2019 is shaping up to be the year of the Opportunity Zone Fund. The most notable theme we see ahead in the next 12 months is the rush by investment managers to identify and invest in opportunities in real estate and operating businesses in a designated Qualified Opportunity Zone (QOZ).
We believe our position as the largest fund administrator is going to help our clients and new managers be the first to launch QOZ products in 2019. The operational and technical challenges to successfully run a QOZ Fund are unique and contingent on partnering with the right people who understand how to identify, procure, manage and sell assets.
The specifics of the program, some of which are mentioned in our whitepaper are known for their tax advantages, such as:
- A step-up in basis to capital gains invested into the fund, if held for at least five years
- Taxes due on capital gains invested in the fund are deferred for up to seven years
- Appreciation on assets held in the fund for 10 years will be exempt from federal taxes
Expertise and execution are going to separate the winners from the losers. Below are some of the questions and topics to think about when managing or investing in a QOZ Fund.
Fund Structuring Expertise
- Will there be a separate OZ fund for each asset?
- Will the fund own the asset directly or through an OZ Business?
- How will this impact my tax reporting when I eventually have to pay taxes on my initial capital gain?
- How deep is the manager’s pipeline?
- Will they be able to source and execute, to put your capital to use within the 180 day requirement?
- What is the manger’s compliance plan?
- How do they plan to comply?
- Who are they partnering with and what tools are in place to ensure compliance with the regulations?
- The ability to exit an investment may be just as important as the ability to enter an investment
- Does your manager have a plan to sell the OZ Fund?
- Are they selling because they have to or because they want to?
Service Provider Expertise
- Can the provider leverage existing technology, tax, accounting and complex fund structure expertise in servicing your OZ Fund?
- How many other OZ Funds are they servicing and what is their knowledge of the program and its requirements?
- It hurts to be a guinea pig, especially when the penalty for non-compliance can have such severe financial repercussions
- How adaptable is your team?
- Are they giving you suggestions based on similar clients they work with?
- What type of technology are they using?
- Is it a “proprietary” platform? Be careful of firms which cannot control their technology, grow with you and adapt to the requirements on the fly
SS&C’s position as the leading fund administrator, our existing QOZ Fund client base, and dedication to the technology, put us in the best position to help managers launch and manage a QOZ Fund in 2019.
To learn more about the real asset services, email Sam Krause at firstname.lastname@example.org. We are looking forward to helping you make that first capital call in 2019.
Asset Management, Fund Administration, Real Estate & Property Management