed any uptick in interest or activity?” Not yet. There’s often a lag, right? I think if we get a fifty or seventy-five basis point drop before the end of the year, that certainly bodes well heading into 2025. I would expect investment activity across all factions of real estate to increase in 2025. I think you’ll see more investment volume in the 1031 space, in the private equity real estate space, just with private transactions. But then also, I think we’ll see more equity investment in Opportunity Zones in 2025 if interest rates are to come down.

So, great question, Andy. Thanks for that. Thanks for being here today.

Steven says, “As always, very informative, Jimmy.” Thanks, Steven, for being here. I really appreciate it. If you guys have any questions and you’re just joining, you can submit your questions whether you’re watching on LinkedIn or on YouTube by just typing it into the live chat.

Let’s see, Heather. Heather’s a member of my OZ Insiders group. So, Heather, great to see you here. She asks, “Do QOZF solicit project recommendations?”

So, I think your question is, Heather, are there any funds out there, any qualified opportunity funds, with an investment mandate such that they have an unclear pipeline and they’re looking for projects? I would say that is likely not the case. The funds that are in existence are in existence because they already have one single asset, one single project that they’re working on, or they are a larger developer or a larger investment fund manager, and they have a pipeline of projects or partners that they already have identified and like to work with.

This is a question I get a lot, actually, Heather. I have a whole slew of project sponsors that come to me, and they’re looking for funding, and maybe they don’t necessarily want to set up their own fund. They don’t want to raise capital through the RIA or broker-dealer channel. They don’t want to raise capital directly from high-net-worth accredited investors. They really just want a big check—ten million, twenty-five million, a hundred million-dollar check—from an existing qualified opportunity fund because, in theory, qualified opportunity funds raise a bunch of money, and then they have to find projects to deploy that capital into.

In practice, that’s not really the case. In my experience, what I’ve found is it’s the opposite. The funds that are set up to invest in projects already have a pretty established pipeline of projects, and the harder piece of the puzzle right now is raising the capital, not identifying projects. That’s my answer there. What do you guys think, though? If you hear differently, I’d love to hear other opinions from you. If you have any different experience, type them into the chat.

A question here from Audio Skills. Thanks for watching us today, Audio Skills. “Are you going to the Novogradic, Jimmy? I mean, the one in November?”

Yes, Audio Skills. I don’t know who you are, but I like your avatar there with the dog or the panda bear wearing headphones. That’s a good one. The one in November? Yes, I am going to the Novogradic conference in Washington, D.C. in November. It is scheduled for, let me think, November 5th is the date of the OZ Insiders private dinner. That’s actually election night, Tuesday, November 5th. We have a private dining room at Risk Restaurant in Washington, D.C., near the Foggy Bottom, Georgetown area of Washington, D.C. Just a few minutes walk from the hotel, the Fairmont Hotel, where the Novogradic conference is going to be taking place the next morning.

Their conference takes place on the morning of Wednesday, November 6th. So yes, I’ll be there. I do have a promo code for anybody who wants to attend. I’ll try to see if I can type that into the chat a little bit later today. Otherwise, if you’re on my email list, you’ll be getting email announcements about that in the coming weeks. I understand they’ve just put registration live. I think they’ve already gotten a few dozen people to register for it. They usually get about a hundred or so, a hundred-plus people, to show up for their Opportunity Zone conferences. It’s really the only Opportunity Zone conference around these days. They just do one big Opportunity Zone conference each November. The last one was in Washington. This one upcoming will be in Washington. I’m looking forward to it. It’s a great time for the industry to come together and work on best practices, hear from some people on Capitol Hill who know what’s going on with legislation, and it’s a good time just to kind of meet and mingle with other professionals in the space doing some really cool stuff in many cases.

Let’s see some more questions here. I’m going to go back to Andy, actually. Yes, this one first. I kind of missed this one. “Have you heard anything from Origin Investments? Do they have a new OZ fund?”

I think they do, yes. I haven’t talked to them personally over there in a little bit of time, but they opened Fund One back in 2018. I think they were one of the first ones, and they raised a ton of capital really quickly. There was this one article that went viral—I put that in quotes, “went viral” in the OZ community. There was an article about how they raised a hundred-plus million dollars in eighteen hours or something like that. It was something crazy like that. That one closed, and then they opened Fund Two, which has since closed, and I think they’re working on fundraising for Fund Three right now. They’ve been one of the more successful groups in the country, putting together multi-asset class A multifamily apartment projects into these different fund wrappers. They typically have, I want to say—don’t quote me on this—I want to say they have about ten to twelve different projects in each one of their three OZ funds.

If you have questions for me, you can type them into the chat, either on LinkedIn if you’re watching there or on YouTube if you’re watching on YouTube. I would love any questions that you have.

Let’s go to this next one here from Jim—great name, Jim. Jim asks, “Jimmy, can you summarize the benefits of a new OZ investment in 2024 and beyond? I realize some of the benefits have expired.”

Jim, great question. You are right. It’s a perishable tax incentive, and some of the benefits have expired. That’s true. So really, at this point in time, there are three main benefits. There used to be four, and one of those main benefits has gotten less and less valuable over time. So I’ll explain.

Benefit number one is a deferral period when you trigger a capital gain and roll that capital gain over into a qualified opportunity fund. As long as you do it in a timely fashion, within 180 days of gain recognition, you get to defer that initial capital gain until December 31 of 2026. So what that means is you don’t have to pay taxes on that initial gain until April 15, 2027. You can appreciate how that date is written into the statute—that December 31, 2026 date. That is a set-in-stone date. It can only be changed by an act of Congress; it doesn’t change year to year.

You can appreciate that back in 2018, when this program was first rolled out, that was an eight-year deferral period, from 2018 to 2026. That was pretty enticing. In 2019, 2020, 2021—each year that goes by, that deferral period gets shorter and shorter. So now it’s really only a two-year deferral period if you roll over a 2024 gain into a qualified opportunity fund. I think that’s cooled a lot of investors. They’re like, “Well, what’s the point of deferring this gain for two years? That seems a little bit ridiculous.” And then if you invest next year in 2025, you only get a one-year deferral. And then if you invest January 1, 2026, or after, you don’t get a deferral at all. Effectively, you kick it to December 31, 2026. But either way, even if you don’t, you get the point—it’s a 2026 capital gain. There’s really no deferral period once you get past December 31, 2025, if that makes sense. So that’s the first major benefit, and it’s gotten smaller over time.

The second benefit that was in effect previously but has since expired is you got to effectively reduce the amount of gain that you recognized on December 31, 2026, by either a 10% reduction or a 15% reduction. You got that 15% reduction if you invested in Opportunity Zones prior to the end of 2019, and you got a 10% reduction if you invested in Opportunity Zones prior to the end of 2021. That was really a way to incentivize early adoption of Opportunity Zones. That and that deferral period were more important and were bigger benefits the earlier that you came into Opportunity Zones, obviously. So I think those first two benefits were really designed, particularly the basis step-up, to encourage early adoption.

Now, the third benefit is still alive and well. And this third benefit is by far the biggest one: you don’t pay any capital gains tax ever again on the subsequent Opportunity Zone investment. So your Opportunity Zone investment, which you rolled over from a capital gain that you get to defer until December 31, 2026, appreciates over the course of a ten-year period. You don’t pay any tax on those profits or that appreciation, so long as you hold your qualified opportunity fund investment for at least ten years. This encourages a long hold period in an Opportunity Zone investment. If you do so, and the fund that you’re invested in stays within all of the compliance requirements during that ten-year period, when you sell that investment, you typically would trigger a big profit or gain. But in the case of an Opportunity Zone, you get to mark up your investment cost basis to fair market value, which essentially means your gain is zero for the purposes of paying taxes, so you owe no money on it.

So that’s the biggest benefit. Then, the one other benefit that is still available comes from the IRS regulations around Opportunity Zones: there’s no depreciation recapture. I won’t go into specific details on that. I have covered it at length on some of my previous podcasts, but I do want to get to some more questions. So, I’ll just suffice it to say, no depreciation recapture, which is another—this can be, for some investors, a pretty enormous tax benefit. It doesn’t apply in all cases; it doesn’t apply to every investor. But I’d encourage you to look into that, do your own research, or contact your CPA for more information about depreciation recapture in Opportunity Zones.

Let’s get to another question here. Another one here from Audio Skills—big fan, Audio Skills. “Jimmy, any advice for a real estate owner/operator who would like to explore more about launching their own first private real estate fund?”

I do. This is a great question. Thanks for this one, Audio Skills. First of all, when you launch your first private real estate fund, you have to consider how much capital you need and can you fund it yourself? Can you fund it just through friends and family? Or the third level is, do you need to go out and raise capital from people you don’t know—other people’s money, strangers’ money, right?

If you’re talking about a situation where it’s either case number two, a friends and family raise, or case, especially case number three, where you need to raise it from people you don’t know and have never met before, you better make sure you have a track record. So I would hope that—this would be my number one tip, I would say, for anybody who’s thinking about putting together a private real estate fund: you cannot raise money from other people if you have not done a deal previously. So this better not be your first deal. You need to get skin in the game first. You need to have a track record.

You need to have a record of ideally going full cycle on at least one property, if not a portfolio of properties. And they don’t have to be huge deals, right? You don’t necessarily need to have a track record of ten different hundred-million-dollar-plus huge apartment building transactions. Even if it’s just, you know, “I raised two hundred and fifty thousand dollars of friends and family money on this duplex that I fixed up, rented out for a couple of years, and then flipped.” You do that a couple of times, I mean, your track record could be as simple as something like that. Or, “Me and my buddy, or me and my wife, we bought this second home, and we fixed it up, and we flipped it.” I mean, a lot of people, that’s how they start. So first of all, I would say definitely have that level of experience.

Now, once you get there, there’s a lot of different resources that you can use to learn more about launching your first private equity real estate fund. I would definitely say you need some… In particular, if you’re raising money from outside investors, you really need a good attorney, and you need a good CPA. And then you really need good support. And I would say if it’s going to be an Opportunity Zone fund, allow me to toot my own horn for a minute here—I would really encourage you to contact me and consider joining OZ Insiders because this is part of what we do at OZ Insiders. We help people go along this process of determining whether their fund launch is viable or not, and if so, here’s the different resources you need.

I could teach a six-hour class on this topic. I won’t do that right now. So that’s kind of the high-level answer, but I hope that answers your question there, Audio Skills.

Let’s see. Just want to follow up with Jim here. Jim says, “Thank you, Jimmy. Excellent, comprehensive answer to my question.” Thank you, Jim. Thanks for being here today. And let me know if you have any additional questions.

I got this question via email a few days ago, and I wanted to read it now and see if I can answer it. This is a question from Stan. When you join my email list, one of the first emails you get from me is, “What is your number one Opportunity Zone challenge right now? Like, what can I help you with right now?” I get a lot of replies to that. Oftentimes, the reply is, “Hey, is my property in an opportunity zone? I don’t even know how to find the map.” So I covered that at the beginning of this episode—opportunitydb.com/map in case you missed this one.

But this question from Stan doesn’t have anything to do with the map, so I’d like to read it here. He says, “I’m selling my marina, half of which is real property that I’ll do a 1031 with, which is great. The other half is personal property, and I can no longer do a 1031. The Opportunity Zone looks like an option. Waiting ten years is not an issue, but it looks like two or three of the initial tax advantage dates have passed. Have any of these dates been adjusted?” And then he goes on to say it’s about five million dollars in personal property.

First of all, Stan, congratulations—that’s a great transaction. You’ve got five million dollars in gains. It’s a great problem to have. You’re very blessed, so congrats there. And I kind of covered this in the response I gave to Jim a minute ago. I went through the different advantages that are still available, and I covered that reduction in basis bumper. It has since expired, but the fact of the matter is, yeah, the deferral period is shorter, so that’s not as valuable. The 10% and 15% basis step-ups are gone, but the big enchilada is not paying any capital gains on the subsequent Opportunity Zone investment so long as you hold it for ten years.

So I would say if that is something that is doable for you, if you have the patience to be in a somewhat illiquid investment for ten-plus years, you don’t need that five million dollar gain for ten years, and you’re not expecting cash flow from it for a few years—because all these Opportunity Zone deals are, I would say, ground-up construction or heavy value add where they’re really not going to cash flow for a few years. There are some exceptions to that, but for the most part, that’s the case. Opportunity Zones may be something that you should consider.

Now, you asked about whether any of the dates have been adjusted yet. No, they haven’t. But that brings me to one of my favorite topics of discussion, which is Opportunity Zone legislation. As many of you may know, if you’ve followed me for any number of weeks or months, I talk about this a lot. One of the reasons I talk about it a lot is because this is also one of the most popular questions I get—what’s happening with Opportunity Zone legislation? But for anyone who’s new to Opportunity Zones, I just like to kind of give them the bigger context of what this is.

First of all, it’s a perishable tax incentive program that’s designed to spur economic development. It’s a tax policy program designed to spur economic development in low-income communities, but it is perishable and will require an act of Congress to extend it or reauthorize it in order to keep this party going, so to speak, beyond that end date.

There is currently legislation pending in Congress. It’s called the Opportunity Zones Transparency Extension and Improvement Act. It was introduced in the House in 2023. It has not been introduced in the Senate yet. Chances are nothing’s going to happen with it in this session of Congress, which expires at the end of 2024. My guess is it’ll play a very big part, potentially, in tax legislation in 2025.

So, Stan, I don’t know if you’re here or not. I know you emailed this one to me a couple of days ago. But if I ask this question again in 2025, I think we’ll know a lot more. I have my fingers crossed, and I’m hopeful that there will have to be some sort of tax legislation in 2025 because so much of the tax code expires in 2025. A lot of the Tax Cuts and Jobs Act expires in 2025. Democrats have priorities that they want to push through with tax policy, but it’s really going to depend on the outcome of the election—who wins the White House, who wins the House of Representatives, who wins the U.S. Senate, what the balance of power will be to determine what the priorities will be in 2025.

I do think there’s a pretty good chance, possibly a very good chance, depending on how the election goes, that we could get Opportunity Zone legislation that would extend the program by an additional two years, if not more. So that would potentially push that 2026 date that I’ve been talking about for the last few minutes out to 2028.

There’s also this concept of an OZ 2.0—just completely redoing Opportunity Zones, reauthorizing a new slate of census tracts. So we currently have those 8,764 census tracts all across the nation that are designated as Opportunity Zones. You can find out which ones are where by going to my map at opportunitydb.com/map. But there’s also potentially a world that we may live in two, three, or four years from now where we have a new authorization of Opportunity Zones with a brand new map, maybe a new set of rules. They’d probably be, for the most part, identical to the rules we have today, maybe with some tweaking around the edges. I think that would be really exciting if we could do Opportunity Zones all over again, essentially starting at some point in the mid to late 2020s.

So, so far, Stan, none of the dates have been adjusted, but there could be some adjustments coming on the horizon, suffice to say.

All right, let me get back to the live questions here now. Arnold asks, “What lobbying efforts are being made to improve/incentivize investment in Opportunity Zones for the next administration? What is on your wish list?”

That is a great question. I would say that one of the big things on my wish list is let’s allow non-gains dollars to be eligible for the tax benefits. Obviously, if you put non-gains dollars into a qualified opportunity fund, you shouldn’t be eligible for deferring that gain because it isn’t a gain, right? So that benefit wouldn’t apply. Neither would the basis step-up. Those wouldn’t apply.

This has been a question and a thought that’s popped up a lot: “Hey, Jimmy, I have a hundred thousand dollars I’d like to put into an Opportunity Zone development, but I don’t have any gains from the past 180 days. But I’ve got a hundred grand sitting in my savings account or sitting in a money market account at my brokerage account, and I want to put it into Opportunity Zones, but I understand I’m not eligible for any of the tax benefits if I do so.”

So, why not allow that type of investor to participate in that huge third benefit, the elimination of OZ Capital Gains Tax? I would say that’s my number one biggest thing on my wish list of how to improve the tax benefit and how to incentivize more investment into Opportunity Zones.

If you’re kind of nibbling around the edges a little bit, you could also say, “Hey, we had this 10% and this 15% basis step-up—why not make that 25% and 50%?” You can kind of tweak those numbers a little bit, but I really think allowing non-gains dollars would have a pretty sizable impact for a lot of investors, and it would open it up to a different class of investors as well, allowing more people to participate. So that’s, I would say, my one big thing on my wish list.

What lobbying efforts are being made? I would point to the Economic Innovation Group, EIG, which has an Opportunity Zone coalition. They’re very active on Capitol Hill. The Novogradic Opportunity Zones Working Group does a lot of back-and-forth with members of Congress and with the IRS in terms of what they see as a professional accounting firm and how they’re always passing ideas along to members of Congress and to the IRS in terms of how to improve Opportunity Zones going forward.

Let’s see. I do have one more question here from Audio Skills: “Thanks, Jimmy. Does your mastermind cover any of this stuff?”

We do meet once a month at OZInsiders.com. We have a standing monthly Zoom call on the second Monday of every month. This Office Hours is on the first Monday of every month. The second Monday of every month is my OZ Insiders Masterclasses, which is just for my members only. I do bring in a whole assortment of some of the best Opportunity Zone experts from all around the country, and we cover a really wide range of topics. Some are geared for investors who are looking to invest their own capital gains into funds. Some are for funds: “Here’s how to structure Opportunity Zone investment,” or “Here’s how to raise capital for your Opportunity Zone investment.” Some of the master classes have covered and will cover legislation: “What’s going to happen if this legislation looks like this or like that?” and “What outcome might that have on Opportunity Zones?”

If you’re interested in learning more about OZ Insiders, if you want to take a look at all of our past master classes, which are recorded and made available on-demand for our members, you can visit ozinsiders.com/calendar to learn more about that. I’ll share it on my screen right now. I’ll just kind of scroll through what we have coming up on the horizon. Some dates are available. This one with Jerry a couple of months ago was phenomenal—Opportunity Zone Development Joint Ventures. This one here also with Brett, Financing Opportunity Zone Deals. I mean, we really have a pretty good list of members who are also just masterful instructors in their own right.

Great to hear from Shay Hawkins always. He gave an update on the Opportunity Zone legislation because he’s on Capitol Hill quite a bit. He’s a former staffer in Senator Tim Scott’s office, if you’re not familiar.

Thanks, Audio Skills, for that question. Let’s see. I got one here from Daniel. I think we’ll just spend a few more minutes taking some live questions here. I didn’t really want to get too past the half-hour mark, but Daniel’s got a good one here.

Daniel asks, “If we closed on a property in January…” So, I’m not sure, first of all, Daniel, do you mean January 2022 or January 2023? “What is the latest date we can invest that money?” I want to see if I can hear a follow-up question from Daniel. I’m going to assume he means January 2022—closed on a property in January 2022. “What is the latest date we can invest that money?”

If you sell a property on January 2022, you essentially have 180 days from January 2022 to invest that money. Usually, there is one caveat, though. Daniel has just now advised me it’s January 2022. So I’m not quite sure that there’s a whole lot you can do with that one, Daniel, because you really only have 180 days after triggering the gain. If you trigger that gain in January of 2022, you’re already well past the 180-day mark. But maybe I don’t understand exactly what your question is asking there. But yeah, typically, you have 180 days after you trigger a gain to roll that gain over into a qualified opportunity fund.

Now, sometimes you can buy yourself some additional time if you recognize the gain through a partnership and that gain gets reported on a partnership Schedule K-1 on your tax return. The IRS has said, “Well, look, sometimes investors in a partnership don’t know what the gain is for over a year later.”

So, I’m just going to keep following along with your case here. Let’s assume that your property that you sold in January 2022 was through a partnership Schedule K-1, and it got reported to you in 2023. It wouldn’t get reported to you until typically K-1s are due in February of 2023. Oftentimes they come well after that, as I’m sure many of you are aware. But the IRS has said you can elect to use March 15th, which is the partnership return due date of March 15th, 2023, to start your 180-day clock. That takes you out until about September 10th or September 11th, depending on if it’s a leap year. So that January 2022 transaction could have had until September of 2023 in the 180-day window, technically.

So, if anybody else has a comment on that, feel free. But I think if I’m understanding correctly, your 180-day clock, no matter how you start it, has passed by now because 2022 is just too long ago, unfortunately.

Let’s see. Let’s take this question from Lance here. Lance asks, “Are there any working groups working on fixing the current problems with the OZ program? Up to now, the OZ program mainly benefits rich people and real estate developers.”

Lance, my opinion is that it’s hard to really make that assessment or determination. And the reason why is because there isn’t a lot of data available that’s been collected on Opportunity Zones to date. I won’t get into the specifics, but the original OSI legislation did have a carve-out in it to collect a lot of data and make reports annually to Congress on the effectiveness of the program. Unfortunately, that reporting rule was stripped out of the final legislation due to some arcane Senate rule. It’s a little bit above my pay grade, quite frankly.

I think that’s the number one thing that a lot of proponents of Opportunity Zones actually want to see in the new legislation—let’s restore those reporting requirements. Let’s make annual reports to Congress on the effectiveness of the program.

In terms of effectiveness of the program, that’s talking primarily about where Opportunity Zone capital has been invested, like which census tracts, how many jobs have been created by Opportunity Zones is a big one too, and how the poverty rate has changed in those zones. Some third parties are attempting to collect this data, but it would be much more effective if the legislation I’ve been talking about—the Opportunity Zones Transparency Extension and Improvement Act—were to get enacted, because it would require a lot more data to be collected from investors and from funds in particular on where the capital is going.

Then I think we could actually make a determination of whether this program is working or not. In terms of working groups, I would suggest those two again: the EIG Opportunity Zones Coalition, and they work hand-in-hand, oftentimes, with the Novogradic Opportunity Zones Working Group. I think those are the two best working groups that really advocate for the improvement of the Opportunity Zone legislation.

OK, let’s see here if we have any more questions that I’m able to answer. Jim comments, “Lance, your question is somewhat political in nature. Qualified OZ investments, including operating businesses that create jobs, real estate investments of ten-plus years help those census tracts.” Thanks for chiming in there, Jim. I would agree with your comments 100 percent.

I want to get to one or two more questions here. Celeste asks, regarding “San Jose multifamily OZ, $250K investment. How is the unit/percentage of share for $250K? Can we sell independently after a limited time pass?”

Celeste, I think you’re referring to an Opportunity Zone fund that has a minimum $250,000 investment. I’m going to go out on a limb and assume that you’re talking about Urban Catalyst. They’re the only one I know of that meets all of those criteria. You’re pretty specific there—$250,000 investment, probably in Urban Catalyst. You didn’t mention them by name, but it sounds like it’s probably them. “Can you sell independently after a limited time pass?” I don’t know the answer to that question. I would encourage you to get in touch with that fund manager or the investor relations team at that fund if you do need to exit the fund.

Oftentimes, funds will have some sort of buyback provision if, for whatever reason, an investor needs to get out of the fund at some point in the future before the ten years have passed. There will oftentimes be a carve-out in your subscription agreement that they can, at their convenience, at their choosing, at their discretion, purchase back those shares from you. Oftentimes, a certain number of months or years need to have passed before you’re able to do that, and they might not offer you a hundred cents on the dollar necessarily.

In terms of trading them on an open market, there is no—these are private placement funds that don’t have an open marketplace for them to transact secondhand. So I think your first point of contact should be the fund itself. Just explain the situation. If you’re trying to get out, they might be able to purchase back those funds from you. I don’t know in the particular case of Urban Catalyst or whoever this investment manager may be if they’re able to do that or not, but yeah, I think the first place you need to go is probably to that fund manager.

Let’s see. A lot of great back-and-forth comments in the chat on YouTube. Thank you, Daniel, Lance, Jim, and Andy, for chiming in. Really love the back-and-forth there. Andy mentions, “This program has created a ton of jobs.” I hope that’s true. I think that’s true. And the fact of the matter is we don’t really know for sure exactly how many jobs it’s created because we don’t have those reporting requirements. But fingers crossed that we’ll get some reporting legislation in place at some point in time. I think it’ll make the program a lot more defensible, obviously.

Even Mike Novogratic, who is the founder and principal owner of Novogratic, Michael Novogratic himself, was testifying before the U.S. Senate Subcommittee on Finance last month, I think it was. He was fielding some tough questions from a couple of members of the Senate who were trying to criticize Opportunity Zones a little bit. At one point, Mike said, “I hope the next time we meet, we have actual hard data on this so we don’t have to rely so much on anecdotes.”

If you’re a proponent of Opportunity Zones, you can pick out numerous anecdotes that show how great the program is. With a huge national program like this that doesn’t require a whole lot of regulation or government oversight in terms of getting approved, if you’re a detractor of Opportunity Zones, you can certainly pick and choose a handful of projects or examples or anecdotes that show that this definitely isn’t working. So, anecdotally, you can paint either picture, I would say. But until we get really hard data on what’s going on with Opportunity Zones, it is kind of hard to tell, unfortunately.

Even then, I would caution, data can be manipulated. Well, I think this was pretty darn successful. I want to thank everybody for joining me for today’s premiere episode of Opportunity Zone’s Office Hours. I know we have more questions, but unfortunately, we’re out of time.

If you enjoyed today’s episode, I’d appreciate it if you could click that thumbs-up button, whether you’re on YouTube or LinkedIn, or if you’re listening to the replay on Spotify or Apple Podcasts, maybe leave a review and a five-star rating, if you wouldn’t mind, or however you’d like to rate it. If I wasn’t able to answer your question—I know we didn’t get to a few of them—please feel free to email it to me. You can reach us at [email protected].

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Thanks again, everybody, for joining me today. We’ll be back on the first Monday of every month at 3 p.m. Eastern time with another episode. Take care.