Commercial Observer: Will Opportunity Zones in California Be Golden?

Press Coverage: 17, February 2019

Opportunity zones have been a source of heightened attention since they were created under the December 2017 federal tax reform. The provision allows investors who’ve earned capital gains in any line of business to reinvest the income in real estate projects in one of the 8,700 distressed zones the Treasury Department approved last year, deferring taxes on those gains, or, if they are held for 10 years, waived completely. The Internal Revenue Service released a first round of proposed regulations and guidelines for opportunity zones in October 2018, with a second public hearing expected to happen last month, then delayed due to the partial government shutdown...

As eager as private investors are to enter the fray, there obviously is still uncertainty as to how to reap the most gains—and tax benefits—from the program, especially in California, which is notorious for the time it can take to entitle commercial development projects. Under the federal plan, investors have a mere six months from realizing a capital gain to invest it in an opportunity zone. After that, properties in which the fund invests, either directly or indirectly, must either be “substantially improved” within 30 months or have their original use commence with the opportunity fund in the opportunity zone....

Yusef Robb, a senior adviser to L.A. Mayor Eric Garcetti and the nonprofit Accelerator for America, is well aware of the disconnect between the investment knowledge base of the public and private sectors.

“According to the Feds, [this could amount to] a $100 billion investment pool that could and should create positive change in some of our nation’s in-need communities. The question is, will they?” he said. “That’s where we’re stepping in. We want to help local communities steer these investments to not just provide a return for the investor, but also a return for the community.”

To do so, [Accelerator for America], which aims at providing strategic support to local initiatives on job and infrastructure, announced the launch of the California Opportunity Zone Partnership last week. (Garcetti chairs the accelerator’s advisory board, which is made up of business leaders and public officials including several U.S. mayors.) Partners include the State of California, Energy Foundation and the Cities of Oakland, San Francisco, San Jose and Los Angeles, with the goal of educating public officials on opportunity zone best practices and how to work with private investors to identify and fund projects of the highest need and value in their local communities.

“We’re training up our cities to be able to go to investors and say, ‘here’s a project you should be doing,’ in a way that provides a return for the investor. Let’s meet them halfway and be a participant when it comes to the allocation of these investments to achieve as many win-wins as possible.”

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