Opportunity Zones have recently sparked the interest of investors and those who work in the commercial real estate industry. Activity in the program has been fairly limited and there are still a lot of questions surrounding the topic, but still, investors have started to position themselves to take advantage as soon as they are given the go ahead.
Here’s a quick guide to opportunity zones and LA opportunity zones in particular.
What’s the Real Deal with Opportunity Zones?
According to Yardi, there are more than 8,700 areas in the United States that were designated Opportunity Zones by the Treasury Department in the Tax Cut and Jobs Act of 2017. The program is meant to encourage investors to reinvest their capital gains.
In order to qualify for the opportunity zone tax breaks, investors must invest their capital gains in an Opportunity Zone within 180 days of receiving the gains. The money can’t be directly invested in a property and the funds must invest 90% of their capital into opportunity zone properties. If they do so, shareholders will then be given tax breaks depending on how long they keep the interest in the funds. Shareholders who keep investments for five years will pay no taxes on 10% of their gains, at seven years they will pay no taxes on 15% and if they hold the investment for 10 years, they will pay no taxes on the gains at all.
The Goal of Opportunity Zones
Opportunity Zones were established in hopes to revitalize struggling communities that show potential for growth with a little help from investors. Although these zones are an exciting prospect and this program could do exactly what it intends to, it is vital that investors stay focused and make the right moves to make this work. Investors need to be prepared to be in these funds for a lengthy time period and bring solid development practices to the table.
LA Opportunity Zones
According to FundRise, many parts of Los Angeles now fall into Opportunity Zones. Downtown Los Angeles and the LA Arts District, plus the surrounding areas directly south and east make up the largest contiguous section of Opportunity Zones within the city. Home values in LA have increased 36 percent over the past five years. Downtown LA is currently undergoing a revamp and attracting countless new businesses and residents.
West of Downtown LA, there are multiple emerging communities along the 10 Freeway have received Opportunity Zone designation along with Downtown LA. These areas are attractive because they offer easy access to the 10 Freeway and they are more connected to the city due to the extension of the Expo line from Downtown LA to Santa Monica.
Further south, housing is more affordable than many other places in the city and these areas also offer great access to several freeways. Now that so many areas of South LA are deemed as Opportunity Zones, developers and entrepreneurs have even more incentive to develop more housing and local amenities in these up and coming communities.