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» VISIT US ONLINE @ DSNEWS.COM 69 "SUBSTANTIAL IMPROVEMENT" e term "substantial improvement" is a key phrase to understand. It means that the building is improved by 100 percent. is means improving a rundown house purchased for $50,000, when the land is excluded from the cost. In something close to a reality check, the cash and cash equivalents were included in as part of the substantial improvement for the first 30 months, to provide time—once the opportunity fund was funded—to close, obtain permits, and execute the appropriate work. An opportunity zone is not a place to hold cash for long periods. A financial plan needs to accompany the development (or, more likely, re-development), and by 31 months, 90 percent of the funds need to have been expended in the improvement of the building. e IRS has offered a great deal of latitude initially by providing that a qualified opportunity zone fund can be self-certified and after six months should be 90 percent invested in the property. For businesses, the threshold is a bit different, in that an opportunity zone business must keep tangible property onsite and have 70 percent of assets in the zone. Adding to the fun, the IRS will allow an opportunity zone fund to invest in both properties and businesses with the 90 percent threshold in place for the fund. e five pages of subchapter 1400Z have raised numerous questions. As of this writing, almost 200 letters have been submitted asking for clarification or relief from some aspect of the language. On October 19, 2018, the first of what will likely be many rule-making proposals was released, and its more than 70 pages raised more questions than it answered. Let's face it: the idea of the federal government creating a program with minimal oversight and a focus on the market investing capital gains in distressed communities may have made it out of Congress and been signed by President Donald Trump, but the bureaucracy that has to manage it is unprepared, and perhaps unwilling, to have such a hands-off position. A 1031 Exchange, with its extensive limitations of timeframes, intent to sell/ purchase, and restrictions on like-kind properties are thrown to the wind in 1400Z. If you sold a fortune in stock, combined that with profits (and only the profits) from the sale of that corner-highway lot, and rolled it into a qualified opportunity zone fund that was investing in a low-income housing project or a pizza business or small manufacturing plant— or even all three together—that is perfectly fine. If some of the partners want out early? at's also fine. e others can sell and reinvest, all the while deferring those original capital gains and growing an even larger tax-free nest egg. While the IRS has been leading on this project initially, in December of 2018, President Trump tasked U.S. Department of Housing and Urban Development Secretary Ben Carson with the management and coordination of a Council of 13 federal agencies assisting in the implementation of opportunity zones. Time will tell if the market will be allowed to resuscitate these communities and if local and state leaders will jump on board and prime the pump even more. If that happens, look for qualified opportunity funds to expand in those areas first and avoid areas such as Boulder, Colorado. Boulder passed a moratorium on their only opportunity zone; it was noted as much for political purposes as any other. A recent article on Bloomberg.com cited municipal opposition as "a sad response to a potential bridge to workforce housing that is so desperately needed," according to Bob Yates, a Boulder City Council Member. "Boulder's teachers can't live in Boulder," he continued. "It's not a healthy thing to have (a) socioeconomic divide where lower-income people have to live outside of town to serve higher-income people in town." e opportunity zone could help communities overcome the workforce housing cost obstacles. Missing that chance in order to score political points is a sad commentary and will contrast dramatically with communities and funds that work together with plans that fit. Everyone needs a place to live, but the present state of existence shouldn't preclude an improved future for the community. ere will be plenty of properties available and communities to welcome the investment. ose communities will need to have plans in place and developers had better know the lay of the land, zoning and all, before funding their qualified opportunity zone fund, and its underlying qualified opportunity zone business. Some communities could miss out with the time constraints for development, and developers will likely not have the stomach for long and drawn out negotiations. e investments will move around to one of the neighboring 8,700 census tracts or maybe within the tracts when opposition solidifies. National REIA members tend to improve neighborhoods one home at a time, bringing vacant and distressed housing back online and thereby improving the communities and tax rolls. In opportunity zone communities, investors and developers could all benefit through vibrancy or redevelopment partnered with development, incentivized by this federal program. Finally, the opportunity zones may bring back the option-to-purchase real estate as the most utilized land-securing tool and forgo the long-term land-banking process. Existing land banks will need to be ready for the developments or miss out due to tight time constraints on the fund to invest or reinvest. However, with an initial closing investment window of 2026 and hard exit date of December 2047, investors will be working on opportunity zones for decades. Disclaimer: is is neither legal advice nor financial investment advice. There will be plenty of properties available and communities to welcome the investment. Those communities will need to have plans in place and developers had better know the lay of the land, zoning and all, before funding their Qualified Opportunity Zone Fund.

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