OZ Funds must invest in real estate development projects (or businesses) located in designated Opportunity Zones.
1) Opportunity Zone Funds typically purchase projects with a controlling interest and hold real estate for 10+ years. This is considered ‘patient capital.’
2) Timing. If investors want to receive the initial benefit of a reduction in the deferred tax on the 2018-19 investment into a certified Opportunity Fund, they must make that investment SOON. Certified Opportunity Funds must ultimately identify projects by the end of 2028; tax breaks for investors can extend up to 20 years.
3) Community Input. If communities have projects they would like to see completed within designated Opportunity Zones, they should be working together to determine the viability of said projects and ‘package’ the salient information in a format easily reviewed by Opportunity Fund managers.
Q: What about the communities needs, goals, fears, desires?
A: Unfortunately, there are no requirements that projects incorporate social or environmental returns or consider the communities input beyond what would normally be required of a developer. However, communities would do well to become engaged in envisioning what their ideal projects would be and actively seek OZ Funds to work with them to accomplish their goals.
Q: What kind of rules do Opportunity Zone Funds have to follow in return for the tax break?
A: None. Opportunity Zone Funds and associated developers may elect to have a social mission and engage the community as a part of the process of development; however, there are no requirements of funds to do so.
Q: Would it make sense for OZ Funds to rehabilitate Old Apartment Buildings?
A: Updating aging rental units typically doesn’t work with opportunity zone funds because the investment isn’t high enough to qualify as ‘substantial rehabilitation.’ Unless more units can be built upon the same parcel, apartment buildings typically don’t qualify.
Q: Is there any requirement that new housing construction be affordable units?
A: There are no requirements that newly developed housing units meet any affordability requirements. Most developments will be market rate units due to the need to provide a return to opportunity zone investors.
Q: What will a typical project size be?
A: For multi-project OZ Funds, typical project investments including acquisition of land and new build or rehab in the Twin Cities are projected to be from $2M – $15M.