“Opportunity Zone” has become the latest buzz word in commercial real estate. In late January, my team, The Office Advisory Group, attended the “Opportunity Zone Expo,” in Los Angeles. The Expo had originally anticipated (300) attendees, but over (1,000) professionals and industry leaders attended. The buzz had reached a tipping point, it seemed, as the attendee list included regulation experts, attorneys, CPAs, property owners, who found their assets located within the DOZ lines, and funds established to buy properties within an “Opportunity Zone.”
Collectively, we were eager to learn more about “Opportunity Zone” regulations. In addition, we wanted to promote a development property located in one of the 876 Designated Opportunity Zones (DOZ) in California, as my team The Office Advisory Group has been recently hired by real estate pioneer, Mike Harrah, of Caribou Industries, to procure equity and lease two properties located in a DOZ.
One of the projects is 625 Grand, which is currently a 180,000 square foot office building and a former printing press. We envision 625 Grand being redeveloped into a sprawling office campus on 20 acres, with freeway visibility. The other, more immediate project is 1 Broadway. We found this to be the diamond in the rough for DOZ real estate projects in California.
There are several reasons that 1 Broadway is a gem. One of these reasons is that this project is shovel ready and the construction is already underway on the foundation. Another reason that we consider this an ideal project, is that permits are ready, and investors would not need to go through the typical bureaucracy.
As we all know, California is renowned for having extremely onerous permitting restraints and schedules that preclude most projects from qualifying as a DOZ property. This is because of the 1:1 ratio requirement in the law. The 1:1 ratio is a requirement stating that if you purchase a building, land or apartment in a DOZ for $1,000,000, then the investor must invest an additional $1,000,000 into that property in order to get the tax benefit.
Likewise, current regulations are still being defined for DOZ real estate and in theory, will immediately provide a positive impact on surrounding communities. The law was passed with bi-partisan support (Senator Scott (R) of South Carolina and Senator Booker (D) of New Jersey), so the consensus is the law is not going anywhere. Furthermore, the overall word from the industry insiders is that the next set of regulations will expand to include businesses and possibly lift some restraints. Remember: the intent of this law is to uplift communities that have been forgotten, and in so doing, award the investor with a tax deferral or outright tax forgiveness.
Final Thoughts
If you have any questions about “Opportunity Zones,” or if you would like to learn more about commercial real estate, please contact us today! You can also keep us with us on Facebook, LinkedIn, Google+, Instagram, and Twitter.
by Matt Orville, Principal of Lee & Associates Orange | CoFounder of The Office Advisory Group
