SS&C Real Assets team members attended the “Diversity in Commercial Real Estate Conference” on July 26-27 at Columbia University. This event hosted thought leadership panels where some of the topics included real estate private equity, finance, and development & investing, and most attendees turned their attention to Opportunity Zones. It can be helpful to understand the nuances of the regulations and timelines involved when launching a fund that will focus on Opportunity Zone investments.
Misinformation on Organization
Barriers to entry are fairly low for participation. Seasoned GPs, attorneys, tax professionals and real estate consultants in the private equity space discussed the exuberant amount of misinformation on the table regarding organization and strategy. The fund documents need to be structured correctly and on a timely basis. It is also recommended for new entrants to form a strong team with enough skin in the game. This is especially the case when deploying capital into an asset that will require substantial improvement following the guidelines and regulations to have rehab costs equal to the value of the asset excluding the land.
Maximizing Tax Benefits
A common theme mentioned among the various industry experts is that investors in Opportunity Zones can easily shortchange the value of deferred and compounded tax benefits. When managers identify that an asset may underperform, they should evaluate whether or not to take the step to sell the asset and reinvest the original capital gains into another qualified Opportunity Zone asset. The window to deploy capital is rather short; however, the on-going growth of tax-differed income is really exciting the farther out from deployment.
Managing the Data
Holding periods can range from 5 to 10 years, with early exits starting December 31, 2026, for the disposition of the qualified opportunity investment. Some Qualified Opportunity Zone funds may have ambitious strategies that exceed a 10-year hold. Their LP investors will require accurate data reporting at their fingertips throughout the fund lifecycle. Sophisticated investors will require a highly recognizable fund administrator with a proven track record for processing statements and pushing that information into an accessible portal. As the global leader in fund administration, SS&C provides clients of all sizes and structures the best-of-breed expertise and technology to support the Qualified Opportunity Zone investment lifecycle.