The Big Benefits of Opportunity Zone Funds

Opportunity zones funds are one of the benefits of the recent tax overhaul, but there has yet to be a flurry of investor buzz about it. The concept is meant to fuel economic redevelopment activity in state-established neighborhoods in need of revitalization, known as opportunity zones, and investment in these projects comes through a qualified opportunity zone fund. Phoenix-based Virtua Partners is one of the first companies to launch a fund under the new provision and says there are ample benefits.

“We recognized the incredible tax benefits this program offers investors. Those tax benefits cannot be understated,” Derek Uldricks, president of Virtua Capital Management, tells Globest.com. “They are one of the most attractive potential tax benefits we’ve seen in any single program, allowing investors to delay, reduce and ultimately eliminate capital gains taxes on opportunity zone investments. Because our team has substantial experience in real estate development, we already possess a robust pipeline of projects under development throughout the country. Picking successful projects that will appreciate in value is one of our core competencies. When you add the substantial subsidy offered by the Opportunity Zone program, we feel that Opportunity Zones Funds offer an attractive option for investors to consider.”

The major benefit here—in addition, of course to revitalizing communities that wouldn’t otherwise attract investor attention—is the deferral of capital gains taxes. “Investors who invest in Opportunity Zones, through qualified Opportunity Zone Funds, are able to defer and reduce capital gains on current investments that are reinvested in an opportunity zone project,” adds Uldricks. “Furthermore, the program allows for the elimination or reduction of capital gains taxes on the appreciation of opportunity zone fund investment over time.”

Virtua Partners has launched two opportunity zone funds since June in response to investor interest. This month, the firm also announced plans to rezone an asset so that it will qualify as an opportunity zone project. “The response from investors has been immense since this program appeals to practically all investors,” adds Uldricks. Investors realized, almost immediately, that this program was really unique in terms of tax benefits and as a result we’ve seen strong demand since we launched. Savvy investors, especially those who have experience with 1031 Exchanges, understand the tax benefits and are looking at this as a long-term tax solution.”

While this is an exciting opportunity, Uldricks cautions that the system requires knowledge and expertise, and investors looking to invest in a fund should understand the program. “The legislation that established the Opportunity Zone program is complicated and requires specialized knowledge,” he says. “For that reason, we’ve found that investors are eager to embrace the tax benefits, but understanding the nuances of the program and what makes for a qualified project requires a team specializing in Opportunity Zones. We believe it is essential to educate investors on the legislation and be a thought leader as the program matures.”

Opportunity zones are still a new concept, however, many investors—especially those involved in workforce and affordable housing, are confident that they will have a significant impact in the long-term. “We believe the impact will be great and it should help bring supply and demand more into balance,” explains Uldricks. “We feel that anytime you incentivize private capital to flow into areas that might not have otherwise received that capital, you are providing a social benefit to the community. For multifamily, that means that developers will use the Opportunity Zone program to build residential projects that would not have otherwise happened. The other thing to keep in mind is that there are Opportunity Zones in practically every state, so developers can target specific areas based on housing supply, expected returns, community needs or any number of other factors. Long term, we see real social impact, both in high growth areas, as well as areas that need the subsidy to be viable for development.”