Opportunity Zones

Opportunity. But for who?

Opportunity Zones are a provision in the 2017 Tax Cut and Jobs Act. Spearheaded by the Economic Innovation Group and championed by Senators Corey Booker (D, New Jersey) and Tim Scott (R, South Carolina), the legislation aims to create massive reinvestment in underserved neighborhoods by providing massive tax incentives for those with capital gains exposure to reinvest their profits in low-income census tracts. The idea is a win-win strategy in which investors get to keep more of their profit by deferring, reducing, and eliminating taxes on gains they’ve already made and communities get to receive more investment dollar which will spur job and income growth. There is both huge expectation around the program and a great deal of concern that the benefits will be one sided. Find out more by clicking on the links at the bottom of this article for some of the most pertinent research on Opportunity Zones:

Real Estate

Real Estate development is a natural fit for the Opportunity Zone Program because of the timelines, clear exit strategy, and investor appetite. Southbanc’s Opportunity Zone strategy emphasizes extensive market knowledge and due diligence for investors with a “do no harm” philosophy for communities. We believe the benefits of the program should be shared equitably between those who invest in communities and those who lived and worked there before a tax break made it profitable to do so.

Business Investment

While the Opportunity Zone legislation was originally intended to incentivize investments in both venture and real estate, the venture side of the picture is much muddier than the stick and bricks. While the fixed nature of buildings makes it relatively simple to meet the IRS requirements to qualify for the tax benefits, the growth trajectories of businesses are significantly less fixed. Asset and income tests are much likelier to change over time within ventures, and without lack of regulatory clarity, investors have been cautious. Additionally, issues like recapitalizations, early exits, and percentages of revenues derived from activity in the zone can risk fund managers unwittingly running afoul of the law. We believe that ventures are at least as important as real estate in creating real economic growth and mobility for low income Americans. We are partnering with some of the most thoughtful and ambitious VC’s and impact investors in the country to ensure this program benefits the entrepreneurs and workers of these communities.