Opportunity Zones – Capitalist Approach to SRI

Opportunity Zones – Capitalist Approach to SRI

But time is running out

Qualified Opportunity Zone Funds (“QOF”) offer one of the best ever strategies to reinvest and defer capital gain taxes and offers investors an unprecedented means to reduce, defer, and exempt capital gains liabilities.

However, time is getting short since 2019 marks the cutoff for investors to reap to full impact of OZ investing.

It is estimated that private businesses will invest more than $100 billion[i] in Opportunity Zones and given the time constraints this is going to take place very quickly since to reap all of the advantages and provide the maximum tax avoidance the investments must be made on or before the December 31, 2019.

Opportunity Zones are a unique strategy which basically produce a public private partnership, and instead of the government pouring money down a black hole for “who-knows-what” purpose money will come from the sophisticated private sector who will invest in new homes, hotels, recreation areas and businesses which will be based in capitalism and self-perpetuating. That is not say that no OZ businesses will fail, but rather that they have a much better chance of success than government handouts.

We are experiencing the 55th anniversary of the “War on Poverty”. This War has blossomed into the current expansive welfare state which costs taxpayers nearly $1 trillion per year although as President Johnson said upon the launch of the program he wanted to give the poor a “hand up, not a handout.” He stated that his war would shrink welfare rolls and turn the poor from “taxeaters” into “taxpayers.” Johnson’s aim was to make poor families self-sufficient – able to rise above poverty through their own earnings without dependence on welfare. A pleasant sentiment, but

The exact opposite happened. For a decade and a half before the War on Poverty began, self-sufficiency in American improved dramatically. But for the last 45 years, there has been no improvement at all. Many groups are less capable of self-support today than when Johnson’s war started, and more and more neighborhoods are blighted with crime festering and businesses fleeing leaving the denizens of these areas suffer hardships as a result of want of some of the most basic services like quality purveyors of food and childcare.

The Tax Act provides solutions via forming an informal public private partnership, in which the private sector provides the services and the public sector participates, not by being a principal in the transactions, but by indirectly subsidizing the improvement of large areas of the OZs through favorable tax treatments.

The establishment of OZs and the favorable tax benefits given to the QOFs take a much different approach, and we can expect a much different outcome.

One unique opportunity is the Minerva Communities Real Estate OZ Fund (“Minerva”), which happens to be the first and only woman-owned and operated such fund.

Minerva Communities will source, renovate and lease to tenants distressed single family homes in select opportunity zones using its established network of brokers and subcontractors. Initial purchases will be all cash to reduce purchase prices and enhance access to desirable properties renovations will initially be all cash to expedite return to market and lease-up.

Minerva Communities offers investors the ability to invest capital gains from any source, on a tax- deferred basis, in safe, secure single-family rental homes. Subject to final IRS regulations and investors’ preferred hold- period, growth on the initial capital invested in Minerva Communities may be returned to the investor free of all taxation via the provisions of the Tax Modification and Reduction Act of 2017 (the “Tax Act”) which established Opportunity Zones in each state. Opportunity Zones are areas which qualify for tax incentives to encourage those with capital gains to invest in low income and undercapitalized communities. It creates an opportunity for a form of Socially Responsible Investing (“SRI”)

Purchases may include such things as lender foreclosed REO (Real Estate Owned) houses and short sale, bankruptcy, and pre-foreclosure properties, such as houses, condominiums, town homes, duplexes, multifamily units, and other similar distressed properties (collectively referred to as the “Properties”).  The Company intends to renovate the Properties and rent them and eventually sell them.  The Company’s primary investment objective is to achieve a current return on the Property through tenant rental income and realization of long-term appreciation.

Minerva Communities’ anticipates returns of 10 – 14% annually during a 36-month holding period, before considering tax benefits with tax benefits and a holding period up to 120 months, investors may consistently benefit from average returns of 12% per year. Returns projected do not reflect the higher returns resulting from tax deferral on the initial capital investment.

Click Here for further information and the deck on this opportunity or give us a call.

917-226-0519 /  [email protected]

[i] President Donald J. Trump in speech to opportunity zone conference, April 2019, citing Secretary Steve Mnuchen

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