Opportunity Zone Magazine Volume 1, Issue 3 | Page 50

50 OPPORTUNITY ZONE MAGAZINE | VOLUME 1 • ISSUE 3 EB-5 AND OPPORTUNITY ZONE OFFERINGS -- A SYNERGISTIC APPROACH 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. related to capital contributions do not generally benefit foreign investors. Accordingly, the needs of each investor group are complimentary and not competitive. From a timing standpoint, an EB-5 offering generally involves an investment of somewhere between 5 to 7 years in, and can be even longer. By definition, in order to take full advantage of the capital gains elimination under the OZ program, the investment must be held for at least 10 years. The exit strategies with respect to both programs are very similar. This would involve a sale and/or refinancing with respect to EB-5 investors. receiving a return of their capital. With respect to the OZ program, a refinancing can return capital without triggering a sale until such time as the property is held 10 years, in which event the property can be sold on a tax efficient basis. Based upon the increase in the capital contribution amount due to the new regulations that became effective on Nov. 21, 2019, investors in the EB-5 program may require a higher rate of return on capital to offset the longer time period that the investment will need to be maintained. OZ investors desire both a fixed preferred return on outstanding invested capital, as well as sharing in the project appreciation that will be taxfree if the requirements of the OZ program are satisfied. Many developers in the EB-5 program are likewise participating in the OZ program for all of the reasons set forth above with respect to the similarities of the two programs. In addition, EB-5 regulators may look more favorably on a project that otherwise is located in an OZ since that type of location has already been designated by the federal government as in need for capital infusion and job creation. From a marketing standpoint, it is also beneficial if there are government subsidies or other tax in centers that apply with respect to the development of the project to add credibility and viability of the project as a result of same. It will remain to be seen to what extent both programs are utilized together in a project. However, many developers are now trying to combine the fundraising benefits of both programs with respect to particular projects. Ronald Fieldstone is a partner at Saul Ewing Arnstein & Lehr LLP and is the chair of the firm’s Opportunity Zones and Qualified Opportunity Funds practice, which consists of 40 attorneys who handle tax, real estate, corporate and securities issues on investments and projects in these designated areas. His work includes offering guidance on strategies for investing in Opportunity Zones and preparing fund documents for compliance with securities law rules and regulations. He is also actively involved in the EB-5 visa industry as a corporate/ securities counsel. He received his bachelor’s, master’s and Juris Doctor from the University of Pennsylvania. Rohit Kapuria is an attorney at Saul Ewing Arnstein & Lehr LLP and is a vice chair of the firm’s Opportunity Zones and Qualified Opportunity Funds practice. Kapuria focuses in particular on assisting clients with matters involving securities, including reviewing fund documents for compliance with securities law rules and regulations. OPPORTUNITYZONE.COM