Qualified Opportunity Zones

The Qualified Opportunity Zone Program was established by Congress in the 2017 Tax Cuts and Jobs Act and works as a community development tax incentive to encourage private sector, long-term investments in qualifying areas nationwide targeted for redevelopment.  By investing in a project in a Qualified Opportunity Zone, investors are, in exchange, eligible for a suite of tax benefits. 

This Federal Program serves as a powerful program for investors with substantial capital gains seeking to realize them in a tax-efficient manner.

The Solution to Opportunity Zone Investing

Fund Overview:

In December 2019, Halpern Real Estate Ventures (“HREV”) closed on its inaugural Opportunity Zone Platform after achieving its target of $50 million in General Partner capital within 9 months.  The Platform supports HREV’s new development projects in Denver, Jersey City, and Philadelphia.

The Program is managed by an experienced team of Real Estate and Private Equity professionals and supported by tax, accounting, and legal experts that have differentiated themselves as thought leaders and policy changemakers in the Opportunity Zone and tax credit space.

Jersey City:  HREV recently launched its capital raise for direct, co-invest Limited Partner equity for 49 Fisk Street. The team broke ground in October 2021, with Phase I construction underway.

Philadelphia:  HREV is preparing to launch its capital raise for direct, co-invest Limited Partner equity for 1650 West Girard Avenue.

Denver:  HREV has plans to launch its capital raise for direct, co-invest Limited Partner equity for Denver GWS in December 2021.

Investment Strategy:

The Program targets investments that benefit from a generational shift towards emerging, urban lifestyle areas, amplified by business demand and capital flow that will result from the Qualified Opportunity Zone federal and state tax incentives designed to encourage investment.

The HREV investment approach focuses on ground-up and adaptive reuse projects and seeks to establish long-term partnerships with locally entrenched operating partners, providing strategic capital, expertise, and relationships in order to execute on institutional quality projects.

HREV targets markets and property sectors in Opportunity Zones located in urban lifestyle cores in the Northeast, Denver, and other high growth markets that are poised to benefit from long-term demographic and economic shifts. The team’s multi-cycle investment and risk management knowledge and its micro-market and fundamental analysis expertise – coupled with HREV’s execution capabilities with local operators – has historically resulted in successful investment opportunities.

The 12-year fund horizon is designed to capture the full tax benefits of the Opportunity Zone Program, qualify investors for a full step-up in basis at disposition, and facilitate an orderly exit.

A Powerful Boost to Returns:

Opportunity Zone investments offer numerous tax benefits to investors, including: deferring federal taxes on any recent capital gains until December 31, 2026, reducing that tax payment by 15% if the investment is held for at least 7 years and 10% if held for at least 5 years, and paying zero taxes on potential profits on gains invested into an Opportunity Fund if the investment is held for 10 years. At the time the Program was established in 2017, the provision in the $1.5 trillion tax cut was projected to save investors $1.6 billion in capital gains taxes over 10 years.

After-tax gains on an Opportunity Zone eligible investment are substantially increased in relation to a similar investment made without the Opportunity Zone tax benefits:

*The tax calculation uses New York City, the highest tax rate nationally for this example. The rate is comprised of Long Term Capital Gains tax of 20%, top marginal state and city tax rate of 12.7%, and 3.8% surcharge on capital gains, rounded to the nearest 10th.

Note: Illustration does not capture timing of cash flows or tax benefits from deprecation during the period.

Qualified Opportunity Zones:

Opportunity Zones were nominated by state Governors and then approved by the U.S. Department of Treasury.  The majority of zones represent low-income communities with above-average poverty and unemployment rates.  The Opportunity Zone Program is designed to incentivize investment into these areas to drive improvement through redevelopments and jobs creation.

Within the 50 states and D.C., Opportunity Zones are home to approximately 31 million people.

Over three-quarters of certified tracts lie within metropolitan areas. An interactive map, depicting Qualified Opportunity Zones throughout the country is depicted below:

Investment Drivers:

We have found that our investment thesis coupled with our distinct capabilities as an operator and investment manager actualizes advantages through a distinct set of core real estate fundamentals: 

Accessibility: Provides tax deferral and abatement to both real estate and non-real estate investors alike, qualifying trillions of dollars in capital gains for potential investment in localized areas.

Appreciation: Funds with first mover advantage will recognize appreciation resulting from the estimated tens of billions of dollars of capital to be deployed by investors seeking to eliminate or significantly reduce capital gains.

Value Creation: Participation is limited to development platforms that can execute on ground up development and heavy repositioning, generating and opportunistic returns through stabilization.

Driving Additional Demand: Real Estate and businesses that form within or relocate to Opportunity Zones will realize significant tax savings upon the exit or sale of the company and will likely select space in Opportunity Zones over other locations.

Barriers to Entry: The program creates scarcity as zones are tightly defined and is only available to platforms with both complex execution capability and solid compliance experience.