Live Q&A With Opportunity Zone Experts, An OZ Pitch Day Panel

At OpportunityDb’s recent OZ Pitch Day event, prominent Opportunity Zone attorneys Gerry Reihsen, Brett Siglin, and Ashley Tison joined a live “Ask The Experts” session to answer your OZ questions.

Topics discussed included the 30-month substantial improvement rule, how to handle failed OZ funds, different investment structures, property sourcing, and more. OpportunityDb’s next live Q&A session will take place during OZ Pitch Day on November 14th, 2024. Registration is now open at https://opportunityzones.com/pitch-day/.

Episode Highlights

  • Different interpretations and approaches to the 30-month window for substantial improvements in Opportunity Zone (OZ) investments, especially related to acquisition timing.
  • Best practices for handling failed OZ investments, including mergers or reinvestment within six months.
  • How to structure OZ investments, including using revocable trusts, holding LLCs, and the importance of maintaining tax benefits.
  • What to do if you don’t receive your K-1 tax form on time, and the implications for filing taxes.
  • Various methods for finding commercial OZ property, including using LoopNet and consulting with brokers.

Panelists: Gerry Reihsen, Brett Siglin, Ashley Tison

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

Jimmy: First, let’s just go around the horn really quickly. All three of these gentlemen are prominent Opportunity Zone attorneys, and they are also all members of my OZ Insiders mastermind community. Brett Siglin, Ashley Tison, Gerry Reihsen, thanks for joining us today. Really quickly, just introduce yourself, 30 seconds or less, so we can get to the question. We’ll start with Gerry.

Gerry: So, I’m a four-decade corporate securities attorney, of global reach, although my Opportunity Zone focus has kind of narrowed it down to the U.S. for the last few years. We assist real estate developers, Opportunity Zone investors, Opportunity Zone investment fund sponsors, about everybody, and lenders, about everybody in the space, and have been doing that since the beginning of the program.

Jimmy: All right. Brett Seglund. Brett Siglin. Excuse me. Turn to you next.

Brett: Hey, Jimmy, everybody. Thanks for having us. I’m Brett Siglin. I’m a director at Fennemore, in Phoenix, Arizona. And like Gerry and Ashley, have been actively involved and engaged since the outset of this incentive, in early 2018. Prior to that, I’ve got about 20 years of experience doing tax-advantaged real estate transactions throughout the U.S.

Jimmy: Fantastic. And, last but not least, the OZ Sherpa, Mr. Ashley Tison.

Ashley: The great thing that I got on these other two guys is that I’m a reformed attorney, as opposed to a practicing attorney.

Jimmy: Excellent. Well, thanks to all of you for joining today. Ashley Tison with OZPros, ozpros.com, Gerry Reihsen at Reihsen & Associates, and Brett Siglin at Fennemore law firm. First question came in from Christian van Heck, a while ago. I wasn’t sure how to answer, and I figured let’s hold this one for the panel of experts. So, she asks, “I know there’s a 30-month time rule for the 100% improvement. However, does this 30 month need to start upon acquisition? I recently re-read the rules, and it says ‘any 30-month period.’ Can you please confirm?” What do you guys have to say about that? Just jump in when you want.

Ashley: I love this one, because Brett and I literally, I think we’re gonna have a cage match, where we go to town on this one. And, you know, I’m staking out my position, right, that, where I’m getting up on that third row road, and I’m saying that it says, “In the language, any 30-month period.” So, I think you could choose any 30-month window. I’m gonna let Brett go, because he’s gonna state his, you know, his position on that one.

Brett: Yeah, and the thing is, Ashley is absolutely right, that it does say any period, but really, as a practical matter, 99% of the time, you’re gonna wanna start that period from the date of acquisition. It’s the most prudent thing. It’s the most likely occurrence when you’re developing a project. There’s ways to get creative. You can potentially start it, you know, later on, even as late as your working capital safe harbor expires, which could arguably be in 5 years, and then you tack on 30 months from there, but good luck with the auditors when you’re explaining that one.

Jimmy: Gerry…

Gerry: Well, I think they’re…yeah, I’ve recently dealt with some, a deal where we acquired oil and gas-producing properties, and had some real complications as to the, you know, because we’re still producing, you know, when do we start adding some substantial improvements, started to do remediation, capping. One of the problems we came up with was, some of the… Do you get yourself in a problematic situation if you start to spend money for entitlements or other things? Can you say, “Well, no, this is not the start of the substantial improvements. We’re gonna do it later.” And do you miss out on the value of the things that before you state you’re official?

Ashley: I think you do.

Gerry: I think there is some complication… Hmm?

Ashley: I think you do. So, I think that you get the benefit of being able to choose any 30-month period, but, that 30-month period that you choose, if you spent money prior to that, not only do you miss out on that, but that counts towards the threshold that you have to hit in order to hit substantial improvement.

Gerry: Right. I wasn’t really trying to answer the question, because it can be very complex, depending upon your circumstances. I’m just trying to say that you can get complex circumstances, especially in non-Opportunity Zone traditional efforts beyond pure ground-up real estate development, or not necessarily ground-up.

Ashley: Sure.

Brett: Yeah. We could nerd out on this all day, but the answer is really keep it simple. You know, start the 30 months as soon as you can after acquisition, generally.

Ashley: And I think that it’s great that they recognize that there’s a difference between the 30-month substantial improvement window and the 31 months for the working capital safe harbor. And I think that the difference inside of that is actually one of the reasons why I take, you know, I take the stance that I think that you can start it at any point in time. But I do think that you need to be inside of your working capital safe harbor when you choose to start that 30-month window. And so, I think that all of us can agree on that.

Gerry: Now, do you guys think you can arbitrarily pick the window, even if you’ve undertaken substantial improvement stuff before you say you’ve taken the window? Or do you think facts and circumstances force you to choose when the window starts?

Ashley: I think that you can start… I think you can choose the window, but that anything that you do prior to that window is not gonna count towards it, and you’re gonna have to substantially improve it based upon what you’ve done.

Brett: Yeah, I don’t disagree. I mean, it does say any 30 months. So, it just, it gets, like you said, Gerry, it gets really complicated if you’re doing entitlements and other site work or anything like that, and you’re not gonna include that in the 30 months.

Jimmy: Good stuff, gentlemen. Well, let’s move on to some other questions. I just got a question from Ronaldo in the chat, asking, “Are there any Opportunity Zones in the U.S. Virgin Islands?” And yes, there are Opportunity Zones in every U.S. overseas territory. Guam. I forget all of the rest of them. But U.S. VI, Puerto Rico, for sure. So, and we have the map of all the Opportunity Zones available on our website at opportunitydb.com. I just posted a link in the chat there. I got an email from two different people, just a week ago, asking roughly the same question. I’m gonna read it to you now. Some Opportunity Zones are having some trouble. Their financing isn’t coming into place quite as they had hoped it was, because interest rates spiked over the last 24 months. So, this individual asks, “Hey, my Opportunity Zone Fund might fold if there aren’t enough investors who accept the capital call. In case there is still money left to be distributed, do you know how I can roll the money into another Opportunity Zone fund? What will happen tax-wise?” Any advice there? If a QOF flops, and has to return some of the money back, is that investor just screwed? Is that an inclusion event, or can he or she roll it into another OZ Fund? Do you guys know?

Brett: Yeah, generally…

Ashley: You can always…

Brett: Go ahead, Ashley.

Ashley: Go ahead. Go ahead. You could always put it into another QOZB, or you could potentially merge that fund with another Opportunity Fund.

Brett: And the individual investor, if they wanna get out of the QOF, would have six months to reinvest in another QOF. It kind of sounded like, yeah, it depends on whether we’re talking about an investor in the QOF or the QOF itself, Jimmy. But the downside of that is their 10-year holding period starts anew. So, if I’m in a QOF today, I don’t like the way things are going, I wanna back out, go into somebody else’s deal down the street, you know, my 10-year clock starts anew. If I stay in my QOF, and the QOF invests in another QOZB, like Ashley said, the 10-year holding period, you know, keeps totally. So, there’s a big advantage to doing it that way.

Gerry: Just to clarify those two comments, what Brad is saying is that if you get out of a QOF, you create something called an inclusion event, which basically moves your prior capital gains date from when it was to a new one, and now you have a new 180-day period to figure that out. The other thing, and as to mergers, I mean, I think that’s gonna be the future of the Opportunity Zone space, consolidations, roll-ups, after 2027. And further, in this case, the fund sponsor could simply dissolve the fund, and force everyone into a new inclusion event. And frankly, if they do that, I assume, Brett would know better, since he’s more of a tax guy than I, a corporate transactional guy, I assume that that would result in a K-1, which would give even more flexibility as to when you can invest your inclusion event capital gains, because K-1 capital gains not only have the 180-day period, but they also have a period from December 31st to the first week and a half of September of the following year to get invested in a new QOF.

Jimmy: Excellent.

Gerry: Do you agree with that, Brett, that if they force a liquidation, there’d be K-1 be delivered?

Brett: Yeah, I would. I would say that would be lousy politics with your investors, to…

Gerry: Well, if it’s gonna fail anyway…

Brett: Yeah.

Gerry: I mean, you’d write them a nice letter, tell them why you’re doing it, how to recover from it, all that kind of… Believe me, I’ve had $12 billion of my own investment funds. I’ve had to write a bunch of letters like this.

Ashley: We’ve actually taken… So, we’ve taken folks that have had this exact problem, and we’ve either put them into one of our QOZBs that we’ve done. Or, we are actually working on a merger right now, where somebody’s like, “Listen, I don’t want the headache of having to administer this anymore.” And so, we’re merging them into our fund, in order to make their administrative burden go away. So, there’s a lot of ways you could do it, and then you could also just distribute their money out, and then they’ve got time to be able to reinvest into another fund.

Jimmy: Very good. Well, let’s move on to the next question here. A question about tax forms. “None of the over-the-counter tax software packages contain the QOZ forms. Do you know if the Treasury self-file system being pushed out to the public…” I think this is the first year it’s being pushed out to the public, “is going to contain the QOZ forms?” Do any of you have any experience with that?

Ashley: If the commercial-based tax forms aren’t really getting it, I can pretty much guarantee you that whatever’s coming from the IRS on a self-service basis is probably gonna be inadequate. So, you need to use a tax professional. I mean, anytime you’re trying to do this yourself, you gotta be very wary, because there’s nuances, even inside of the tax forms, that you just gotta be careful of. And it’s not a big deal. It’s just nuanced.

Jimmy: Yeah. That was gonna be my advice as well. If you have an Opportunity Zone investment, you’re probably already using a CPA, or you should be, would be my general statement there. I would say, though, that I have heard that TaxAct does have the ability to do Opportunity Zone accounting, for the DIYers out there. Brett and Gerry, I don’t know if you have anything else to add there or not. Otherwise we could move on to the next question.

Ashley: There’s a comment that 8996 and 8997 are available in UltraTax, but then you still got the issue about, okay, what goes into the 8996 that you’re pulling from your QOZB? And you’ve also got the issue about 8949. And, if it’s from a real estate deal, coming over from the 4997 into the 8949. And so, you just gotta be really careful about making sure that those flow, and flow correctly, and that they all merge and they mesh, so that that way, it doesn’t trip the, you know, the automated audit flag relative to your numbers not lining up.

Jimmy: Okay. I’m gonna move on to the next question here. “I sold a rental property, which was titled in our revocable living trust. When signing the Opportunity Zone investments to use from the sale, do I need to title the OZ investment in the trust, or can I title it in my holding LLC? I ask this because I wanna make sure whatever title I buy, the OZ end still gets tax benefits.” Pretty technical question there. Anybody? Anybody got any ideas?

Gerry: That goes to Brett.

Ashley: At the end of the day, as long as… It’s gotta be, the taxpayer that’s reporting the gain needs to be the investor into the fund.

Gerry: Well, if you have a revocable trust, the taxpayer is the person who set up the trust. It’s kind of ignored like a disregard.

Ashley: And it could either be the person, or the revocable trust, or the holding entity. For IRS purposes, they’re all probably gonna look through all of those anyhow, so I don’t think that it really matters.

Gerry: Yeah, I mean, the reality is that, unless the property was held through an entity that was a separate taxpayer, in which case that entity needs to be the party doing the Opportunity Zone investment, either the trust or the individual who set up the trust can be the Opportunity Zone investor. But, you set up the trust for a reason, so I assume you do it in the name of the trust.

Jimmy: Right on. Well, let’s move on to the next…

Gerry: Brett, what do you… Brett, you’re the tax guy.

Brett: I don’t, yeah, I don’t disagree with that. If it’s irrevocable trust, I think that’s the best bet.

Jimmy: All right. Well, let’s move on to the next question. This one comes from Corey. Corey asks, “As an early-stage entrepreneur who is looking to develop a franchised live event company, can I utilize OZ Funds to begin developing? What are the opportunities and advantages for business owners who wanna partner and develop in Opportunity Zones?” It’s a great question, Corey.

Gerry: So, I think that franchises are really missing out. Franchisors are really missing out. I tried to encourage several to do this. By not locating their little offices, that really just administer and collect money, in an Opportunity Zone, so that as they build out their franchise structure, and become more and more valuable down the road, they can sell their business … Frankly, all kinds of businesses, regular operating businesses, are missing out by not focusing on the Opportunity Zone statute. And you can blend Opportunity Zone investment and section 1202 investment in these circumstances. But, I don’t… Frankly, besides my ability to understand women, the ability to understand why more of the world doesn’t explore Opportunity Zone investment is beyond me. And fortunately, I’ve had one woman for 40 years, so I had to… I’ve been able to quit trying to understand them on a broad scale.

Jimmy: That’s all you need. That’s all you need. Brett or Ashley, any comments?

Brett: No, I agree. It’s unfortunate that we haven’t seen more. We’re starting to see more businesses move into and relocate into zones, but there’s an infinite number of opportunities, and this was the whole point of the incentive, honestly. I don’t think this was supposed to be a real estate subsidy program. It largely has become one, but there’s still plenty of time for folks out there that are entrepreneurs to get creative, move into zones, and do great things.

Gerry: You know, that’s how I discovered… Go ahead.

Ashley: Not just franchisor… Yeah, not just franchisors, but also private equity shops, or venture capital shops as well.

Brett: Yeah.

Gerry: Property management companies.

Ashley: I mean, this is a boondoggle. Yeah. Exactly right.

Gerry: Asset management companies. But this is how I discovered the Opportunity Zone statute in the first place. In early 2018, I was doing a deck for a artificial intelligence company, and I always include a 1202 slide, you know. And then, I said, “Well, I better check this new tax act that was just passed,” and I discovered the six-page Opportunity Zone statute, and it blew my mind. You’re telling me unlimited tax-free upside in businesses you invest in? And then I started focus… But then nobody came to the table in businesses. I’ve got a few now, but it’s been all real estate.

Jimmy: Well, that’s why we gotta get the legislation extended, and get a second crack at this. Maybe the businesses will wise up. Great question, Corey.

Gerry: You know, the same thing happened in New Market Tax Credits. New Market Tax Credits are fine for businesses, but it’s been really concentrated on real estate development.

Brett: Yeah, that’s true. And that’s been around for 25 years.

Gerry: I think it may be in the nature of the people who get into real estate development, versus people who set up businesses…

Brett: Well, it’s easier to get collateral on a real estate deal. I think that’s one of the big reasons.

Jimmy: All right. Well, I wanna move on to the next question here. This one’s a very practical question, and maybe hits home for some of us out there. “What happens if you don’t receive your K-1 on time?” April 15th goes by, you don’t have it, and then, so, you have to extend your tax return, but then even October 15th goes by, and you still don’t have that K-1. What are you supposed to do as an investor? What do you do in that case?

Gerry: Well, if you’ve waited till after September 9th or 10th to get money into an Opportunity Zone QOF, you’re basically just screwed. I mean, you don’t have to wait for a K-1…

Ashley: I think they’re talking about what happens if you don’t get a timely K-1.

Jimmy: You don’t get the K-1.

Gerry: Well, you don’t have to wait for the K-1 to do the investment.

Brett: No, you don’t.

Gerry: You can call them up, and say, “Hey, what is about gonna be my capital gains?” and invest 120% into a QOF, so you’re safe.

Jimmy: Yeah, that’s a good question, actually. Are we contemplating this is a K-1 that reports a gain that you’re then rolling into an Opportunity Zone Fund, or is it the QOF you’ve already invested in reporting the K-1?

Ashley: I think they’re generally asking about… I think they’re generally asking about if you got an investment that just, late on getting your K-1s out, and then you just gotta file it, and deal with it once the K-1 actually comes. You know, there’s nothing that you can do as a taxpayer…

Gerry: If it’s after October 15th anyway, you’re gonna have to file the amended personal tax return to include that.

Ashley: Yep.

Gerry: Assuming you filed on time. You could file late, and have some penalties.

Jimmy: Yeah, let’s move on to the next question. Good answers there, though. Michael asks, I think one of you may have already chimed in on this, but like to get it as part of the live discussion here. Michael says, “I heard that the Qualified Opportunity Zone businesses must be partnerships or corporations. Why can’t they be a single-member LLC or a disregarded entity?”

Brett: That’s pretty simple. I mean, it’s straight out of the statute and the regs that you just, you can’t have a single-member LLC. QOFs and QOZBs have to either be taxed as partnerships or corporations. That said, and we see all the time, you can have a subsidiary entity that’s an SPE, disregarded entity, wholly-owned by the QOZB. But, you know, the working capital safe harbor and the two-tier structure don’t work unless you have partnerships or corporations.

Jimmy: Very good. Let’s move on. Great answer, Brett. Thanks. Let’s move on to, I like Murdy’s question here. Murdy asks, “Can you invest through self-directed IRAs also?”

Gerry: Why would you?

Jimmy: That’s a good question, right back at Murdy. Murdy, why do you want to invest in a self-directed…? Why do you want to invest in Qualified Opportunity Funds in a self-directed IRA?

Gerry: I mean, you shouldn’t invest your tax-benefited retirement funds in Opportunity Zone investments. They’re already tax-benefited.

Jimmy: Ashley, Brett, do you agree, disagree?

Brett: I’ve seen people contemplate it, and I don’t know anyone that’s actually pulled it off.

Ashley: It doesn’t make sense. It absolutely doesn’t make sense.

Gerry: Plus, most of the Opportunity Zone investments you might invest in through an IRA will probably produce unrelated business taxable income.

Brett: That’s good point.

Ashley: Yeah. I mean, with the exception that if you’ve got, like, a, you know, like, let’s say that you don’t have capital gains, and you’ve got the next, you know, Facebook that’s happening, that just happens to be an Opportunity Zone business, and you wanna buy some of their stock, then I think that you could do that in an IRA, and that would make sense. But other than that, I don’t…I think, to Gerry’s point, that a lot of times, it complicates it, because people are trying to kind of combine two programs that aren’t, that are not combinable.

Jimmy: Okay. Let’s move on to this question we got from Cherie Franklin. She’s an OZ Insiders member. Cherie, great to see you here. She says, “I like the idea of joining an existing fund that…” I think, Cherie, correct me if I’m wrong. I think she’s talking about that merger program we were talking about, about 10 minutes ago.

Gerry: She wants to talk to Ashley about merging her fund with his. That’s what…

Jimmy: Yeah, if… She says, the rest of the question is, “if you have interested investors, and don’t wanna create a fund, how would you investigate the option of adding your investors to an existing fund?”

Ashley: Yeah. So, there’s a lot of funds that’ll do that. So, we could talk about that, Cherie, and we could talk about basically kind of a sidecar arrangement, whether that’s us merging your fund into ours, or whether that’s your fund investing into one of our deals, and you getting a, you know, kind of a special investment opportunity. And we can absolutely talk about that.

Brett: Like a joint venture, right? Side by side?

Ashley: Correct.

Brett: We see that all the time.

Ashley: Yep.

Jimmy: All right. I wanted to talk about this question we got in from Richard Macko here. It’s a long one, so bear with me. This question is focused on tech startups in Opportunity Zones. “In Maryland, there are state-level biotech tax advantages, for example, 65% on the dollar tax return in the next season, that for qualifying biotech startups located in an Opportunity Zone may be applied for in a lottery. We have found this valuable for our biotech raises. Is there a source or spreadsheet that aligns federal OZ and state advantages? Does such a federal OZ plus state benefit model exist for Opportunity Zone real estate?” What are your thoughts on that question from Richard, gentlemen?

Ashley: Yeah. So, there’s a, in, as part of Novogradac Working Group, you know, we join that call monthly. And we compile a list of all of the things that they’re kind of highlighting relative to state-specific things that people are doing. I know that New Jersey’s got a state-specific program. West Virginia’s got a state-specific program, that if you are a QOZB, you don’t pay state income taxes there. I know that Ohio’s got an extra tax credit if you’re a QOZB, and I’m pretty sure that South Dakota’s done something as well. There’s pending legislation in Illinois, that would actually be cool if it goes through. I don’t know that it will. But we’ve actually put that together in a list. I don’t know if we’ve got it out on the web yet, but if you email me, I can, and I put my email into the chat, we can absolutely send that to you, and it’s a compiled list of all of the states that have something unique relative to Opportunity Zones.

Brett: Yeah, I would check out novoco.com as well. They keep it really up to date, track weekly on what every state is doing.

Jimmy: Yeah, good thoughts. I’ll post a link to their Opportunity Zone Resource Center in a moment. Gerry, did you have anything else to add there, or should we move on?

Gerry: No.

Jimmy: Okay. So, let’s move on to this question from Sean. I think pretty straightforward here. He asks, “Can I buy a brand-new residential property in an Opportunity Zone as my own QOF investment? Property was dirt. Developer built. Never been occupied, so it’s original use, and would begin with me, and then I’d rent it out.”

Ashley: Hit it, Gerry.

Gerry: Well, the fellow says he’s already acquired the property, right?

Jimmy: Let’s see. Property was dirt. Developed and built. Never been occupied. I don’t think he does say whether…

Brett: Don’t think he has. No.

Gerry: Oh, okay. Well, so…

Brett: It hasn’t been placed in service, right?

Gerry: Well…

Jimmy: Let’s assume not.

Gerry: …it’s in a very much a gray area right now, right? Because if it’s completely finished, it… The definition of original use is that a property that has not been depreciated, nor has ever been eligible for depreciation in the related Opportunity Zone. And if it’s completely finished, you’re kind of in a gray area. You wanna get in there before…

Brett: … do it before C of O, right, Gerry? I mean…

Gerry: What’s that?

Brett: Once you get C of O, I think it’s dark grey.

Gerry: Well, the IRS specifically declined to set that bright-line test. Remember? In the rule-making process? Which means that you might take the position that getting a certificate of occupancy does… You could, it could be after that. You might take the position before that. For instance, you might get a certificate of occupancy to do, for a building that really can’t be operated until you buy some personal property and things like that. So, maybe you take the… I mean, you can take positions on it, but I wouldn’t wanna be taking a position this vague. I would want to be acquiring a property before it’s completed. I mean, at any time before… You know? With a month left to go, with two weeks left to go, as original use.

Brett: Yeah, whatever completed means, right? I mean, there’s no bright line.

Ashley: The key is is that you need…

Gerry: Here’s an interesting one, in this regard. Since the definition is never to been depreciated or eligible for depreciation, we had a fund that was acquiring run-down buildings, and renovating in Opportunity Zones, and they asked us whether these could be original use assets. Well, a developer of a personal residence can’t depreciate it. And people who live in a personal residence, unless they’re doing a business, can’t depreciate it.

Brett: Right.

Gerry: So, and we consulted with the IRS, and the guy who, Kowalski, Daniel Kowalski, who led the effort, and he thought, yeah, personal residences that have been around for a long time, as long as you can establish that they have not been eligible for depreciation, can be original-use assets.

Jimmy: That’s Dan Kowalski, former counsel to the Treasury Secretary, under the …

Gerry: Oh, he was assistant at Secretary of Treasury.

Jimmy: Yes. Yes.

Ashley: Yeah. So, the key is, is that you need a paper trail that shows it, that it hasn’t been depreciated, and that’s the trick. And so, you wanna make sure that you get an allonge to your contract, that has those reps and warranties in it. And then you want that, them to update that as of the date of closing, and then that becomes your paper trail that you can use to show that it’s original use.

Brett: So, you’re getting that rep from the seller, right?

Gerry: You might even need to go back to every resident, and get a certification.

Ashley: That’s right. Yeah.

Jimmy: All right, gentlemen. We’ve got about five more minutes left. We got a ton of questions. We’re probably not gonna get to all of them, unfortunately. Such is the case here. I want to get to this question from Peter. I’ve been holding on it for a little while. Peter, here we go. Peter asks, “If the capital structure is screwed, likely because interest rates spike and the LP is staying at the number they originally thought, then why wouldn’t the GP form a co-GP with a new fund, likely more favorable terms? We did this several times, and it helps the GP, it helps the fund, it helps the LP, and the entire co-GP fund is a QOF, getting 100% of the tax exemptions. No services. All … capital, which is how we formed it. Wouldn’t that be easier, and potentially cheaper?” I guess as opposed to doing the merger. I think he sent this a little while ago when we were talking about that merger program. What are your thoughts on that?

Gerry: Yeah, yeah. It’s always good, if you need more money, to go get more money, whether it’s a mezz debt, or a better preferred interest, and if you’ve got the development property set up as a QOZB, a QOF can come in as an investor. Yeah. In fact, I just had a call this morning…

Brett: You could take in as, yeah, as many QOFs as you wanted into that structure.

Jimmy: Good. Well, good answers there. Let’s move on to Gary’s question. Gary asks, “I invested in three Opportunity Zone Funds in December of 2021, with my wife as a joint tenancy with rights of survivorship. Unfortunately, my wife passed away on April 7th of this year, and the funds will now be revalued, up or down, at the date of death. What is the valuation sources, and is it better for the funds to be valued up or down?” And he also adds, “We live in California, which is a community property state.” Any advice for Gary?

Gerry: Right, there’s a special rule for this, isn’t there? Where you don’t…

Ashley: You don’t value it.

Gerry: …write up the value of the QOF interest on death, right?

Ashley: You don’t. It’s whatever they originally contributed. And so, her estate is going to step in, in the shoes of her, and it won’t be treated as… You don’t do a revaluation. That’s one of the benefits of Opportunity Zones. Once again, sorry about your wife. Man, condolences. That was recent. But the good news is, is that you don’t actually have to revalue this, and her estate’s gonna step into her shoes, and, well, if it was joint tenants with right of survivorship, then I imagine that it just kicks to you, and it won’t be revalued, and you’re just gonna now step into her shoes.

Gerry: Yeah, it passes to the estate, at what was paid for it, through the estate.

Ashley: Yeah.

Jimmy: Yeah, our condolences, Gary, and thanks for being here, and thanks for the great question. I hope that helps. You know, I was scrolling back up to the top, and I remember this question from Sharon came in a couple hours ago. Wanted to get to it now. “How do I find commercial OZ property in my area?” How do you guys source commercial OZ property?

Gerry: Go to Jimmy’s website, and look at the map.

Jimmy: That’s one good resource, sure.

Ashley: LoopNet actually has a block that you can check, where it, you want to see Opportunity Zone deals.

Gerry: That’s true.

Brett: I would say the best bet, though, is still to find a broker that’s really familiar in the region.

Jimmy: Yeah. And if we have any brokers on the call that want to chime in the chat, say, “Hey, I’d love to help you out,” go ahead and chime in the chat. But Sharon, I agree with Ashley. I think LoopNet, and select the Opportunity Zone filtering option. If you wanted to look at funds, and some deals that are already kind of set up as QOF and QOZB entities that are raising capital, you can head to my website, opportunitydb.com. Or you can look at the map. We have a map available as well, but that won’t… That will just show you where the zones are. Good answers there, gentlemen. Thank you.

Let’s move on. We’ve got, well, we got a couple more minutes. Let’s wrap up today’s live Q&A. There were a lot of great questions here. Let’s get to this one from John Vauchon. One of our favorites. John asks, “What are the pitfalls to avoid when running an Opportunity Zone data center to mine cryptocurrency, preferably using solar?”

Gerry: Well…

Ashley: Gerry, run with this one, man. Gerry, you’re the expert, dude.

Gerry: …we’ve actually developed a structure for that. Yeah. I mean, you run into problems with some of the tests. But we actually did develop a structure that we think works. Although, everybody we’ve run it by has declined to go forward with it. But, and I think we’re having a call today, Ashley, about this, aren’t we?

Ashley: We are indeed, and I think that the key is is that you got, once again, it’s like those nuances that are inside of the forms. You gotta be very careful about the nuances about how you acquire interest, and through something that we’ve worked on with Gerry, and then also with Gordon Goldie, at Plante Moran, I think we’ve got the sus, the special sauce, relative to specifically how you do that, and you’re able to be able to pay out the, you know, you’re able to get the cryptocurrency out of the Opportunity Zone structure, so that it doesn’t negatively affect your testing.

Gerry: Brett, have you ever dealt with this?

Brett: Yeah, no. And I think one of the biggest concerns I have with crypto is, you know, we don’t know, is it an intangible? Is it…

Ashley: Yep.

Brett: Like, where does it fit in the non-qualified financial property tests? I’ve seen a lot of different experts out there opine on this. I was recently deposed in a conflict, as an expert witness on this issue a few weeks ago, and yeah, it could go either way. I like the fact that, you know, there’s a story with the solar, but it still makes me nervous.

Gerry: Well, the HuffPost did an article about how people were gonna pile into crypto, and abuse the Opportunity Zone statute, although nobody ever has, but someone accidentally gave them my structure PowerPoint. I got a call at 7:00 in the morning by the HuffPost, and I said, “How did you get my attorney-client privileged PowerPoint?”

Jimmy: All right. One more. I think we have time for one more question. Let’s give this one to Theresa here. Theresa asks, “Can a corporation who receives Op Zone funding for a main project use any funds for another project in a different Op Zone?”

Ashley: And I guess that’s the, kind of the question is, how’d you get the funding? And does your fund, right, do your fund documents preclude you from doing other deals? But you can absolutely put it into another deal that’s in a different Opportunity Zone. That’s a great thing about the program, is it doesn’t have to be in the same census tract.

Brett: Yeah. And typically, if you do have a fund, ideally, you’ve got an offering memorandum, like we would prepare, that would give you that flexibility. Even if it’s a single-asset deal, we know that, you know, things go awry. You might have to pivot, shift, find another deal. And so, there’s typically flexibility there.

Jimmy: All right. Well, we got time for one or two more, I think. Let’s see what Peter has to say here. Peter asks, “Have you guys worked on any office to multifamily conversions in any Opportunity Zone? More specifically, have you been able to use HUD loans for the construction loan, or are they too cumbersome, i.e., expensive to refinance at stabilization, etc.?”

Gerry: That’s not a issue…

Brett: Well, actually…

Gerry: That’s not a question for Opportunity Zone people.

Brett: No, but…

Gerry: I mean … HUD loans, you can use any type of loans you want, but HUD loans are a problem sometimes.

Brett: Yeah, but actually, I think that this is wrong, because a lot of HUD loans would typically have a rate that locks throughout, perm phase. So, there’s no… Yeah. Like Gerry said, there’s no reason why you couldn’t use HUD loan, 221(d)(4), potentially, for a multifamily conversion. I think the bigger question is, you know, this is an Act rehab deal, so you just gotta be really careful that you double the basis in the building, so you wanna make sure you get a valuation of the land versus the existing improvements, and, you know, follow all those rules. But no reason why you couldn’t convert office to multifamily. We’ve seen a lot of hotel conversions to multifamily too.

Jimmy: Fantastic. Well, gentlemen, we have hit time. We had a few more questions left, and apologies we didn’t get to them all. I’m gonna post in the chat in a minute email addresses and LinkedIn URLs for our three panelists today. And thank you to all three of our panelists, OZ Insiders members, and prominent Opportunity Zone attorneys, for joining us today. Gerry Reihsen, from Reihsen & Associates, Brett Siglin from Fennemore Law, and Mr. Ashley Tison, the OZ Sherpa, from OZPros. Thank you so much, gentlemen. I’m gonna…

Gerry: Thanks, Jimmy. Another great event. You do fabulous work.

Ashley: Yeah. Thank you, Jimmy.

Brett: This was awesome. Thanks.