The new federal opportunity zone program is still a hot topic in the commercial real estate industry but as written right now, many commercial real estate professionals find it too complicated, too limiting and to some not even worth the trouble.
“I’m pretty negative on opportunity zones from a commercial real estate standpoint because of the three-dimensional puzzle you have to solve – time, taxes and the amount of capital and compliance that you have to put into the deal to make it work,” Kidder Mathews Senior Vice President Richard Putnam said at Bisnow’s Greater Los Angeles Capital Markets & Real Estate Finance event April 3 at the JW Marriott in downtown Los Angeles.
Passed under President Donald Trump’s 2017 Tax Cuts and Jobs Act, the opportunity zone program allows an investor to roll over capital gains or invest traditionally through a qualified opportunity fund in a property or a project in a designated opportunity zone in exchange for the deferment or elimination of capital gains depending on the length of the investment. More than a year into the program, opportunity zone investment has become the darling of the commercial real estate world for its vast potential not only as a tax-free long-term investment but also the possible impact these investments could have on low-income neighborhoods.
Properties in these designated opportunity zones have jumped in value by as much as 20%, making investments that much harder to pencil. Opportunity zone areas in Houston, Portland, Tampa, Seattle and Culver City are places her company is focusing on for multifamily investment, she said. “An opportunity zone investment can make a good deal great from an economic perspective but does not make a marginal deal good,” she said.