Skip to main content

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.

Labels

Labels:

Comments

Post a Comment

Popular posts from this blog

Harvard's Endowment commits to a target investment range into real estate between 10% to 17% for 2016

Years ago, before the downturn I was paying very close attention to the investing allocation of my Alma Maters Endowments Investing Strategy HMC (Harvard Management Company), especially in the area of real estate.  I believe that not only was Harvard a great place to understand the importance of investment allocation strategies before the downturn but even more so since the downturn. In fact, investors who are looking to enhance the performance of their investment portfolios probably won’t find a better investment model than the one used by the $37.6 billion endowment for Harvard University. The entity in charge of managing the endowment, Harvard Management Company (HMC), has accrued an impressive investment track record across its 41-year history. As of fiscal year 2015, the endowment had produced an average annual return of 12.2% – 290 basis points higher than the average 9.3% return of a typical U.S. 60/40 stock and bond portfolio. The methodology behind HMC’s success i...
1 comment
Read more

Real Estate Analysis

Just a little while ago myself and my patriarch sat down with another family and began discussing real estate and our strategy.  As the family office really didn't understand real estate, they started to ask questions on how we looked at deals and evaluated opportunities. Thinking back I think that a lot of the questions came from the fact that they created their wealth in the LBO market and thus understood the different nuances of businesses.  Now many families created their wealth from a business but this particular family was involved in 39 different industries, thus I believe their frame of reference was a little different. Our family office created their wealth in real estate and one big part of that has to do with the degree of analytics that is used in our office.  In fact, I have been asking for about 10 years why people are not more analytical about real estate decisions.   All too often a family office is approached by rea...
Post a Comment
Read more

Real Estate - The Bedrock Asset for Family Offices

Global Family Office Report 2015: Largest Family Office Research Study undertaken offers insight into family office investments in real estate  The average family office portfolio allocates approximately 13% to real estate, and there is a home bias in holdings according to The Global Family Office Report 2015, produced by Campden Wealth Research, in partnership with UBS.  The average family office, with assets under management of USD 806 million, invested approximately USD 105 million in real estate activity in 2014, be it in residential or commercial real estate.  Family offices prefer to invest locally or nationally for both commercial and residential property. Since real estate direct investment typically takes place in-house, this may be a reflection of the local knowledge and skill set of the staff. Where investments are made further afield, they are made with the expectations of higher returns, with international or regional investments coming with signi...
Post a Comment
Read more