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Here's a question for you: If you could develop a project to a5.75% yield on cost, would you do it at 5.825% if it were in anopportunity zone?

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One investor's opinion is yes, but you'd probably be squinting."It would be okay depending on who the investor was, what theywanted to do, but you ought not be doing a deal just because it'san opportunity zone deal," according to Paul Hughson, executivemanaging director at C-III Capital Partners. "It just has to makesense."

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Hughson made his comments at a recent symposium held byTranswestern and GlobeSt. Real Estate Forum in New YorkCity. Other participants included top level executives fromBentallGreenOak, AXA Equitable Life and Clarion Partners.

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Now that the final regulations for opportunity zones have beenput in place by the Treasury Department, investors have a cleareridea of what the related costs and returns will be. Interest inthese projects remain high, albeit perhaps more muted than when theopportunity zones were first revealed two years ago. The differencebetween then and now, however, is that more investors have thenecessary data to see if the projects will pencil.

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Brian Watkins, managing director and head of acquisitions forClarion Partners, told the audience that the company has raisedabout $200 million for two series of opportunity zone funds, whichit will start investing.

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"I completely agree that the deal has to make sense in and ofitself aside from the opportunity zone setting," he said. "We'reseeing a lot of the land that is part of an opportunity zone hasbeen priced to reflect the fact that you're getting the economicbenefits of the opportunity zone. A lot of the deals that we'relooking at don't make sense from an acquisition standpoint relativeto the price it deserves to get."

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In other words, he said, some of that benefit that you receivelater via taxes is being offset by the increased price of the landon many of these deals. "We're seeing that as being a challenge onsome of the sites that we're looking at."

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Deals are getting done, these issues aside. Hughson told of anoffice building transaction it closed in November 2019 for itssecond value-add fund. "We're selling it as fully entitled to anopportunity zone fund," he said. "We're not doing it ourselves.We'll sell it to the fund because they'll pay up a little."

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Odds are more transactions are coming now that the regs are inplace—although they might not happen immediately.

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When legislation was being drafted, nobody really understoodwhat it was and we needed to be careful about coming out with aproduct that wasn't ready for whatever the regulations wouldultimately call for, Watkins said. "But we did see a ton of demandand interest from our clients, as well as high net worthindividuals reaching out.

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"So we raised a lot of money, but we want to be judicious in howwe're investing that. And if it means that we can't find the rightdeals until later, we'll make that happen later."

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