Confidential Client | Project feasibility evaluation in progress; involves redevelopment (regeneration) of now demolished facilities. Project site in the greater......
StoneCreek Partners acts as qualified opportunity zone consultants for projects and businesses that can be acquired or developed pursuant to the U.S. Tax Cuts and Jobs Act of 2017. Our work includes the preparation of project feasibility analysis and assistance with due diligence underwriting of specific investment opportunities.
The Federal Tax Cuts and Jobs Act (“TCJA”) created qualified “opportunity zones” in December 2017 to encourage tax-favored investment in distressed communities throughout the U.S. Under the new law, investors may be able to defer tax on almost all capital gains they invest after Dec. 31, for years ending 2018 through 2026.
Project Feasibility and Due Diligence
Just like any of the incentive-based real estate and business investment programs of the past, this federal program has two primary requirements. First, all of the usual underwriting is required, just like any other real estate or business acquisition venture. The incentive boosted returns come with successful projects.
However, once feasibility is established, the due diligence requirements are quite specific – projects must federal underwriting guidelines and the investment program needs to consider federal expectations for how capital is introduced and exited.
As well and as noted by the SEC in the spotlight on opportunity zones, “… interests in a qualified opportunity fund offered and sold to investors will typically constitute securities within the meaning of federal and state laws except in limited circumstances. As a result, such qualified opportunity funds must comply with all applicable regulations of the SEC and the securities regulators in the states where they are doing business, in addition to other applicable regulations, such as those of the Internal Revenue Service and Treasury Department.”
Since the law’s passage, the Treasury Dept. has published further guidance as to how Opportunity Zone tax-advantaged projects may proceed, and this guidance is likely to continue to evolve. Currently, there are four primary requirements for a real estate development or acquired business, to achieve the status of “Qualified Opportunity Zone Business Property” (herein, “Qualified Projects”). These requirements are listed below.