Jan 15, 2019

Alexander, Lamb, Provide Primer on Opportunity Zone Regulations, Examine Benefits to Public-Private Partnerships

McGuireWoods Consulting senior advisor, Brad Alexander, along with McGuireWoods partner, Doug Lamb, discussed proposed regulations of the opportunity zone program and how public-private partnerships may help realize the potential of opportunity zones.

In a Jan. 10 article for Law360, Alexander and Lamb provided a brief overview of the basic legal requirements of the opportunity zone program, examined proposed regulations to the program and delved into how public-private partnerships can help facilitate deals.

With more than 8,700 designated opportunity zones across the U.S., the program aims to spur investments in these designated areas. The program provides tax benefits and deferral of capital gains for qualifying investments. Gating issues hindered those initially interested in the program, but in October 2018, proposed regulations fixed many of these problems. The regulations are set to be finalized in early 2019, and the authors explored how these provisions will affect investors.

For investors, Alexander and Lamb discussed eligible gains, taxpayers, investment interest and program duration.

“After reading these requirements and benefits, many may wonder how to put together a commercial real estate deal that will appeal to investors and leverage the opportunity zone tax benefits to enhance returns,” they wrote, “The answer to this question is complicated.”

Opportunity zones are located in areas with chronically low employment rates and incomes, traditionally not appealing for investment. The tax benefits are meant to promote the inflow of capital into opportunity zones to help create jobs and raise incomes, but finding successful real estate deals in economically depressed areas remains a significant hurdle.

“This is where public-private partnerships, or P3, can help facilitate deals,” Alexander and Lamb said. “In the U.S., a large number of state and local governments have updated their laws to facilitate P3 deals. At their core, P3 real estate deals combine public and private assets into real estate facilities that serve public and private uses.”

Partnering with the public sector can be a significant benefit, easing the cost of basic infrastructure, locating facilities outside of class-A commercial zones and providing tax advantages.

“The state and local governments that figure this out first, and put P3 deals on the table in opportunity zones, will capture the early advantages from the program,” the authors said.