The Real Deal New York

Here’s the deal with “opportunity zones,” a little-known, little-regulated program from the tax overhaul

Developers and investors are racing city officials and nonprofits to define the rules of the new program
July 15, 2018 05:05PM

From left: Eric Garcetti, Donald Trump signing the Tax Cuts and Jobs Act of 2017 in December, Keith Rubenstein. (Credit: Wikimedia Commons, Getty, iStock)

What does a 130-room Marriott hotel have in common with an affordable housing complex? They’re both eligible for federal tax breaks under the new “opportunity zone” program.

The program allows investors to defer taxes on capital gains income until 2026 so long as 90 percent of their investment stays in designated low-income communities via properties or businesses, according to the Wall Street Journal. But the Treasury Department has yet to set out the rules of using the program, leaving it open for interpretation–for the time being at least–and prompting a nationwide free-for-all driven by all kinds.

“This is the biggest initiative of this type by the federal government with the least debate, the least staff support, the least research and still the least clarity,” said Los Angeles Mayor Eric Garcetti to the Journal. But that’s not a bad thing in his books: “It hasn’t really been fleshed out and that’s exciting for me.”

City officials like Garcetti, non-profits, real estate investors and developers are positioning themselves to take advantage of the new program, which is expected to allow quicker fundraising  and comes with tax breaks that, for the moment, have no strings attached. Several players believe those who pioneer the use of the program will likely chart its course in terms of precedent-setting rules and political support or opposition.

In New York, developer Keith Rubenstein has a $200 million opportunity zone fund in the works to support new projects in the South Bronx, while across the Hudson opportunity zones are among the hottest topics of discussion in Jersey board rooms right now, according to Stuart Saft, partner and head of Holland & Knight‘s real estate department.

If it seems like a tailor-made solution for real estate developers in search of cash, that was the intention. After all, the program “was written by and for real-estate investors,” as VC firm president Ross Baird of Village Capital Group told the Journal. [WSJ]Erin Hudson