As readers of the site know, we are big on the potential being offered by Opportunity Zones here in Philadelphia and across Pennsylvania, New Jersey, & Delaware. We’ve also been examining how investors and eventual employees around Amazon’s planned Virginia HQ could potentially benefit from investing in the Opportunity Zone nearby.
This led our team to take a recent trip from Philadelphia to Southern Florida, in particular, Broward County and Ft. Lauderdale to see what’s happening with what might end up being one of the most sought-after areas for Opportunity Zone investing.
Back in November BisNow highlighted the excitement being shown around Ft. Lauderdale Opportunity Zones,
Opportunity zones are a hot real estate topic around the country, and in Fort Lauderdale, especially so. The city is seen as an ideal place for opportunity zone money to land, because it has several neighborhoods that are already on the upswing.
During the event several investors pointed to Flagler Village, the 13th Street/Progresso area and the Sistrunk Corridor as ripe for opportunity fund investment.
In addition to a strong market, the Opportunity Zones in Florida have access to amazing weather which draws visitors and business owners from across the globe.
Due to the strong market fundamentals and ideal climate, we see many International business owners and real estate investors looking to the South Florida Opportunity Zones over the coming year.
Often we’ll talk to real estate investors and developers and they are often wondering why we see such great potential for non-traditional real estate investors to see value in Opportunity Zones. Perhaps the biggest reason is due to the current structure of the plan. InvestmentNews.com has a similar look at why it could be beneficial to other investors and particularly business owners, Opportunity-zone investments — are they right for your clients?.
While a 1031 exchange only permits tax deferral on the sale of investment real estate, opportunity-zone benefits apply to the sale of a range of assets, including real estate, a business or highly appreciated stock, and thus are potentially beneficial to a wider range of investors.
Opportunity zone real estate developments may offer a higher internal rate of return than investments in existing stabilized assets, but the nature of a development project means that investors aren’t going to receive any cash flow for the first few years of the investment.
They then continue to show how the longer reinvestment time may end up giving investors and business owners who own real estate more flexibility over the 1031 exchange.
Additionally, because opportunity zones allow 180 days to reinvest, compared to just 45 days in a 1031 exchange, they can be a great option for investors who missed the chance for a 1031 exchange.
The Ft. Lauderdale Opportunity Zones could become an even bigger play, depending on the 50% ruling, for businesses who cater to the affluent and ultra-high net worth as many look to escape the colder climates during the winter months.
One question investors and business owners still have around Opportunity Zones, is the 50% Rule.
Joshua Pollard, @JPollardinsight – Founder of Omicelo – A Mission-Driven Real Estate Investing Firm, provides a great explanation on the rule and what came out of the recent IRS hearing on Opportunity Zones in his article, 3 Big Takeaways From The Standing-Room-Only Hearing On Opportunity Zones,
The 50% test for investing in a business has emerged as, arguably, the most important factor in the legislation right now.
Why? If the IRS determines that 50% of the sales or gross income of a business that is taking on capital gains must be derived from within the Opportunity Zone in which it is located in order to qualify for an Opportunity Fund, that severely limits which and how many projects make for good investments.
Imagine a T-shirt design and printing company that operates in the rustbelt town of Braddock, Pennsylvania, known as the birthplace of Andrew Carnegie’s first steel plant.
Today, most of Braddock is designated as a Qualified Opportunity Zone. In order for the T-shirt business to meet the 50% test standard that would designate it as a Qualified Opportunity Zone Business, half of its T-shirt sales would have to come from inside Braddock.
Never mind the significant retail sales the T-shirt designer conducts online with buyers across state lines.
The 50% test plainly hamstrings businesses residing within OZ’s which seek qualification as OZ Businesses. Confining them to deriving 50% of sales from within the boundaries of their OZ creates little incentive for investors to want to put capital into them.
For those extremely interested in learning more about Opportunity Zones in Ft. Lauderdale, Bichanan Ingersoll & Rooney put together a panel to discuss investing in Ft. Lauderdale Opportunity Zones. (View Video)
The Hollywood Florida Economic Development website has excellent maps showing the Opportunity Zones available there.