Proponents of opportunity zones touted them as a wise investment over a period of several years.
Created by the Tax Cuts and Jobs Act of 2017, the Opportunity Zone program is designed to spur economic development by providing preferential tax treatment for investments in certain areas. The federal government has approved zones in 75 municipalities and 169 census tracts in New Jersey. U.S. Sen. Cory Booker was a sponsor of legislation creating the federal Opportunity Zones, several of which are in Newark.
NJBIZ hosted a panel discussion on opportunity zones on June 11 at The Palace at Somerset Park.
Mark Nicastro, certified public accountant and a partner at accounting firm Friedman LLP, brings more than 36 years’ experience in understanding opportunity zones.
“We are dealing with an act now that I have not seen in 36 years,” Nicastro said.
“This law is the worst written law,” Nicastro said. “The end game of the opportunity zone is 2026: we are paying Uncle Sam. Anyone who is considering going into an opportunity fund will need a set of advisors.”
“A proposed regulation is just a step above the instructions,” Nicastro said. “I say that tongue in check, but it’s the truth.”
“We need to take care of our communities that are less fortunate,” he added.
Proponents of opportunity zones describe it as making an investment in under-served communities.
Eduardo Rodriguez, the director of planning and community development for the city of Elizabeth, oversees planning and zoning.
“After this law passed, our first point was identifying the first tracks that are feasible for development for these projects,” Rodriguez said.
Stephen Jones, government relations regional manager at the International Code Council Inc., used to serve on local planning boards. He said that opportunity zones are new for municipal governments whose employees did not receive training.
“You may be faced with resistance because you are dealing with municipal governments who do not know what it means,” Jones said.
Jones sees the opportunity zone as revitalizing blighted areas.
“The issue is getting the right people in the right seats to move your project forward,” Jones said. “There is a long process to upgrade master plans,” Jones said. “You may take years before you put a shovel in the ground.”
“Some communities deal with technical review committees,” Jones said. “The other thing that is a pitfall is permit-funding in communities. … It is better to ask for forgiveness than permission.”
“Technical review committees are your godsend,” Jones said. For more information, he advised people to visit the New Jersey Department of Community Affairs website.
Capitalizing your product
The federal Tax Cuts and Jobs Act states that: “Opportunity Funds must hold at least 90 percent of their assets in Qualified Opportunity Zone stock, partnership interests, or business property. To receive tax deferrals, capital gains must be reinvested in Qualified Opportunity Funds within 180 days of the date of sale or exchange producing the gains. Tax deferrals last until December 31, 2026, after which the Opportunity Zone program will end absent reauthorization by Congress.”
Steven Kamen, member and co-chair of the corporate practice group at law firm Sills Cummis & Gross, explained that leased properties can be used for opportunity zones.
“Landowners are selling land,” Kamen said. “Developers are looking to sponsor individual projects. I have met investment advisors who are working with clients. There is so much excitement because it comes from so many different angles.
“You have to capitalize your product,” Kamen said. “Your challenge is making sure investors have access to capital. … Imagine you are a developer. How do I orchestrate that in a 10-year hold? … The emphasis is on timing, timing, and timing.”
“You have to create a reason for the project,” Kamen said. “This is a matrix for a lot of regulation.”
The panel discussion was moderated by Tai Cooper, managing director of policy and advocacy at the New Jersey Economic Development Authority. She said the purpose of opportunity zones is to drive wealth into rural communities and poor communities.
“Opportunity zones have taken over my life for the last two and a half years,” Cooper said. “There are about 200 funding commitments. It does not mean that money is in the bank.”