How The Election Will Impact Opportunity Zones, With John Sciarretti & Jason Watkins

The future of Opportunity Zones may be at stake in next month’s election. The outcome is likely to determine whether the program is extended, renewed, or left to phase out by 2026.

John Sciarretti and Jason Watkins, partners at Novogradac, join the show to discuss how different election outcomes may impact tax legislation in 2025. Plus, they provide a preview of the upcoming Novogradac Opportunity Zones Summit, taking place in Washington DC next month.

Episode Highlights

  • The data showing a fundraising slowdown in 2023 and 2024 from Novogradac’s voluntary rolling survey of over 1,400 Qualified Opportunity Funds, and how signs of recovery are starting to emerge in the multifamily sector.
  • How the upcoming election resulting in a Republican sweep, a Democratic sweep, or a split government may impact future tax legislation and determine whether or not the Opportunity Zone tax incentive gets extended.
  • Key Figures in Congress, including Republican Senator Tim Scott and Democrat Senator Cory Booker, co-sponsors of the original OZ legislation, and how their continued leadership could positively shape any OZ-related bills in 2025 and beyond.
  • The potential for an renewal of the OZ program (OZ 2.0), which may include new census tract designations and reforms to allow after-tax capital to participate.
  • Details about Novogradac’s upcoming OZ Summit in Washington DC, including a preview of session topics.

Guests: John Sciarretti & Jason Watkins, Novogradac

Featured On This Episode

About The Opportunity Zones Podcast

Hosted by OpportunityZones.com 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

Jimmy: Welcome to the “Opportunity Zones Podcast.” I’m Jimmy Atkinson. On November 6th, Novogradac and company is hosting their annual Opportunity Zones Summit in Washington, D.C. And here to discuss that upcoming event, as well as other important OZ updates, are John Sciarretti, partner at Novogradac, and Jason Watkins, who, in addition to being a partner at Novogradac, he is also the chair of the upcoming OZ Summit, and leader of the Novogradac Opportunity Zones Working Group. John joins us from Dover, Ohio. Jason joins us from Alpharetta, Georgia. Gentlemen, thanks for joining the show. Welcome to both of you.

John: Great to be back.

Jason: Happy to be here.

Jimmy: Great to have both of you here as well. I always look forward to this episode. We try to get someone from Novogradac on the show at least once a year, usually to discuss this upcoming conference, so, and before we dive in, I do wanna discuss the OZ Summit in a little bit of detail. This is their big in-person Opportunity Zone event, that happens once a year. This year it’s gonna be on November 6th, 2024, in Washington, D.C. It’s a one-day OZ event, taking place at the Fairmont Hotel, which is located in the West End neighborhood of Washington, D.C., adjacent to the Foggy Bottom in Georgetown neighborhoods, if you’re familiar with D.C. at all. opportunityzones.com is a media partner for the event, so I’m going to be there. And this event is always well-attended by many of the top professionals in the OZ space. It’s a great event to learn more about Opportunity Zones, and also network with others in the industry.

You can learn more about the conference, and purchase registration at novoco.com. That’s N-O-V-O-C-O.com. Best part, podcast listeners can save 10% at checkout by using promo code OPDB10%. We’ll be sure to include that promo code, and link to the Novogradac registration page on our show notes for today’s episode, which you can always find at opportunityzones.com/podcast.

Now, John and Jason and I are gonna discuss the conference in a lot more detail a bit later in the episode, but first, John, I wanna turn to you. My audience of Opportunity Zone investors are likely pretty familiar with Novogradac already. It’s a household name in the OZ industry. But for anyone who may be new to the OZ space, may be new to this podcast, can you briefly explain what is Novogradac and company, and what are some of the services that your firm provides to the OZ industry?

John: Great. You know, Novogradac and company is a traditional accounting firm. We’ve been in business for 35 years. And we do all the things that traditional accounting firms do, audit, tax, management advisory work. But we also happen to be very good at community development finance, incentives. We work in the Low-Income Housing Tax Credit space, New Market Tax Credit space, historic tax credits, the energy tax credits, and Opportunity Zones, of course. And so, that’s sort of our niche. But I think folks kind of forget that we work with all kinds of businesses and all kinds of industries, primarily the real estate industry, but do a lot of market rate, non-incentive type work as well. We have 80 partners, 25-plus offices, and 1000 employees.

Jimmy: Yeah, very, very big firm. Great focus on a variety of different tax credit programs, and Opportunity Zones being one of your specialties. You guys have been at the leading edge of Opportunity Zones since well before the incentive became enacted in law as part of the Tax Cuts and Jobs Act of 2017. You guys have been working on Opportunity Zones since well before that, even. So, thank you for your leadership, and your continued leadership, in this industry.

Let’s talk fundraising. One of the big services that Novogradac provides to the Opportunity Zones industry is this voluntary rolling survey of Qualified Opportunity Funds. You’re surveying over a thousand different Qualified Opportunity Funds, all over the country, investing in a variety of different projects and a variety of different asset classes and geographies all over the country. And this voluntary survey, which you’ve been running since the get-go, since 2018, I think, has put some numbers behind how much funding different Opportunity Zone projects have received over time. And to date, there’s been a total of, according to your survey members, I think, correct me if I’m wrong, approximately $40 billion of equity has been invested into different Qualified Opportunity Funds all over the country. Now, you admit that you’re not able to capture the full universe of OZ Funds. You’re only able to capture roughly one-fourth to one-third of the total industry. So, I’ve kind of extrapolated those numbers, and I ran an article earlier this year that says that Opportunity Zone fundraising has probably surpassed $150 billion at this point. But John, turning back to you now, can you give us a little bit of color into the status of fundraising? Because I know it’s slowed down a lot, in 2023 at least. And where are we currently? And do you think it might start growing again at some point?

John: Sure. So, yeah. You’re correct. It’s, like, 1,400 funds that we survey, and the total’s $38 billion to date. We started in ’19, early ’19, so maybe missed some of the fundraising the first year, but, you know, it didn’t really ramp up until ’19. And when we look at our fund group, three of the funds, fund managers, have raised over a billion dollars. There’s 12 over $500 million, and I think 60 or so over $100 million. It primarily is, when you look at the asset class, it’s primarily multifamily. I mean, that’s the space. Eighty percent of the funds raised in our survey were for multifamily, or at least some multifamily. And when you look at the fundraising itself, 60% of the money that’s been raised are those funds over $100 million. So, we think it’s a good mix of a marketplace, and I think you’re right in that we believe that it’s probably a third to a fourth of what’s actually been raised. It’s interesting, in 2020, IRS, I think they came out in ’21, they looked at tax returns. Through 2020, they were at $48 billion. And so, at that time, we were at $15 billion. And so, that kind of matches up with that, three to four times. So, yeah. I think you’re right. I think Mnuchin, in the beginning, said the program would raise $100 billion. And so, I think he was right, and made it a little bit more. There’s…probably why he was GP at Goldman before he …

Jimmy: Well, I actually don’t think he was right. I think he underestimated how successful it would be. And I thought, when I first saw that, he said $100 billion right out of the gate, in mid 2018, when they were first starting to talk about Opportunity Zones, and he said $100 billion. I thought, wow, that’s a lot compared to some of these other programs. New Market Tax Credits is the one that I oftentimes compare OZs, to early on. It was capped at $3.5 or so billion per year, NMTC was. So, for Opportunity Zones to be $100 billion was, like, a huge number. And yet, I think that OZs have surpassed that total, with still a few years to go before it sunsets, right?

John: Yeah. I think you’re correct. I think you’re correct. Yeah. Yeah. New Markets is $5 billion now, but…

Jimmy: Five billion now, okay.

John: Yeah. But you’re right. It was $3.5 billion, so…

Jimmy: Good.

John: So, looking at the trends, I’ve always said it sort of tracks the multifamily marketplace, when you look at fundraising in the multifamily. And in 2021, 2022, when we had lots of investing, and multifamily interest rates were low, cap rates were also low, rent growth was crazy. I mean, we looked at some models where people were sort of projecting 5% to 8% rent growth in that time. And you looked at our survey, the first, in 2021, was $7 billion, out of the 38. In 2022, $9.6 billion. So, that just mimicked the marketplace for multifamily. And then we had the pause of ’23, where the marketplace and multifamily obviously slowed down, interest rates were up, rent growth was actually way down. I mean, I saw models in the 2%, 1.5% range. People were really afraid of oversupply, lots of units under production, and everybody had sort of recession fears at that time. And so, we only raised $3.5 billion, or our company only raised, our fundraising survey only showed $3.5 billion in 2023. And that’s from $9.6 billion the year before. So, you look at that downward trend.

This year, it’s been slower yet. I mean, the first quarter, we had $230 million. The second quarter, which is all the results we had to date, we’re actually surveying the third quarter now, only $500 million. So, we’re $700 million to date, where last year at this time, we were $2 billion to date. So, it’s really slowed down. I think it’s, I mean, everything you read, the multifamily market seems to be recovering. Interest rates are coming down. The 10-year Treasury, which is sort of, the mortgage loans track, is supposed to be, like, 3.5% by the end of the year. I think it’s, like, 4% now. And so, you look at that, and you look at, you know, the construction starts are starting to kick up. Rent growth has normalized. And it’s probably in that 3%. That’s the normal range for rent growth expectations.

So, you see signs of recovery, so the question is, will we see signs of recovery in the Opportunity Zone space? I think it probably won’t track it as it did. I mean, I think, clearly, the novelty has worn off a bit on Opportunity Zones. And I think there’s lots of, when you look at the marketplace, stabilized assets seem to be gaining a lot of the equity right now. And Opportunity Zones is a development program. And so, it’s gonna be a little tougher to raise money for development projects in ’24, at least to the levels that we were seeing, billions of dollars instead of hundreds of millions of dollars. But if you just look at first quarter to second quarter, it’s picked up. So, that’s attractive. And we are getting towards the end of the program. I think some folks think that, “Oh, the incentives…” The deferral incentive, obviously, is truncated, right? You only have a couple years to defer. But the big benefit in Opportunity Zones is this sort of back-end gain exclusion. And that’s available all the way to ’26, and so I think, again, the novelty may be worn off a bit, but I do think that folks maybe don’t understand that they can invest all the way to ’26, and get that 10-year exclusion, which is huge for increasing that yield on your investment. So, hopefully, we see an upswing in next quarter and fourth quarter, and then ongoing.

Jimmy: Yeah, I’m hopeful with ’25, the Opportunity Zone fundraising will bounce back quite a bit. But I think you make a good point there. Not only were Opportunity Zones fighting against broader macro trends, and market trends within multifamily, specifically, as you pointed out, interest rates going up, just transaction volume overall going down, it being much more difficult for a development deal to become feasible, but also, at the same time, every day that goes by, every year that goes by, at least, the Opportunity Zone incentive becomes slightly less valuable as we get closer to that deferral date. And now, it’s, like, the deferral’s almost more trouble than it’s worth, or almost worthless, I guess. Certainly, if you invest in ’26, there is no deferral. But, yeah. And I think investors get a little bit too hung up on that, because the big benefit is that back-end 10-year hold step up to fair market value, and the exclusion, the ability to escape your Opportunity Zone investment completely tax-free, which is very powerful indeed.

Interesting thoughts about how development may still not be feasible, as opposed to stabilized real estate asset investing, John. So, we’ll keep an eye on that, though. It’ll be curious, I’ll be curious to see how the survey shakes out through Q4 of 2024, if we see any bump, any meaningful increase in Q4. I guess we’ll find that out probably around late January, early February of ’25, when that data comes out from your group. And then we’ll see what happens throughout 2025. One thing that is making the Opportunity Zone incentive less and less valuable is, of course, we’re getting closer to that deferral date of December 31, 2026. Of course, there is pending legislation, the Opportunity Zones Transparency, Extension, and Improvement Act, that has been introduced into the last two sessions of Congress, has not been voted on or packaged into a broader tax bill just yet, but possibly could get packaged into a broad tax bill next year, during the Super Bowl of Tax.

Jason, I wanted to bring you in right now, to talk about that extension bill. What do you see as being in the realm of possibility for Opportunity Zones getting extended? Probably not this year, at this point. We’re getting a little bit too late in the day, and it’s an election year. But 2025 is the year that I’ve got my eyes on. And I know that it’s gonna hinge on the outcome of this upcoming election. We’re gonna be electing a new president. We’re gonna be electing new members of Congress. So, if I’m an investor, or if I’m an Opportunity Zone operator, and I have a question about, hey, what’s gonna happen with OZs? Is it gonna get extended or not? What do you tell people?

Jason: Oh, it’s hard to know without a crystal ball, right? We don’t know what’s gonna happen.

Jimmy: I’m asking you to get out your crystal ball, Jason.

Jason: Yeah. I’ve got my crystal ball right here, so let me start reading from it. As far as timing of a potential bill, it’s gonna have to be grouped with other tax legislation. There’s probably not gonna be a standalone bill, and that’s gonna be pretty typical. You alluded to the Super Bowl of Tax, which, are we okay saying that? Do we have to say “the big game of tax?” Is it okay to say “Super Bowl?” anyway.

Jimmy: I think we can say Super Bowl here. Yeah, let’s say it.

Jason: All right. We’ll go for it.

Jimmy: I don’t think I have express written consent from the NFL, but I have implied oral consent, so let’s go on.

Jason: All right. All right. Well, Jason Smith said it. So we’ll just say that, according to Jason Smith… Anyway. So, it’s gonna have to get grouped with larger legislation. That’s gonna take some time to play out and negotiate. I can’t imagine anything happening in the first part of 2025. So, I think negotiations will get heavy mid-’25, if we’re lucky. Maybe by the end of the year, we can see something. We saw that in 2017. That was the very end of the year, when the Tax Cut and Jobs Act happened. So, maybe it could happen that soon. It could very well push into 2026 sometime, though. We just don’t know. And a lot of it, what will actually make up an extension, and a renewal bill, is gonna depend on what the makeup is of Congress.

So, we’ve done some analysis on our end, and I thought I’d share that with you today, as to what some of these different possible scenarios could mean for the OZ incentive, and maybe some steps that we can take as a group to at least get in contact with the right folks that may be in charge. So, there’s three options, right? You could have a Republican sweep of the White House and the Senate and the House. You could have a Democrat sweep, or you could have split government, some sort of split between the two parties between those. So, first scenario we’ll talk about is a Republican sweep. In a Republican sweep, well, we know that the OZ incentive was very bipartisan initially. The initially-introduced Investment and Opportunities Act was truly bipartisan, bicameral. But since passage, under the Tax Cuts and Jobs Act, Republicans have probably taken more ownership. I think we could safely say that Donald Trump and Tim Scott and others have taken more ownership of the incentive. So, I think it’s currently seen probably as less bipartisan as it was. So, a Republican sweep would probably create the best environment for an extension and renewal of a quicker one. Though, keep in mind that a Republican sweep may very well result in legislation having to pass under budget reconciliation again, which was what we dealt with with the Tax Cut and Jobs Act. And under budget reconciliation, there’s a Byrd Rule, which prevents any non-revenue items from being a part of any tax legislation that’s passed under budget reconciliation. And so that’s why we lost all the reporting requirements that were in the initial bill. They had to be dropped for those Senate rules, from the final legislation.

Jimmy: So, the Transparency Act could possibly get passed in 2025 under a tax bill that is passed under budget reconciliation, but, the reporting requirement would likely get stripped out again. Is that where you’re going?

Jason: Right. Yeah. If it goes under budget reconciliation, we’d lose the reporting again, which is probably the one thing that everyone agrees on right now, is that we need reporting requirements. I think there’s overall still bipartisan support for the OZ Incentive, but everybody says we need reporting requirements. So, there’s a chance. There’s a chance of a Republican sweep. I don’t know how high it would be at this point. It really depends on the House, I think. In, but, so, then…

Jimmy: Sorry, sorry. I have a stupid question. Budget reconciliation. Is legislation passed through budget reconciliation in order to not need a 60, or whatever it is, vote majority in the Senate?

Jason: Yeah, yeah. Yeah, it gets rid of, a simple majority is sufficient to pass a bill under budget reconciliation. So, no Democrat support would be needed. Whereas, in the … vote requirement.

Jimmy: Got it. So, in that case, they could just have 50 votes, plus one, from the VP, potentially, under this scenario.

Jason: Correct. That’s correct.

Jimmy: Okay.

Jason: So, then, the next option, or next possible scenario, would be a full Democrat sweep, which isn’t very likely, especially with the Senate. I mean, the White House is a coin toss right now. The Senate, just because of the seats that are coming available, retirement of Joe Manchin in West Virginia, for example, makes it very likely that the Senate will flip from the current Democrat to Republican leadership. But, understand that, even if there were a Democrat sweep, that doesn’t mean that the incentives is done. Again, the massive amount of investment, over $100 billion, I think we can very safely say, at this point, and that gets a lot of people’s attention. That’s a lot of money going into low-income communities. The original legislation was bipartisan. There’s still a lot of Democrat support. And something else to note is, where is the investment going? Well, it’s going, we know from reports that have come out that over 90% of investment has gone into urban areas. Well, those are Democrat seats. Those are Democrat areas. Typically, those tend to lean Democrat. So, the Democrats have seen this massive amount of investment come into their districts. I don’t think it’s something that anyone really wants to go away, but it could take a different form.

If the Democrats were in charge of the new tax bill, solely, then it could very much take a different form. There might be more oversight. There might be other things put into place to help achieve Democratic goals, Democrat party goals. So, really, the most likely outcome is gonna be split government. And we’ll put the White House aside right now. I don’t wanna talk about that. But, like I said, the House, decent chance that it flips to the Democrats at this point. And so, what we need, as an industry, back in the Opportunity Zone incentive, is who is going to be the leader on the Democrat side, in the House, because the current, probably the best proponent in the House on the Democrat side is Dan Kildee, who’s retiring. So, some potential logical replacements for someone taking up that baton on the Democrat side. Terri Sewell, from Alabama. She’s been a co-sponsor of OZTEIA, big supporter of the OZ incentive, but she does have other priorities. She’s also a lead on private activity bonds, and New Markets Tax Credits, and there’s only so much community development that a single rep can possibly accomplish.

So, some other current or former supporter, Richard Neal, who, currently, I mean, he’s the ranking member, if it flips Democrat, he would likely become the chair, and then would not be co-sponsoring legislation from that position. But he could certainly encourage it. Other Democrats that still sit on the House Ways and Means Committee, that have previously sponsored OZ legislation include Brad Schneider, from Illinois, John Larson, from Connecticut, Suzan DelBene, from Washington. And then another one that I wanna mention is Gwen Moore. If you recall, a few months back, when the House Ways and Means Committee had their OZ meeting in Erie, Pennsylvania, Gwen Moore was the only Democrat that attended. But she even noted, in her sort of rebuttal, if you will, her response, that she had seen positive benefits of the OZ incentive in Milwaukee, in her district. She wanted to see more reporting requirements, and some more accountability. But even she admitted that it was not just all bad, that there’s something here that she can get behind, I think.

So, that’s sort of where things stand in the House now. So, I think it’s important for your listeners to reach out to their representatives, see if they are supportive of an extension or a renewal of an Opportunity Zone incentive, particularly if they sit on some of these important committees. Now, remember, all tax legislation has to originate in the House. It’s gonna originate with the House Ways and Means Committee. So, those are very, very influential positions that are on that committee. If your listeners have contacts with them, it’s very good to reach out, and establish that dialogue.

Then I wanted to flip over to the Senate for just a minute, too. So, there, the sort of the opposite of the House Ways and Means Committee, is the Senate Finance Committee. That’s where any legislation would start, any tax legislation would start after it comes over from the House. Currently, it’s a Democrat, held by Ron Wyden, is the chair. Senator Wyden is not exactly a fan of Opportunity Zones, I think we can safely say. But, the ranking member, on the Republican side, is Mike Crapo. Mike Crapo is a huge proponent of Opportunity Zones. He’s very publicly supported Opportunity Zones. So, we think that would be a very positive development over on the Senate side. And let’s not forget that Senator Tim Scott from South Carolina sits on the Senate Finance Committee. And then, there’s currently an opening on the Democrat side, with Bob Menendez being ousted, on the Senate Finance Committee. Next up, sort of in the seniority rankings for senators, are Bernie Sanders and Cory Booker. Bernie Sanders is probably not interested in the Senate Finance Committee. I think he’s turned it down in the past. So that leaves Cory Booker as the next-most senior member that could join. And logically, it makes sense. It’s a New Jersey senator replacing a New Jersey senator. It gives the Democrats a senator from the New York tri-state area, which there currently isn’t one on that committee, with Menendez gone. So, that’s logical. And then that puts, you know, sort of getting the band back together, right, with Tim Scott and Cory Booker sitting on the Senate Finance Committee, I think that can be a very positive end result for Opportunity Zones …

Jimmy: Because, for those who don’t know, Cory Booker was one of the original co-sponsors of the Investing in Opportunity Act that was introduced into the Senate in 2015. So, he’s been a longtime champion of the Opportunity Zones tax incentive on the Democratic side of the House, along with, he’s basically Tim Scott’s counterpart on the other side of the aisle there, right?

Jason: Exactly. Exactly. So, yeah. We think that’s sort of the state of things right now. You know, this… We’ll see how much has changed by the time we get to the OZ Summit, November 6th. But hopefully, we’ll know a little more by then, the day after?

Jimmy: Yeah, hopefully. Hopefully we can know a little bit more by then. I’m looking at polymarket.com right now, and actually, let me see if I can get my screen shared here, so those who are watching us on YouTube, you can kind of take a look and see what I’m looking at right now. But polymarket.com, right now, as of today, which is October 8th, we’re still, I guess we’re exactly four weeks out from Election Day, they’re giving a Republican sweep a 32% chance of coming to fruition, a Democrat sweep, a nearly 20% chance, 19.5% chance. So, it’s about evenly split, then. What is this? If I’m doing some math here, this is 51.5% that one of the parties will sweep. And so that leaves a 48.5% chance, someone check my math.

Jason: That’s really good math.

Jimmy: A 48.5% chance that we’ll get some sort of a split government. So, basically, let’s round it up and round it down. Basically, a coin flip whether we have a split balance of power, or one of the two parties ends up sweeping. So, I think you’ve laid out those three different scenarios for us. Probably Republican sweep is the consensus would be the most favorable environment for an Opportunity Zone extension. Democratic sweep, Opportunity Zones may or may not come back. Or if they do, they might take a new form, right? I do think…I agree with you. Opportunity Zones have become very politicized over the past few years. It’s been a talking point of Republicans. National Democratic leaders, at least, have seemed reluctant to embrace OZs too much, I think most, in large part because Trump has kind of claimed them as his own, and the mainstream media has kind of branded them as a Trump program over the years. I wonder, though, if we get past the election and into 2025, maybe the Democrats do sweep, come into power in the White House, the Senate, and the House of Representatives. Maybe some of those bad feelings about Opportunity Zones melt away, because at the local level, Democratic mayors of these large urban cities love OZs, for the most part. Democratic governors love OZs. They like the dollars flowing into their jurisdictions, so… Anyways, time will tell. I don’t have a crystal ball either, or at least it’s not as clear as yours is, Jason. But thanks for some of the insight there into what may transpire over the coming weeks and months and years to come here for the Opportunity Zones incentive.

I think we’ll know a lot more, hopefully in a month, when we’re all together in Washington, right. And so that brings me to my next point of discussion. You know, I introduced the Novogradac 2024 Opportunity Zones Summit in the intro, coming up in Washington, D.C., on November 6th. I forgot to mention, by the way, that my Opportunity Zones private group, OZ Insiders, is having a private dinner the night before the conference, just a five-minute walk around the corner from the conference that’s gonna take place the next morning. Jason and John have been extended invitations to that dinner, and they’ve been gracious enough to accept, so we can expect to see the two of them there, hopefully. There’s gonna be about 20 people, part of my OZ Insiders group. Jason and John will be there, and maybe a couple of other special guests as well, so it’s gonna be a great evening of some delicious food and some networking and camaraderie. And the one thing we all have in common is we all love Opportunity Zones. So, if you are a member of my OZ Insiders group, and you wanna come to that dinner, please reach out. Make sure you’re on our RSVP list, because we are almost full now. And if you wanna learn more about it, you can head to ozinsiders.com to learn more about our group, and that dinner on November 5th, the night before that OZ Summit in Washington, D.C. But Jason, let me turn back to you again, because you’re the chair of this upcoming OZ Summit. What is it, exactly? What should attendees expect, and what are you looking forward to the most?

Jason: Yeah, it’s a really great time to get together with a lot of just industry professionals that live this Opportunity Zone stuff day in and day out. There’s so much to learn. If you’re not that familiar with Opportunity Zones, it’s a great place to get a start. And we get to catch up with people, get to bounce ideas off each other. It’s a very great place. There’s a lot of Q&A that happens during these, during the sessions, and I’ll talk about those in a second too. But, like Jimmy mentioned earlier, it’s a one-day Summit. It’s November 6th, Wednesday. That’s the day after Election Day. It’s at the Fairmont in Washington, D.C. As Jimmy mentioned, I’m very honored to be named the chair of this year’s Summit. We have a great agenda. We’ll start the day with the Washington Report, which will take what we just talked about, Jimmy, and expand that out to about an hour and a half. And it’s really gonna break it down, everything that’s going on, everything that could go on, what the timing is, etc.

We’ll have breakfast and lunch and stuff during the day. But then we’ll also, after the Washington Report, we’re gonna have what we’re calling OZ 1.5, as the name of one of our sessions. And so this is sort of the in-between. This takes into account what we need to do for an extension, what we need to do for a renewal of the OZ Incentive, what those could look like, what the timing’s going to be, that kind of information. From that, we’re gonna roll into another great session that’s gonna be all about Qualified Opportunity Funds. There are gonna be fund managers who are gonna be sharing their experiences, their challenges, how they’re overcoming fundraising challenges, things like that. Always a great session. And then, lastly, our last session of the day, we’re gonna call it “The Wizards of OZ: Behind the Curtain.” And this is where we’re gonna deep dive into technical issues. This is maybe the most enjoyable for me, panel, even though I’m not leading that one. I love that one because it’s a lot of Q&A, with just the absolute smartest people in the OZ industry, that are sitting on the stage, taking questions from the audience. And they’re gonna be sharing legal, accounting, securities guidance. Any question that you have, it’s a great place to get it answered. And that’ll pretty much conclude it. We’ll have multiple social networking, business networking sessions during the day. So, it’s a great place to either learn about or catch up with OZ professionals.

Jimmy: No, it’s tremendous. I’m really looking forward to it. I go to this one every year. I wouldn’t miss it. We’ll have a booth there. opportunityzones.com will have a booth there, so make sure you stop by and say hello to me. And again, if you’re interested in learning more about that event, and purchasing registration, you can do so on the Novogradac website, novoco.com. That’s N-O-V-O-C-O.com. And podcast listeners can save 10% at checkout by using promo code OPDB10%. Well …

Jason: Sorry to interrupt. Are you gonna do a live show again this year?

Jimmy: I’m gonna do some sort of show there. I don’t know if we’re gonna be live, or if it’ll be a recorded segment, but I am gonna bring the camera and the mic and everything, and we’re gonna interview, at least we’re gonna interview our friend and colleague, Ashley Tison, while we’re there. He’s always my sidekick at these things, and I like to talk with him about what he’s learned throughout the course of the day at the event, and we’ll see if I can get one or two other interviews while I’m there, too. I don’t know. Maybe I should try to go live. I haven’t done a live on-site podcast ever, so that could be an interesting thing to try out. John, did you have anything else to add, what you’re looking forward to with the OZ summit?

John: Yeah, I just wanted to say, I think it’s important. When you look at this summit, conference, I think it’s a great start to recharge our batteries for this next phase of this industry. We’re really bullish on either an extension or a renewal of the program, not only because of everything that Jason indicated, but when you look at this program, it’s $100 billion, and it doesn’t cost that much when you compare it to other tax expenditures that are out there. I think the original estimate was, like, $1.6 billion for $100 billion. And I think there’s been revised estimates that put it above that, but it in no way compares to other tax expenditures. And so, we’re bullish on the election outcome. We’re bullish on the fact that it has done so well, and that it doesn’t cost a lot. And so, why not be on the cutting edge of this new recharge, new phase of the program? And we’d really love to see as many people there as we can get, so…

Jimmy: Yeah, great thought there, John. I’m definitely looking forward to it, and I think that room that morning will be very energized, and we’ll see what happens with the outcome of the election. We’ll see also if we know the outcome of the election by Wednesday morning, because sometimes we don’t know who’s won by then, but either way, I think it’ll be a great time to interact with a lot of different members of the Opportunity Zones community, the OZ industry that we’ve been a part of for so many years. I, by the way, personally, my favorite panel is always the Washington Wire, or the Washington Report. Mike Novogradac does a great job moderating that panel, with a lot of other insiders, Washington insiders, and folks on Capitol Hill. It’s a tremendous insight into what goes on behind the scenes in Washington, and what may happen, what may not happen, and what different members of Congress are looking to do, and their incentives. So, it’s really insightful. It’s, as Jason said, it’s what we’ve been talking about here for the past 20 or 30 minutes, but expanded to an hour and a half, so, goes into a lot more detail, so I really enjoy that session every year.

Jason, you mentioned OZ 1.5. That kinda is the OZTEIA, as you call it, the Opportunity Zones Transparency, Extension, and Improvement Act, getting OZs extended by a couple years, getting some more reporting into Opportunity Zones, so there’s more transparency on the program. But what about Opportunity Zones 2.0? What about a brand-new reauthorization of the entire program for another 8 or 9 or 10-year run, with new census tracts that are designated as OZs, basically OZ 2.0 OZs, I guess you could say? Because that is something that the Novogradac Opportunity Zone Working Group, that you are the director of, has been talking about a lot in recent meetings. Can you give us a little bit of insight into how your group is viewing OZ 2.0, and what chances do we have of an OZ 2.0 coming to fruition, and when, potentially, might that happen?

Jason: Well, I think we’re still looking at the next Congress for a 2.0, and I think it would kind of have to happen in the next Congress, because it expires at December 31, 2026. So, that’s the timing that we wanna see, so we really need an extension and a renewal. It’s really a two-pronged request, I think, that we need to see, because it’s going to take time. We don’t want there to be a gap in investment. So, it’s really important to get an extension first, if at all possible, as the negotiations for an OZ 2.0 are laid out.

Now, over the past few months, there’s been a lot of chatter, a lot of meetings, a lot of discussions out there, with members of Congress, the tax teams in the House, Republican side, particularly the Community Development Tax Team. And one of the things they’ve been talking about is an OZ 2.0. So, as a group, the Novogradac OZ Working Group, we’ve been working for the last two years plus now, putting together and debating and discussing ideas that we think could improve the incentive, increase the amount of investment, maybe sort of diversify the type of investment, get more investment into operating businesses, more investment into affordable housing, so that we have job creation, and also affordable housing. That’s really important. And there are some very specific ideas that we’ve had as a group, that we’ve shared now with multiple members of Congress, and in multiple settings. And we plan to continue to do so. Whoever the President-elect is, we’ll be in communication with their transition team as well, putting these ideas right out in front of where it needs to be, to get some action going, hopefully, in D.C.

But the kind of stuff we’re looking at are, you know, you mentioned a renewal would be newly designating Opportunity Zones, which we think is important. At this point, if you recall, the original designations were based off 2010 census data, so it’s pretty outdated now. That’s 14 years ago. So, we think that, with lessons learned from the first round of designations, the governors will do probably a better job of designating developable Opportunity Zones. And I’ve had this discussion with some folks just recently, that they noticed in their city that some of the Opportunity Zones really aren’t developable. Maybe they’re all single-family housing, already, already developed. There’s no place to develop within that. So, it’s an Opportunity Zone designation that basically goes to waste. So, we think that, now, that governors will understand, because if you recall, they had to designate before the first dollar of investment happened. So, now that they had those lessons learned, they’ll probably do a much better job of identifying places that can be developed.

Jimmy: They were also given very little time to kind of digest the whole thing, right, because the…

Jason: Oh, yeah. It was so compressed.

Jimmy: …the Tax Cuts and Jobs Act was passed in December of 2017, and the designations were made, I think they were nominating these zones over just the following spring and early summer, and the zones were finalized in July. So, it’s a very short period of time to digest what the heck is this thing, to nominating… You know, some states had to nominate hundreds of census tracts. So, yeah, you can imagine that there were some swings and misses on some of the nominations.

Jason: Absolutely. It was such an accelerated process, and no one knew. I mean, sure, Mnuchin said $100 billion, but not many people really believed that. And it happened, and then some. So, it’s important to keep that in mind. But we’d like to see governors have another shot at it, and also have the ability to, if they designate one that isn’t working out, have the option to replace it, so that they can continue the flow into their states. We think that’s a great idea, too.

There’s some…some of the other changes that we’d like to see. So, there’s this issue with interim gains. So, we’ve talked about there being a 10-year hold. So, if an investor holds their investment for 10 years, then any gain upon the sale of the investment or the underlying business, or the property, can be tax-free. The problem is is that you can’t sell it before 10 years. And there’s a lot of times where it makes sense to be able to sell a property or sell a business prior to 10 years passing. But under the current incentive, you’re kinda exited out at that point. You don’t, you’ll have to pay taxes on the gain, and then you’re also sort of done with your deferral. And we think that if that interim gain is reinvested back into Opportunity Zones, well, it makes perfect sense. That way, you can use the same investment dollars for more than one investment over a 10-year period, and maybe churn it two or three times, and be able to put that money to work instead of it essentially sitting on the sidelines again for 10 years, which is the opposite of the incentive’s goal to begin with. The goal is to get the money out there working.

So, we think that minor change in the way that the incentive is designed, it would require a legislative fix, so that’s why we call it a 2.0 fix. But that would be huge, because it would allow, venture capital would get interested, because venture capital doesn’t wanna wait 10 years. Private equity often doesn’t wanna wait 10 years to see a return. But if they can churn it, get it into a new investment, then venture capital and private equity would be more likely to invest gains. It’s such a win-win for everyone involved, and it’s just an unfortunate result of how the incentive was designed to begin with. So, we think that’s great. There’s some other smaller fixes that would open up many, many projects to development, that should be incorporated in the 2.0 as well. The last one I really think I’ll mention is, we’re sort of referring to it as democratization of the OZ incentive. So, right now, only taxpayers who have a capital gain can participate at all, really. They can defer a capital gain, but no other source can be used to gain any of the benefits. And we think that it makes sense to allow taxpayers to use after-tax capital to invest into Opportunity Zones, and still at least benefit from the 10-year hold incentive, which is the long-term growth. It’s really no different than a Roth IRA at that point, except it would be invested into a business or property located in an Opportunity Zone. We think that, again, is a no-brainer. And it resolves sort of one of the big criticisms of the incentive, which is “only the wealthy can play” kind of thing. This allows really anyone to be able to participate. So, we think that’s a good idea too.

Jimmy: No, I think it’s a great idea. It’s one of the most common questions I get, actually, is, “Hey, wait a second. I know if I put in gains dollars, I get a deferral. And, well, at least for the first few years, I also got a basis step-up that reduced my tax liability in 2026. But can I just take non-gains dollars and at least participate in that big benefit on the back end?” And I said, “Well, unfortunately, no. The whole thing only applies to gains dollars,” which I think is a little bit unfortunate. And I agree with you. It would democratize and open up this investment program to a wider range of investors if you can put in, if you have $25 grand or $50 grand, that isn’t a capital gain, you can put that into an Opportunity Zone project, and still participate in that 10-year hold benefit. I think that’s huge. I think it’ll unlock a lot of new investment into the program, and spur a lot of interest in investors who may not have sizable gains regularly.

Well, gentlemen, we’re running out of time. Thanks so much for joining me today. It’s been great. I think we can talk for another hour about this stuff, and hopefully, we will. I’m looking forward to having dinner with both of you on the evening of November 5th, and then, of course, getting together again on November 6th, at the Novogradac OZ Summit.

Before we go, could one of you share with our audience, where can they go to learn more about Novogradac, and this upcoming event, November 6th in Washington, D.C., and maybe speak a little bit about the Novogradac Opportunity Zones Working Group, and how some of our audience may be interested in joining that group as well?

Jason: Absolutely. As far as… Go to our website. We have an Opportunity Zones section on our website. It’s www.N-O-V-O-C-O.com. I’m sure Jimmy will have a link to that as well, in the show notes somewhere. But that’s a great place to learn. We have an entire section of our website devoted to Opportunity Zones. It has more information than you can read in any one sitting, for certain. It’s seven to eight years now of research and data that you can look at. As far as the Opportunity Zones Working Group, feel free to reach out to me directly. I lead that group. I’d be happy to walk you through getting a membership set up. That would also give you access to the last seven years’ worth of Opportunity Zones Working Group materials. There’s a lot of research, a lot of data, that you would then have access to if you join now.

Jimmy: Perfect. And you’re absolutely right, Jason. Thanks for teeing me up. I will have show notes available on our website, opportunityzones.com/podcast. I’ll have links to all of the resources that Jason and John and I discussed on today’s show, and I’ll be sure to link to the Novogradac Opportunity Zone Working Group, as well as the Opportunity Zone Resource Center, and, of course, the OZ Summit, November 6th, in Washington, D.C. Really looking forward to that one. Also, be sure to subscribe to us on YouTube or your favorite podcast listening platform, to always get the latest episodes. John, Jason, as always, a pleasure. Thanks again so much for joining me today.

Jason: Thanks, Jimmy.

John: Thanks, Jimmy.