How Will Opportunity Zones Affect Florida Commercial Real Estate?
With the passage of the Tax Cuts and Jobs Act of 2017, President Trump’s administration began a policy that will have an incredible impact on the real estate industry for years to come. Though perhaps not discussed as much as some of the more controversial legislation put forward by the Trump Administration, the creation of “Opportunity Zones” will have a heavy influence on land investment for years to come.
What are “Opportunity Zones”?
Simply put, Opportunity Zones are areas that are designated for tax incentives for investors. These tax incentives are meant to spur investment into areas that are considered economically distressed.
For investors to receive the highest incentives in Opportunity Zones, they must make long term investments. The incentives are tax exemptions that increase every few years until the 10-year mark after which the investor is exempt from any capital gains taxes whatsoever. According to Ben Carson, the Secretary of the Department of Housing and Urban Development, the success of the policy relies on “the long term incentive to stay invested, and therefore to be interested in what happens with your investment.”
Gary Ralston, CCIM, of Saunders Ralston Dantzler Realty, stated that he “anticipate(s) that stockbrokers and institutional investment sponsors will raise billions via Opportunity Zone funds. Therefore, there should be an abundance of investment capital,” and added, “but it is good to keep in mind that institutional investment sponsors typically seek larger-scale investment opportunities and recognized sponsors (developers).”
Those who advocate for Opportunity Zones believe that they will be a boon to impoverished communities around the country by encouraging investment through tax incentives. For Florida landowners, this may greatly affect the value of any property that is located in these Opportunity Zones.
However, Opportunity Zones are a new opportunity and their long-term impact is yet to be assessed. Critics of Opportunity Zones believe that they might lead down a path to gentrification, a situation in which the residents of these areas are relocated due to the rising price of rent as improvements are made to the designated areas. There is also criticism of the way by which these Zones were designated. The Treasury Department put few qualifications for which areas could be designated, and many of those qualifications are based on census information that is outdated and fails to reflect the economic growth of some communities. According to a study done by the Urban Institute, one-fourth of the tracts designated as Opportunity Zones already experience a significant amount of investment.
Critics also believe that these tax breaks may only end up benefiting the investors rather than the citizens in the Opportunity Zones and may also accrue a great loss of government revenue. There is also no concrete plan for measuring the effectiveness of the Opportunity Zones, and no requirements for job creation for the communities that inhabit them.
Due to the relative newness of the Opportunity Zone system, any potential investors should be sure to consult with experts before investing in an Opportunity Zone. For now, however, Opportunity Zones offer substantial opportunities to real estate investors and landowners.
Contact one of our experts to discuss how Opportunity Zones affect your real estate strategies.