Months after the Treasury and the Internal Revenue Service released the latest round of regulations for Opportunity Zones, South Florida investors and developers are still wary enough about the rules to prevent them from investing.
A report by Bilzin Sumberg and the Urban Land Institute found that only 28 percent of respondents surveyed said that they intend to invest Opportunity Zones and only 7 percent have already done so.
The reason: investors still do not understand basic questions about the program. Nearly one third of the respondents cited uncertainty as their top reason for not investing in Opportunity Zones.
The report surveyed 72 developers, investors and other professionals in June who specialize in real estate and finance in Florida.
One of the biggest questions that participants still have is around refinancings. Although the most recent regulations clarified how developers in an Opportunity Zone can refinance a property and qualify for the tax benefits, the report shows that the rules around refinancings are not understood by some members of the real estate industry.
“A lot of people still hadn’t fully digested [the second set of regulations],” said Josh Kaplan, a corporate and tax attorney at Bilzin Sumberg, a Miami-based law firm.
Another reason that investors are avoiding Opportunity Zones is due to the rapid price appreciation of land in designated zones in South Florida, according to Kaplan.
Kaplan said he’s seen reports that land prices in South Florida Opportunity Zones have increased by as much as 30 or 40 percent, making it much more difficult for deals to pencil out for investors.
The Opportunity Zones program allows developers and property owners to defer and possibly forgo paying some of their capital gains taxes, or taxes resulting from the sale of certain assets. To reap the full tax benefit, those who invest in the more than 8,700 Opportunity Zones around the nation must hold the asset for at least a decade.
In Miami-Dade County, Opportunity Zones span distressed areas such as Opa-locka, parts of Overtown, North Miami Beach and Carol City, along with areas where major development is already taking place, like parts of Aventura, Edgewater and the Design District.
From April through September 2018, property sales in those areas tallied $942 million, a 25 percent increase from the same period a year earlier.
Several of the Opportunity Zone tracts encompass some of the wealthiest enclaves and megaprojects in Miami, such as Turnberry Associates’ Aventura Mall and the Magic City Innovation District, a planned $1 billion development in Little Haiti.
The report shows that multifamily, however, is the favorite asset class for Opportunity Zones investors. About 82 percent of respondents view mixed-use and multifamily as the asset class most ripe for redevelopment.
Kaplan said he also expects to see more Opportunity Zones deals to close by the end of the year, as investors look to take advantage of the biggest tax benefits, which expire at the end of 2019.