14 OPPORTUNITY ZONE MAGAZINE | ISSUE 2 • VOLUME 2
disclosure documents and the corporate agreements : ( i .) Acquisition fee ; ( ii .) Asset management fee ; ( iii .) Development fee ;
( iv .) Property management fees unless same are paid to an independent third party ;
( v .) Preferred return to investors ; ( d .) Promote Interest to Sponsors .
( i .) In determining the promote interest , there could be a sliding scale whereby the promote increases as the internal rate of return to investors meets certain barriers prior to the increased promote interest being applicable .
( ii .) A 20 % promote is typical after investors receive a return of their capital contributions and the preferred return , plus a step up in the promote percentage based upon certain benchmark IRRs being obtained .
( e .) Exiting from OZ Investments . This is an issue in and of itself . There needs to be a 10-year holding period based upon the time that the last investor invested in the QOZF in order to enable each investor to qualify if there is a sale . Accordingly , it is common that offerings have a limited time for funding in order not to extend the holding period prior to sale .
Direct or Indirect Investment by Manager of STBD
MANAGER
OPPORTUNITY ZONE STRUCTURE CHART
TBD % Manager Promote
100 % Investing Members
QOZF
QOZB
TBD % ownership
100 %
Property Owner
100 % Investing Members
TBD % ownership
( f .) Sale of Project . Another factor to be considered is that the project may not be performing adequately and can be sold by the QOZB , with proceeds returned to the QOF , and then reinvested in other projects . The sale itself will generate either a capital gain or a capital loss .
As apparent , the structuring of a proper OZ project is quite sophisticated and requires the consideration of all of the issues set forth above that will involve the guidance of OZ professionals to insure that the structuring meets the requirements of the OZ Regulation .
QOZF QOZF
QOZF
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Ronald R . Fieldstone is partner and chair of the Saul Ewing Arnstein & Lehr ’ s Global Immigration and Foreign Investment Practice . He
practices primarily in the areas of corporate / securities and taxation law . Fieldstone is the chair of the firm ' s Opportunity Zones and Qualified Opportunity Funds practice , consisting of 40 attorneys who work together handling tax , real estate , corporate and securities issues on investments and projects in these designated areas . Fieldstone focuses particularly on assisting clients with matters involving taxes and securities . His work includes offering guidance on tax implications of investing in opportunity zones and preparing fund documents for compliance .
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