Multifamily properties located in Opportunity Zones had a massive 2021. Could 2022 be even bigger for them?
Jimmy Atkinson, founder of OpportunityDB.com, joins the show to recap 2021, and to offer insights on what the next year may look like for multifamily investors.
Click the play button above to listen to our conversation.
- What changed in the QOZ Fund landscape in 2021.
- Macroeconomic trends in 2021 that impacted multifamily investments and opportunity zones.
- Why any uncertainty about the Opportunity Zone program seemed to fade away as a new presidential administration began.
- Jimmy’s favorite Opportunity Zone Podcast episodes related to multifamily over the past year.
- Which areas of the US had multifamily real estate markets that were “hot” over the past year.
- What trends in OZs and multifamily Jimmy is on the look out for in 2022.
- Jimmy’s thoughts on the scope of interest in Opportunity Zones, and how it will continue to grow in 2022.
- Why Jimmy thinks it’s never too late to explore investments in Opportunity Zones.
Featured On This Episode
- How to Evaluate Opportunity Zone Deals, An OZ Pitch Day Panel
- Opportunity Zones Database
- Opportunity Zones – IRS.gov
- OZ Multifamily In The Southeast, With James Brunger & Whit Huffman
- The Evolution Of Opportunity Zone Neighborhoods, With Chris Knoppe
- The Future of Opportunity Zones, With Shay Hawkins
- The Prototypical Opportunity Zone Investor, with Erik Hayden
- The Resiliency Of Multifamily Real Estate, With Neil Sherlock
Industry Spotlight: Opportunity Zones Database
OpportunityDb (The Opportunity Zones Database) was conceived with the goal of providing world-class tools, education, analysis, and advice to help high net worth individuals, family offices, financial advisors, real estate developers, tax professionals, business owners, and many more navigate the ins and outs of the opportunity zones program’s tax benefits. And specifically, how they can create positive social impact in under-invested areas.
Learn More About The Opportunity Zones Database
About The Multifamily Investor Podcast
The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses attractive offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.
Scott: Hello. Welcome to another episode of the “Multifamily Investor Podcast.” I’m your host Scott Hawksworth, and today I am joined once again by Jimmy Atkinson, who is the co-founder of The Alternative Investment Database. He’s also the founder of the Opportunity Zones Database. And Jimmy is joining us today from Fort Worth, Texas. Jimmy, welcome to the show.
Jimmy: Hey, Scott, thanks for having me. Pleasure to be with you.
Scott: Thank you for being here. I’m really excited to chat with you because today, we’re going to be kind of closing out 2021, and then discussing the outlook in 2022 on Opportunity Zones and Multifamily investing. So kind of looking at where we’ve come from and where we’re going, right?
Jimmy: Yeah, I’m looking forward to it man. Let’s dive in, right?
Scott: Well, yeah, let’s dive in. So I guess to start off, you got to start from where we’ve come from. So looking back to 2021, what are some of the biggest OZ trends, particularly in multifamily investing, that you’ve kind of observed?
Jimmy: Yeah, I think OZ trends just in general, and it applies to multifamily opportunity zone investing as well is, perhaps the biggest trend, there’s a few I’ll go through, but perhaps the biggest trend is just a lot more clarity and a lot more certainty about the tax incentive and the marketplace.
So let me explain. I’ll go back to the beginning. In the beginning, toward the end of 2017 is when the legislation was initially passed, the marketplace didn’t really open up until mid-2018 when the zones were finalized. But there was a lot of regulatory uncertainty. It took several years, two years in full to be specific, for the IRS and the Treasury Department to finalize regulations on opportunity zones.
So the regulations didn’t become finalized until December of 2019, two years after the legislation was passed. And then, of course, we were hit by the COVID pandemic just a few months later when we finally thought the OZ marketplace was going to get rolling. It kind of hit the pause button spooked a lot of investors.
And then toward the end of 2020, of course, we had a change in the presidential administration and the balance of power in Congress. So then a lot of investors were spooked by, you know, what is the Biden administration going to do with opportunity zones? Is it going to shut them down? What’s Congress going to do?
Are they going to put a lot of guardrails on the program? And what we’ve seen unfolds over the first year of Biden’s presidency and the new Congress is frankly, not a lot. They haven’t really touched opportunity zones, and they’ve in fact signaled that they like opportunity zones to help further their economic agenda, their Build Back Better agenda, which has its own shortcomings and its own problems with getting passed, of course, in the Reconciliation bill which still is kind of tripping across the finish line, and it looks like it may never get there.
But the good news is opportunity zones seem to be a low enough priority for the Democrats that I don’t see them changing it. And in fact, a lot of Democrats have signaled that they like the program quite a bit. So I think that’s kind of given investors a lot of confidence. Coming out of COVID now, you know, the market did hit a pause, and actually, the stock market dived a little bit at the beginning of the pandemic, late February, early March of, boy, that was 2020 now, almost two full years ago.
Scott: Yeah, it’s been a while.
Jimmy: Yeah. The real estate market kind of hit a pause for a while. There wasn’t a lot of market activity and that’s rebounded nicely. And now it looks like, well, I think this program is here to stay for the next several years. So I think that’s one big trend is we just have a lot more certainty, a lot more clarity, opportunity zones are here to stay, the markets kind of rebounded nicely, and we’re chugging along.
The other trend is I would say more, more, more. And let me explain that. Just a lot more knowledge about opportunity zones has disseminated to investors and their advisors. There have been a lot more deal flow. There’s been a lot more qualified opportunity funds that have hit the marketplace and a lot more investors that are interested in this program as well. So those are some basic trends that I’ve seen unfold over the course of the last 12 months in 2021, Scott.
Scott: Right. So to sum it up, Jimmy, some uncertainty, some hesitancy, but then more, more, and more, a lot of opportunity, pun not intended, and investor interest, right?
Jimmy: I intend the pun every time I say it. I love that word, opportunity. And then if you want to talk about sector or property types, I would say there was a lot of different sectors that were looked at with opportunity zone fund managers or would-be fund managers when the program first unfolded in 2018.
There were a lot of fly-by-night operators with pretty weird deals out there that didn’t really gain any traction. And I think what we’ve seen also happen over the course of last year or two is that the cream has risen to the top, the quality operators are still around, and the fly by night operators, the Wild West atmosphere of opportunity zones that it was in 2018 and 2019 has kind of subsided a little bit, and the markets really just matured a lot is what I’m trying to say.
In terms of market sectors, I do think that hospitality, hotel, retail has taken a bit of a hit because of larger macroeconomic trends, because of the pandemic and our response to it. But multifamily is a really durable, resilient asset class, and it is the most popular asset class in opportunity zones.
Scott: Right. So, and really, there’s been a lot more clarity, right? And as you said, a lot more investor knowledge has been built in understanding of these programs, right?
Jimmy: Absolutely. Absolutely Scott. Yeah, it takes a little bit of…there’s a bit of a learning curve to figuring out what opportunity zones are. But, you know, there’s a lot that an investor has to learn in order to become comfortable with the program. And it’s also been conflated with affordable housing, and with bad markets, and, you know, with low-income poor communities.
And there is a lot of that to a certain extent. And, in fact, you know, the congressional intent of Congress is that this program is meant to lift a lot of our residents out of poverty and to help spur economic activity in some of these downtrodden communities. But the fact of the matter is, investors are looking for alpha, and they’re looking for tax advantages.
But getting back to the alpha, what I’ve seen is the more successful opportunity zone funds are those that invest in asset classes that investors understand. And typically multifamily, and especially given which podcast I’m on right now, the “Multifamily Investor Podcast,” that really is a huge asset class. And they want to invest in markets that are familiar and neighborhoods within markets that are showing a good growth trajectory.
Scott: Right. And I think also part of that education and understanding growth is, you’ve had a hand in that as you’ve been the co-founder of the Opportunity Zones Database, and as well as the Alternative Investment Database. So can you tell us just a little bit more about those two projects?
Jimmy: Yeah, so Opportunity Zones Database at opportunitydb.com and the accompanying “Opportunity Zones Podcast,” I started in 2018 when the market was really first forming. And the mission of that website and the podcast is to drive education and to increase the amount of transactions that occur within the opportunity zone industry, and essentially to drive more market activity within opportunity zones.
So to that end, like I mentioned, we have a podcast, we have a lot of free educational resources and guides on our website, we have data on a lot of the different, I should say all of the different opportunity zones spread all over the United States. There’s over 8700 such zones that are eligible to receive these types of investments. We have data on all of those zones, and we have data on hundreds and hundreds of qualified opportunity funds as well.
So that’s the educational arm. In terms of the transactional arm, actually spurring investment activity in these opportunities zones, we host three OZ Pitch Day events throughout the course of the year where we showcase some of the best-qualified opportunity funds. And I think we’re going to talk about events a little bit later, so I’ll just tease that there now, And then maybe we can drill in a little deeper on that one a little later in the episode, Scott.
Scott: Absolutely. So before we do all of that, I kind of want to shift gears on you again a little bit. Specifically with multifamily, when you’re looking across multifamily deals, where has a lot of the investing and building activity been? Are there specific areas as you looked over 2021 that have been particularly hot so to speak?
Jimmy: Yeah. So opportunity zones will kind of be just a smaller version or a microcosm of the larger country mostly, right? There are opportunity zones in every major metropolitan area all over the country. So when you talk about opportunity zone markets that are really good, that are receiving a lot of investment, it reflects really the overall national picture.
So, you’re talking about growth markets, specifically concentrated in the Southern United States for the most part. The Southeast, Tampa, Orlando, Nashville, but also the West, Phoenix, of course, Colorado has several good markets that are receiving a lot of opportunities and investments that I’ve seen, Denver, Colorado Springs, the Western Slope of Colorado.
One city that seems to be bucking that trend actually is Cleveland, Ohio, and a little bit of Columbus, Ohio as well. I’ve seen some investment activity in those areas as well. And, you know, Ohio actually offers a pretty nice sweetener for opportunity zone investors, they offer a 10% tax credit on top of any opportunity zone incentive advantages that the investor has.
If you make an investment into an opportunity zone that invests in Ohio, you automatically get a 10%, kicker or sweetener essentially added to your Ohio tax bill. If you don’t have nexus in Ohio, if you don’t file taxes in Ohio, those tax credits are transferable or you’re able to sell them as well.
So, I don’t mean to dwell too much on Ohio, but most…
Scott: That’s music to this Buckeye’s ears.
Jimmy: I know you’re a big Buckeye fan, you’re from the Buckeye State, so I thought I’d throw that out there for you, Scott. But yeah, typically, you know, you’re looking the West and the Southwest and the Southeast are where the demographics are changing favorably, and the fastest-growing cities seem to be located in those areas. So Austin, Texas, a lot of areas in Texas are receiving a lot of opportunity zone investment, particularly in multifamily space with a growing population there.
So, just a few examples there for you, Scott.
Scott: Right, some really great examples. When you’re kind of looking at opportunity zones themselves overall, did investment activity and companies located in opportunity zones, did that increase over 2021? And when you’re looking at the scope of opportunity zones now, you know, we were talking about the greater clarity and understanding and interest you kind of said more and more and more, what’s the scope if you kind of had to really lay it out?
Jimmy: Yeah. It’s interesting, actually, because, you know, I mentioned that the opportunity zone marketplace is only really starting to mature and become more clear and more stable just within the last year is how I feel. But it actually received a lot of investment activity in its first full year, which was 2019.
And that is also the only year that we have any data on whatsoever from the Federal government. So the GAO, the Government Accountability Office, which reports to Congress on a number of matters, they were charged with issuing a report on opportunity zone investment activity, and they looked at the tax year 2019, which again like I said, was the first full year that anybody could possibly invest in opportunity zones.
There was some investment activity in 2018, but investments didn’t really even start happening until July or so. So in 2019 alone, what we saw was over 6,000 qualified opportunity funds were reporting that year, and over $29 billion of investment activity occurred in that tax year, which, it was phenomenal. So just to give you a sense of how far that exceeded expectations, former President Trump’s Treasury Secretary Steven Mnuchin, when the program was first announced, he estimated that it would become a $100 billion dollar asset class.
It would raise $100 billion over the life of the program. So for it to have raised $29 billion in 2019 alone, that was before the regulations were clarified, before we had a lot of certainty, before a lot of investors and their advisors and real estate developers even knew what opportunity zones were and what to do with them, and I think it’s phenomenal. Now, I don’t have any hard data on 2020, and I certainly don’t have any hard data on 2021 which was just wrapped up a few days ago.
But anecdotally, I can tell you this, our email list at Opportunity Zones Database, opportunitydb.com has grown substantially over the past couple of years. Our podcast listener base has grown substantially. The number of people who attend our events has grown substantially. And what I’m seeing anecdotally is more and more funds coming to us, asking for our help to promote their deals and their investment strategies.
And I’ve seen more investors come to us and ask us for more help on, “Hey, I’ve got a capital gain. What are some funds that you like?” And I’ve seen more real estate project sponsors come to us and say, “Hey, I’ve got this great real estate project in an opportunity zone. What should I do with it? Should I raise money on my own? Should I shop it around as some OZ funds?”
I’ve just seen that continue overtime to pick up more and more and more like I said earlier.
Scott: Right. Right. The increase in interest and just general activity really indicates how the overall scope has just continued to grow, right?
Jimmy: Correct. And I think this program is going to end up raising hundreds of billions of dollars for these economically downtrodden areas all throughout the country, and it’s really going to be doing a few things. One, it’s going to be generating a lot of the social impact and the goodwill that it needed to do to help, you know, build up some of these more economically downtrodden communities all over our country, and really make a huge impact in a lot of people’s lives.
And then two, it’s also going to be a great investment for a lot of folks with high net worth and high capital gains that they need to defer. And it’s obviously, I think, it’s possibly the greatest tax incentive ever created. So it’s going to be a really incredible tax break as well. That’s the carrot that the government’s dangling in front of investors in order to deploy capital, private capital into some of these communities.
I think, from where I sit, it seems to be working in a lot of really, really good ways.
Scott: Absolutely. Kind of looking at the flip side of it, when you think about the challenges. I’m curious, what were some of the biggest challenges that investors in multifamily and other QOZ’s, Qualified Opportunity Zones, faced in 2021? What were some of the, “Ooh, this is kind of rough?”
Jimmy: Yeah. Well, there’s a few challenges that just pertain to opportunity zones overall. One, it’s not for everybody. And I mean that in terms of, you know, you’re not always going to find the right investors to invest in a multifamily opportunity zone project. It can’t simply be somebody who’s got, you know, a few of thousand extra dollars or tens of thousands of extra dollars to deploy.
It has to be capital gains money first of all, so you have to have somebody with substantial capital gains who can then deploy that capital into your OZ fund or your OZ project. So it’s a bit of a leap there, and it’s a bit of a leap in education. And then the fund itself that deploys the capital to these opportunities zone projects, it has to comply with a lot of regulations. It has to make sure that it’s set up properly, that it is investing in properties that are located solely or I should say largely within opportunity zones, there’s a little bit of a buffer that they give you.
It doesn’t have to be 100% opportunity zones, it has to be…at the fund level, it has to be 90% of your capital has to be deployed within opportunity zones within a certain period of time. I won’t bore you with all the details, but there are some additional steps that a fund has to take in order to comply with the program. And there are some additional steps that the investor, or the investor’s advisors, or the fund manager taking in the capital has to comply with in order to make sure that the investor at the end of the day receives all of the tax benefits that he or she is entitled to.
And then, you know, some other challenges specifically pertaining to the pandemic and our government’s response to it, I would say, and maybe this isn’t so much 2021. Actually 2021 I think was a really good year because we started coming out of all this stuff. But a couple of challenges, one, just the market just stalled really for a couple of months.
I heard from one large opportunity zone fund manager who invests in projects nationally, he said, you know, they had to essentially cancel $500 million worth of deal flow in March of 2020 because they just, they really weren’t sure what was going to happen at the market.
Scott: Yeah, who knew, right.
Jimmy: By the way, you know, several weeks passed, they ended up coming back to a lot of those deals and getting them done, but it was a little bit of a shaky time if you don’t recall, all right? The other thing that happened was the cost of materials has skyrocketed since then. Lumber prices doubled essentially over a short period of time, you know, looking back last year. I’m misremembering the timeframe a little bit, it’s a little bit of a blur, but 2020 to 2021, lumber prices skyrocketed.
And I think what you also saw in 2021 was inflation started hitting a lot of other sectors as well. Those are just challenges for the economy at large, and, you know, multifamily is no exception. But really, I would say, the main story is a lot of good news for multifamily. Like I said, it’s largely recession-proof asset class. I would say that it’s probably the most essential real estate property type.
You know, people can do without hotels, they can do without physical retail, they can do without a physical office in some cases as we’ve seen, right? You really, but you need a roof over your head. You need a place to sleep. Multifamily residential in general is a really solid, durable, resilient asset class. So overall I would say…
Scott: So overall, go ahead.
Jimmy: I kind of spun your question. You asked me for challenges and shortcomings, and I would say well, you know, there were some, but overall I think it’s been pretty good news for the asset class.
Scott: Right, some bumps in the road, but the story is the same, you know, the whole book. So I guess kind of with that in mind, when you look back at 2021, investors that sat on the sidelines didn’t really explore opportunity zones, are they going to regret it?
Jimmy: I don’t think so. No. And I think what your question is getting at is we did have a deadline at the end of 2021. So just really quickly, the opportunity zone tax incentive offers an investor three huge tax benefits. One is you…and it replies to capital gains, right?
So you accrue a capital gain because you sell real estate property, you sell stock, you sell business. You get three benefits when you deploy that capital gain amount into a qualified opportunity zone fund. One, you get a deferral period. You don’t have to actually recognize that gain until the end of 2026. Two, is you get a reduction in the amount of the gain that you recognized.
And that’s the part that expired on December 31, 2021, just a few days ago, at the end of last year. You got to reduce the amount of gain that you recognized by 10%. So if you had a million-dollar capital gain, you don’t have to recognize it this year, you can recognize it at the end of 2026, and you get to recognize it as only a $900,000 capital gain.
Which could reduce your tax bill, unless tax rates go up by enough, right? And they might. And then the third benefit, and this is the biggest one, is that any capital gain that is recognized by the subsequent opportunity zone investment, so long as you hold that investment for at least 10 years, is completely tax-free. So any appreciation on the OZ investment itself, you do not owe any capital gains tax on.
So if your million dollar investment grows to $2 million, that’s another million-dollar capital gain, you owe zero on that million-dollar capital gain, where, you know, usually you’d owe pretty big six-figure bill. I think today it’s something like…
Scott: Yeah, pretty substantial sum.
Jimmy: $238,000 would be the tax bill based on last year’s tax rate of 23.8%, right? So it’s a pretty significant tax benefit there. Well, I’m sorry, I think I may have lost track of what your question was. Get me back on track here, Scott.
Scott: The big question is, is okay, given all that the changes, given the timeline and the new year, is an investor who sat on the sidelines, are they going to regret it? Are they going to be now?
Jimmy: Right. So okay. So yeah, that’s right. I was using that to just provide some context. So the investor lost that second benefit. That second benefit, that 10% reduction on the amount of gain you recognize in 2026 has gone. You see, you’re completely missing out on that.
The good news is, I’ve always considered that to be more of a cherry on top of the sundae, right? The ice cream and the hot fudge and the whipped cream, that’s the third benefit. That’s getting to escape any capital gains tax liability on the back end when you go to exit your opportunity zone investment 10 plus years down the road. You don’t owe any capital gains on that.
That benefit is around for several more years. The last time that you have to invest in opportunity zones is essentially you have to recognize a gain by the end of 2026, and then you get an additional 180 days. So it’s really like middle 2027 is really your last chance to accrue a lot of the major tax benefits of this incredible tax incentive that is opportunity zone investing.
So, in that regard, just talking about the tax incentives itself, I don’t think an investor has really missed out on very much. You’ve missed out on this much. You’ve missed out on the cherry on top of this huge hot fudge sundae is how I like to describe it.
Scott: Sure. So you still get…there’s a lot of ice cream.
Jimmy: Yeah. And then, you know, in terms of macroeconomic picture, if you missed out on like a big bull market with real estate, I don’t think so. And I’m not going to make any predictions or projections about where I think the real estate market is going to go, but, you know, overall, in the long term, if you think that there’s a place for real estate, particularly multifamily in your overall investment portfolio, just because you didn’t get it done at the end of 2019, or the end of 2020, or the end of 2021, doesn’t mean you really missed out on anything, if you think far enough out long term, if your investment horizon is far enough out, you know.
I think it’s an ancient Chinese proverb that says the best time to plant a tree was 30 years ago, but the second-best time is today. I would just advise people to take a look. Take a look at opportunity zones today, and don’t worry that you didn’t get in last year. There’s still a lot of opportunities out there.
Scott: Yeah. And you know what? I’m not going to make any predictions either, but I will say we do have a housing shortage, and that was not solved in 2021. It’s pretty much impossible to build as much as needs to be built in a short amount of time as the shortage is when you look across the United States. So…
Jimmy: Absolutely, Scott. Absolutely true. Yeah. And I have a lot of my clients who are qualified opportunity fund managers, that is the story that they’re telling, right? They’re telling the story of, “Hey, we’ve got this fund that invests in residential all over the country, or maybe in this particular area of the country, or that particular the country.” And there’s a huge housing shortage.
It would be impossible for us to outpace the demand for housing in the country or in this area. So that’s a really good point, Scott.
Scott: So you are a podcast host yourself, and you’ve done many fantastic episodes. As you look back over the previous year, are there any ones that you’d particularly like to mention that you enjoyed that our listeners here might also enjoy?
Jimmy: Yeah. So forgive me, I got to look down at my notes because I saw this question coming up, and I had to scribble down some notes so I didn’t forget anything. But so I’m going to recommend six podcast episodes that aired on the “Opportunity Zones Podcast” last year that all pertain if not generally to opportunity zones at large, to then very specifically on multifamily. So two general ones that I would recommend are “How to evaluate opportunity zone on deals.”
This is a panel that I moderated at our last OZ Pitch Day event back in November. So that’s a really good one to kind of get a look into how opportunity zone deals are evaluated or should be evaluated. The second one is “The future of opportunity zones.”
I conducted this interview with Shay Hawkins. It was actually part of our OZ Pitch Day as well. It was the fireside chat that I did on one of those Pitch Day event days back in back in the fall. Shay Hawkins is a big opportunity zone champion. He used to work in Senator Tim Scott’s office, the Republican senator from South Carolina. And, you know, if know anything about the history of OZ legislation, Senator Tim Scott and Shay Hawkins were instrumental in drafting that original legislation.
So they both go back, and Shay in particular goes way back in opportunity zones, and he really knows his stuff. And he’s still very plugged into Capitol Hill, what’s going on on the legislative front as well as the regulatory front. So that was a really interesting episode to get his thoughts on where he thinks opportunity zones may go next in terms of both regulatory and legislative. I’d say three or four multifamily episodes that are worth looking into, one is the “OZ multifamily in the Southeast” interview I did with Capital Square, a big 1031 sponsor, but they’re also now an OZ sponsor down there in the Southeast.
“Evolution of opportunity zone neighborhoods,” which is an interview I conducted with Chris Knoppe at CBUS OZ Funds. He invests in a lot of residential, both single-family and multifamily, in Columbus, Ohio, a market I mentioned earlier, Scott. – Buckeyes again, love it. – I know that you’re very familiar with. Yeah. The resiliency of multifamily real estate.” We talked about that a couple of times during our podcast today.
I have a whole episode featured on how multifamily is resilient, especially in any type of economic environment. That’s an interview I did with Starpoint Properties, a big developer. They’re located in Southern California, but they develop properties all over the country. And then the final one that I’ll recommend is with Erik Hayden of Urban Catalyst, one of my favorite OZ fund sponsors.
And we did an episode on “The prototypical opportunity zone investor.” Who are opportunity zone investors? Where do their capital gains typically come from? That was kind of a fun episode I did with him. So, long-winded answer to what I’m sure you thought would be a brief question?
Scott: Hey, check out this one show.
Jimmy: Yeah, exactly. So, but yeah, the library has I think it’s well over 150 episodes overall now. So then there’s a lot of good stuff in there, but those are six of my favorite ones, particularly a few of my favorite multifamily episodes from 2021, Scott.
Scott: That’s fantastic. And thank you for sharing that, Jimmy. And to our listeners, definitely check that out because there’s just, there’s a lot of meat to get through in these episodes, and Jimmy does such a great job bringing on fantastic guests. I think we’ve talked a little bit about the outlook, but I want to really turn our attention to the future as we look at 2022.
So Jimmy, when you’re looking at opportunity zones investments, what do you think the outlook is? Is it going to continue to grow in this activity that we’ve been talking about is going to continue to increase? I know that there’s, you know, new uncertainties or what have you around, “Oh, is… our pandemic. Think it’s going to resurge and all of this.”
I’m just curious to your take on as we look to 2022.
Jimmy: Yeah. So 2022 I think it’s going to be a little bit more of the same that we saw in 2021? I think multifamily will continue to be the leading sector for opportunity zone investing going forward indefinitely. I don’t expect that to change. I think maybe we’ll see a pickup in office. People are returning to the office. A lot of the big companies around the country are demanding that their employees start coming back to the office.
You know, the work-from-home trend was fun for a little while, but I think it’ll ultimately prove to be a short-lived fad. There’ll be some work-from-home component that’ll stick around for a while, but I don’t think office is going to completely collapse. So I like that as a sector long term. You know, I know this is a multifamily investment podcast, right? And it’s focused on real estate.
But really one of the main reasons why opportunity zones were created was it was actually hoped that it would spur business activity. You know, Sean Parker, former, one of the first employees at Facebook, the founder of Napster, billionaire philanthropist. And really, he’s an entrepreneur, and he loves startup businesses and small businesses.
He was one of the brainchilds of this, or I should say it’s his brainchild, right? Did I use that phrase right? What’s the phrasing there, Scott?
Scott: It’s my brainchild. Yeah, I believe that.
Jimmy: Yeah, it’s his brainchild. That’s right. So he was the one who kind of first conceptualized this idea of opportunity zones and ended up eventually selling it to Congress so to speak. He’s an entrepreneur. He was really thinking about how to unlock business development in a lot of these committees. Now, what ended up happening was, it was really good for real estate because real estate, this is a place-based economic tax policy and the fact that real estate, a building doesn’t move, and businesses can sell everywhere all over the country and all over the world.
So it was a little bit trickier to establish what is an opportunity zone business, what is not. Okay, what are the different compliance requirements. But a lot of that’s settled now, and I would expect that a lot more startups may be taking advantage of opportunity zone investing moving forward. If you have a new business, if you are an entrepreneur, and you’re starting a new business, you’re starting a startup, or maybe you have a startup and it’s located outside of an opportunity zone, there’s no reason why you shouldn’t at least seriously consider moving your business into an opportunity zone or starting a new business in an opportunity zone, and receiving opportunity zone investment equity, either from outside investors or heck, just generate your own capital gain, and invest your own game into your own business.
Because down the road, you know, 10,15, 20 years from now, if you end up going to sell that business, selling a business is a huge deal, right? It’s a great day in the life of the founder and other equity holders. It can be a really great time.
But, the drag is you owe a huge tax bill to Uncle Sam, and the opportunity zone incentive can save you that headache of having to write that big tax bill at the end of some year way down the road. So I would strongly consider that any business owner or anyone who’s considering starting a business at least consider locating in an opportunity zone and going through some of those hoops because it could save you a big tax bill down the road.
And so that’s what I’m expecting for 2022 and beyond, is that more and more entrepreneurs start taking advantage of this program so it’s not just a real estate tax incentive.
Scott: Absolutely. It’s going to be interesting to see how it all shakes out and what continues to happen as it evolves. Jimmy, thank you so much for joining me. My last question here is if folks want to connect with you and learn a bit more, where can they do that?
Jimmy: Yeah, so they can head on over to the Opportunity Zones Database at opportunitydb.com. I have a lot of resources there. My most popular resource is the beginner’s guide to opportunity zones. And if you’re interested in downloading that, you can head to opportunitydb.com/download. And it’s a free download.
And you’ll get on our email list as well, so we’ll start emailing you regular updates on different opportunity zone news and deals that we like. So, Scott, it’s been a pleasure. Thanks for having me on man.
Scott: Absolutely. And all of the links that we discussed today as well as those other resources that Jimmy mentioned will be on our show notes at multifamilyinvestor.com/podcast. So be sure to check those out, and stay tuned for our next episode.