Why Investor Due Diligence on Opportunity Zones Remains Critical

Steve-Glickman-Headshot

A conversation with Steve Glickman, Develop

Steve Glickman helped draft the provision for tax-writers through the Economic Innovation Group, a bipartisan research and policy organization. He now leads Develop LLC, an advisory firm devoted to the program.

Hear more from Glickman at the Bloomberg Tax Leadership Forum on June 27 in New York where corporate tax leaders, regulators, and policy experts will gather to assess how the changing tax landscape is affecting U.S. and multinational corporations and financial service providers.

What are the main challenges for those interested in investing in the qualified opportunity zone program at this time?

Opportunity Zones provide a massive tax incentive for transformative investments in American communities, but as this new industry takes shape, it’s important for investors to identify strong fund managers that can demonstrate a track record of success in their asset class(es), understand the potential and challenges in low income communities, take a long-term approach to their investment strategy, and are compliant with the 250 pages of new IRS regulations. Of the hundreds of opportunity zones fund managers in the marketplace right now, there are probably only a few dozen that can execute on all of these components really well, so investor due diligence will continue to be critical.

Are there certain types of businesses that are well-suited to the opportunity zone program, and conversely, are there certain businesses that aren’t allowed?

The opportunity zones program is flexible enough to accommodate investment in just about any kind of business, but it’s easiest to qualify as a new or recently relocated business. I see growing activity in many sectors including energy and infrastructure, film and television production, high-growth technology companies, advanced manufacturing, education and healthcare technology, and, of course, all aspects of real estate development. The two types of businesses to be aware of that cannot receive investment under the law are most types of financial services companies and “sin businesses,” which includes golf courses, country clubs, casinos, liquor stores, and similar businesses.

Should there be reporting requirements associated with the opportunity zone program?

Yes! The original legislation that served as the underpinnings for the opportunity zones program included a set of common-sense reporting requirements, which were stripped out for procedural reasons, but which would have required the Treasury Secretary to submit an annual report to Congress including the number of opportunity zone funds, the amount of assets they hold, the composition of their investments, the zones that received investments, and the impact of those investments in communities. In May, Senators Cory Booker (D-NJ), Tim Scott (R-SC), Maggie Hassan (D-NH), and Todd Young (R-IN) introduced a new bipartisan bill to reinsert these requirements into the law.