Capital that is funneled into Qualified Opportunity Funds can also provide ample opportunity for cultivating human capital for redeveloping inner-city and lower-income neighborhoods.
Bringing talented minorities into commercial real estate deals can help boost understanding of local markets and business practices.
Gentrification is a concern when pouring billions of capital gains into lower-income and economically disadvantaged areas.
The highest number of gentrified opportunity zones are located in Rust belt metros, including Baltimore, Chicago, Detroit, Philadelphia and St. Louis.
Opportunity zones in tech hubs and hotspots are experiencing high rates of gentrification.
Many of the least-gentrified O-Zones are in Sun Belt cities.
Of the top 100 most gentrified Opportunity Zones, 75 are within urban areas.
Much of the coverage of Qualified Opportunity Funds has focused on tangible investments like development and/or renovations of commercial real estate. However, little has been discussed about the QOF sub-fund.
A QOF might choose to invest in a sub-fund which, in turn, funnels money into Qualified Opportunity Zone (QOZ) property.
There are several ways to protect yourself when investing in QOFs and sub-funds.
Due diligence is required for any investment; this is especially the case for QOF and sub-fund investments.
QOFs and sub-funds must pass an asset test every six months. Additionally, QOZ properties in which a QOF/sub-fund invests are required to be “substantially improved” within 30 months.
The concept of Opportunity Zones was hatched in early 2017 by Sens. Tim Scott (R-SC) and Cory Booker (D-NJ) as a way to propel economic development in what the Internal Revenue Service calls “distressed areas.” Congress approved the legislation as part of the tax-reform bill last December. That was appropriate, since the investments in Opportunity Zones are “really tax-driven,” said Matt Ertman, a partner with the Allen Matkins law firm, which is working with several clients on Opportunity Zone issues.
Opportunity Zone investments are primarily a way for investors to defer capital gains taxes for a period of time.
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