Opportunity Zone Magazine Volume 1, Issue 3 | Page 49

EB-5 AND OPPORTUNITY ZONE OFFERINGS -- A SYNERGISTIC APPROACH 49 and business plan to support the project feasibility as well as the job creation component of the EB-5 project. Accordingly, there are far more professionals involved in the EB-5 program compared to the OZ program. The OZ program does not require any thirdparty independent reports to support the offering. Rather, the OZ program involves the designation of the specific project within an OZ and the general economics supporting the program. There are specific complexities that are unique to an OZ project, such as a prior use limitations whereby substantial improvements must be made to a specific project that contains buildings that have a pre-existing use, as well as pre-ownership limitations to the extent that the project was acquired prior to 2018 by a developer who then wants to participate in the ongoing project. These limitations do not apply to the EB-5 program. 5. There are significant procedural differences between the two programs. The EB-5 program involves the filing of documents with the applicable agency of the federal government, USCIS, for approval, whereby the OZ program has no requirement of filing documents with any federal agency but only the filing of the specific tax elections both on an individual tax return for investors as well as the filing of the tax return for the OZ Fund on an annual basis. Tim Wachter, lead developer of the Flagship Opportunity Zone and head of Knox Law Public Strategies, is a nationally recognized Opportunity Zone thought leader. Tim and others at Knox Law represent businesses, developers and investors across the country to help determine the best structure for Opportunity Zone investments, and advise community leaders on effective development of Zones to attract investors. Knox McLaughlin Gornall & Sennett, P.C. Erie | North East | Pittsburgh | Jamestown, NY 814-459-2800 | www.kmgslaw.com There are significant procedural differences between the two programs. 6. There are different economic incentives with respect to both of the programs. The OZ program involves tax benefits to those investors that want to shelter capital gains treatment. The incentive for investors in the EB-5 program is gaining access to U.S. residency and citizenship and less of a concern about the actual economics. One exception that EB-5 investors do expect is to receive some return on their investment as well as a return of capital when the regulatory requirements have been satisfied. 7. The nature of the investor is quite different. EB-5 investors tend to be represented by agents and/ or representatives who receive commissions and additional compensation in order to place investors in the appropriate project. OZ investors tend to be more economically and financially sophisticated and have advisers such as accountants, lawyers, wealth managers or investment advisors who provide guidance on the appropriate project to select. 8. There are significant differences in the marketing approach with respect to each of the programs. EB-5 investors are generally marketed through offshore agents who receive commissions and placing investors in a particular project. Securities law regulations impose severe limitations on the payment of commissions for any offering that is conducted in the U.S. With respect to OZ offerings, many of the offerings are directed to the investors themselves or their wealth planners pursuant to a Regulation D exemption under the Act. Domestic agents can receive an investment advisory fee providing they are properly licensed, as well since these activities broker dealer commissions if they are likewise licensed are primarily conducted in the U.S. and not abroad. TAKING ADVANTAGE OF BOTH PROGRAMS EB-5 capital can either be mezzanine debt, senior debt or preferred equity or common equity. OZ investment can only include equity, either preferred or common. By combining both programs, a developer sponsor can take advantage of the different capital investments made by each of the different investors. It is noteworthy that domestic investors in an OZ program do not need any job allocation, and the tax benefits OPPORTUNITYZONE.COM