2019 South Florida Opportunity Zone Report

The goal of the survey and the Opportunity Zone Forum conducted on June 5, 2019 was to gather and share valuable insights into a new development with the potential to reshape our industry and to discuss the impact we can expect the QOZ program to have in South Florida. Specifically, it aimed to examine issues including:

• strategies with transformative economic potential to create lasting change in South Florida’s blighted neighborhoods
• legislation pertaining to the governance of Opportunity Zones and related investment issues
• the greatest benefits and obstacles for investing in Opportunity Zones
• asset classes most ripe for development in South Florida

EXECUTIVE SUMMARY

The QOZ program offers some of the largest tax incentives for investors seen in years. Yet considering the significant benefits, comparatively few deals have moved forward to date. The survey and accompanying Forum discussion make it clear this is changing. The results highlight the impact the QOZ program is already having and will continue to have on real estate development in South Florida.

Key findings include:

RISING INTEREST IN THE QOZ PROGRAM

According to survey respondents, 42% are undecided about investing in a QOF. The biggest obstacles they cite are regulatory uncertainty (32%) and lack of understanding of the program (27%).

However, several developments are counteracting these hurdles, including:

• the release of the April 2019 regulations
• growing awareness of and education about the tax advantages of QOFs
• strong public and private efforts to stimulate investment in QOZs
• emerging information about significant QOF deals in the works as well as closed deals

While the survey indicated that mixed-use/multi-family was the asset class most ripe for development (82%), roundtable participants and attendees indicated interest in a wide variety of opportunities. 

FOCUS ON LONG-TERM BENEFITS

According to 65% of survey respondents, the greatest benefit of the QOZ program is the permanent exclusion of gains generated by a QOF held for at least 10 years.

Most real estate developers and investors are accustomed to shorter time frames for realizing profit and will need to adjust how they structure their deals. Roundtable participants discussed the need for developing long-term income streams, such as from leasing. In addition, 38% of survey respondents and many of the roundtable attendees were interested in learning about the treatment of opportunity zone fund capital events, cash redemption, and refinancing gains, which would enable them to take out money for reinvestment during the 10-year period without triggering capital gains taxation.

NEED FOR A GOOD TEAM

The survey results and ensuing Forum roundtable discussion clearly surfaced the desire for more information on the technical requirements of the QOZ program. Like all tax incentive programs, there are some rigorous compliance require­ments, which generally necessitate obtaining professional advisors to help structure, guide, and audit the transaction. In addition, roundtable participants emphasized the importance of working with experienced owners, operators, developers, leasing agents and other parties who understand the benefits of operating in an OZ and maximizing it for long-term gain.