NAWRB Magazine Volume 11, Issue 1 Collaboration Breathes Success

Page 42

OPPORTUNITY ZONE PROJECTS: OPTIMIZING BUSINESS AS A FORCE FOR GOOD In our current zeitgeist, merely accumulating wealth via traditional profit motive is no longer adequate to sate the appetite of sophisticated investors— meaningful, measurable impact on Environmental, Social, and Governance (ESG) and human Quality of Life (QoL: housing, health, happiness) issues are becoming increasingly significant in evaluation of an endeavor’s overall merit. Increasingly, leaders, entrepreneurs, and visionaries are considering projects that not only provide appreciable financial returns but also stand to benefit those affected by their undertaking in varying ways by considering not just the single bottom line of prosperity, but also the other components of the Triple Bottom Line paradigm: our planet and its people. Properly employed, Opportunity Zone (OZ) projects are unequivocally the greatest mechanism for accomplishing Triple Bottom Line goals by virtue of the multiplicative benefits offered by skilled utilization of the program’s nuance. Due to the multifarious applicability of the program across nearly all sectors of business and the huge number of currently designated Opportunity Zones across the United States and its territories, projects can be tailored in a bespoke fashion to fulfill virtually any aligned mission and tuned to the preferences of the participants. Beyond this, the geographical limitations of the census tract defined as the OZ can be easily surmounted by virtue of technology and deep understanding of safe harbor provisioning as defined in the Tax Cuts & Jobs Act of 2017 from which the OZ program took form— A fully qualified QOZ operating within safe harbors is fully capable of providing its services or selling its goods globally!

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By clearly defining the project’s vision, intelligently structuring, and harmoniously orchestrating both the Qualified Opportunity Fund (QOF) designed to empower the undertaking with capital and the underlying Opportunity Zone Business(es) (OZBs) receiving said capital to then carry out the operational aspects of the project, the result is gracefully fluid and fully compliant execution. In the context of ESG and QoL, the OZ program automatically demands that at least one significant factor affecting the community in question is addressed, be it affordable housing, safer neighborhoods (infrastructure), job creation, or vocational training. The project’s inherent altruistic intent often overlaps in meaningful ways which ultimately contribute to efficiency and scale. The results are instruments and enterprises that can be qualified on a Triple Bottom Line basis. If successful, they provide highly tax-incentivized market-rate returns to investors (from deferred and subsequently obviated capital gains taxes from initial sales events in addition to 23.8% long-term capital gains tax savings on original contributions plus earnings at exit), succeed in birthing the entities that engage in business as a force for good to carry out the mission of the fund’s leadership (be they tackling the UN’s Sustainable Development Goals or any other beneficent passion), and improve real, day-to-day living circumstances for people and their communities at-large. Nowhere in the process is anything sacrificed: the Opportunity Zone program allows for a non-zero-sum strategy resulting from private sector stimulus intended for public benefit. There is an application of the OZ program that is designed to ‘throw society a bone’ at the lowest possible cost to the shareholders, resulting in a cronyist cash-grab with an adverse effect on community health. In stark contrast, consider a scenario where the owners and operators of a fund seek to create opportunities for Affordable, Workforce, and Student Housing (reasonable investments regardless!) In an area rife for economic development and who consider ESG as significant in their allocations [Mixed-use/MF, offering 18% IRR on a ~500 unit build with ~3ac flexible]:


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