Opportunity Zone Magazine Volume 1, Issue 3 | Page 85
85
COMMON OZ ISSUES FOR REAL ESTATE VENTURES
In order for investors to benefit from the OZ program,
QOF and the QOZB they invest into need to comply with
the various OZ rules to qualify for the designation as a
qualified fund or business. Investors also need to follow
certain rules to maintain the benefits of their qualifying
investments. These various rules can present challenges
for all real estate projects. Further, several asset classes
can present their own unique challenges. Below are some
common issues that may arise when forming and operating
a real estate focused opportunity fund:
THE USE OF TRIPLE NET LEASES IN AN OZ PROJECT
To qualify as an QOF, the fund needs to deploy the capital
it raises into active trades or businesses that operate
within OZs. The active conduct of a trade or business is
not clearly defined for this purpose. Further, the operation
of a rental property qualifying as an active conduct of a
trade or business has a long history of litigation between
taxpayers and the IRS with conflicting judgements. This
makes the active trade or business designation for a rental
property heavily dependent on the facts and circumstances
of a given venture. However, the OZ regulations make it
clear that the ownership and operation of real property
(including leasing) will be considered the active conduct
of a trade or business for purposes of the OZ program. 1
the OZ regulations make it
clear that the ownership and
operation of real property
will be considered the active
conduct of a trade or business
for purposes of the OZ
program.
While this was welcomed guidance, the regulations go
on to say that merely entering into a triple net lease with
respect to real property owned by an entity is not the
active conduct of a trade or business. This can be an issue
for asset classes such as office, industrial, or retail that
commonly utilize triple net lease arrangements with their
tenants. QOF or QOZB should carefully consider the terms
in the lease arrangements they are entering into with their
tenants to insure that their level of activity will rise to the
level of an active trade or business.
Higher interest means
more cash for your company.
Congratulations to Matt Peurach
Partner & Chair of MMM’s Opportunity Zone Practice
3.0%APY*
Put your idle cash reserves to work
APY*
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Primary Objective: No loss of initial capital
Fully liquid, SIPC Insured
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on his recognition as a
Treasury Compliance Program available for OZ Funds
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APY*
0.10%
2020 Top OZ Professional
FDIC National
Savings Rate
Average
Cash Reserve
Account
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*The stated rate is the average expected interest rate over one year, net of fees (as of October 2019) and is not guaranteed.
All funds are held in the client's name in a separately managed securities investment account (not a bank account), and are
managed by Optimal Asset Management Atlanta Inc., an • SEC-registered Raleigh-Durham investment • adviser Savannah under the • Invest Washington, Advisers Act DC of 1940.
Funds are invested 100% in US Corporate and Treasury Bonds and may be liquidated at any time without penalties or fees
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