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Could the Pandemic Generate More Opportunity Zone Demand?

Posted by: | Posted on: July 25, 2020

Opportunity zones have already been tremendously popular among investors. With thousands of opportunity zones in varying markets, there has been a tremendous range of projects and players investing in opportunity zones. Yet, there could be more to come. The pandemic and related economic dislocation could generate even more demand for opportunity zones because investors are seeing waning returns and could opt to take advantage of the tax benefits that come with opportunity zones.

“Given the strength of the economy through 2019, and the fact that many taxpayers did not recognize such gains until their tax filing in March 2020, there is increased buzz around the ability to leverage the tax incentive,” Soua Vang, interim economic development director for San Bernardino County, tells GlobeSt.com. “In addition, firms that focus on increasing their environmental, social, and governance (ESG) investment metrics can use OZ to focus investment strategies. Southern California is an attractive market for lenders and many banks are interested in Community Reinvestment Act (CRA) credits as part of their commitment to the communities they serve.”

Opportunity zones already represent a tremendous amount of capital, particularly for how new they area. “Novogradac published a study that tracked $10 billion in commitments to OZ funds,” says Vang. “This is a tremendous number, considering that the incentive went into effect when census tracts got certified in mid-2018 but the IRS did not issue final regulations and clarifications until December of 2019.”

Investors looking for a way to invest in opportunity zones have already received a green light and guidance from the IRS to move forward. “The IRS recently issued guidance that exempts financial institutions from the Volcker Rule as it relates to providing community benefit, essentially allowing financial institutions to redirect their capital gains into active OZ investments and participating in equity investment of funds,” says Vang.

San Bernardino County is looking forward to increased opportunity zone funds. The market, which has already experienced strong growth in recent years, hopes to leverage opportunities zone projects and development sites as a way to attract capital and catalyze new development in the recovery. “San Bernardino County’s focus is on creating an investable pipeline of projects, and we are working to deploy a number of electronic tools that will increase accessibility,” adds Vang.

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