WHO IS INVESTING INTO OPPORTUNITY ZONES

In my last two blogs, I went through why family offices are not investing in opportunity zones…………….at least to the extent that everyone thought they would be. So who are the ones who are investing in these real estate opportunities? That is the institutions and the high net worth individuals. But I see a problem coming down the road with these high net worth investors. I don’t think they know what is coming down the pike in the next seven years. Let me give you an example. So I have $500K in capital gains that I invest. Well, in year 5, 10% of my capital gains are forgiven. In another two years another 5%. So in total, 15% is forgiven on the $500K, which is a total of 75K. So now I am left with a tax bill of $425K. So where is that money going to come from for them to pay the taxes???? Remember these are high net worth investors, not family office type capital. Now some sponsors say “well we will refinance and they will be able to use that money” Well let's say that doesn’t happen…….now what??? I suspect that many of these investors, and I think a majority of them will not have the money to pay this tax bill. Then what? Well, that is where I see them coming after the sponsors because for sure there will be lawyers lining up to file class-action lawsuits saying “they didn’t understand” (which personally is a whole another topic that I feel strongly about.), but this will happen. I don’t think the sponsors see it coming either but when there was a downturn which was coming after the sponsors? The retail clients, high net worth clients, not the family offices, and the number of lawsuits were considerable. You heard it here; first, there will be issues when it comes time to pay the taxes by high net worth investors.

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