The Opportunity Zone industry has been receiving continuous press, almost on a daily basis. The latest article I received was a report in the February 27, 2019 Wall Street Journal on page B6. It is entitled “Investors Rush to Beat Clock Ahead of Change in Tax Rules.” The article talked about McDougal Cos.’ recent purchase of an 8,000 square foot former movie theater in Lubbock, Texas, for conversion of same to a mixed-use project. The company needed to undertake an OZ fund immediately to take advantage of the tax benefits. Other examples of acquisitions include an acquisition in the Overtown neighborhood of Miami for $9.7 million dollars since the investors needed to deploy funds on a timely basis.
The article goes on to indicate that financial firms have been raising billions of dollars to invest in zones. I am personally aware of several investment banks that are undertaking offerings, including one recent fund of $1 billion dollars.
It was noted in the WSJ article that the opportunity zones legislation was designed to attract investments to real estate and operating businesses in troubled areas but most of the attention so far has been on property investment since the rules related to operating businesses are more uncertain. It was noted that some industry experts are cautioning whether the investment should be made now until the new regulations are proposed. Our firm does not necessarily agree with that position. If a transaction is structured within the current regulations taking into account the provisions of the proposed regulations, then there is sufficient guidance in the statute and proposed regulations to move ahead with certain trust structures that are straightforward.
New Florida OZ Act
As an interesting byproduct, the State of Florida House and the Senate just proposed HB481, which is called the Florida Opportunity Act. Other governments may likewise take similar actions with respect to their specific jurisdictions.
The Florida OZ Statute actually incorporates the federal definition of “opportunity zones” for the State of Florida. That is not unusual, given the fact that the Governor of the State of Florida designated these zones in early 2018.
The unique features of the proposed Florida legislation is that the benefits to be obtained under the Florida law would be based upon some degree of social responsibility related to the projects being undertaken. Under this Act, opportunity zone agencies will be created that would be staffed with between 8 to 13 members. These agencies would have the right to provide certain grants and benefits, including sales tax credits on product purchases as well as a 60% reduction in property tax assessments for improvements made, together with other potential benefits. However, applications need to be made and approved by the applicable agency. Accordingly, social benefits to the applicable OZ will be relevant such as a provision for infrastructure improvements as part of the overall entitled program.
New Proposed Regulations
We expect that the new updated proposed regulations will be issued by the end of next week or the following week.