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From Site Selection magazine, July 2019

Opportunity Zones 2.0

In June, Primior broke ground on its First Harbor Plaza development in Santa Ana, California.
Rendering courtesy of Primior


Created under the 2017 Tax Cuts and Jobs Act, Opportunity Zones are intended to stimulate economic development and job creation in distressed low-income communities by incentivizing long-term capital investment. There are more than 8,700 census tracts designated as Opportunity Zones in all 50 states and the U.S. territories.

According to advisors at Montrose Group LLC, “The practical impact of the first set of Opportunity Zone rules,” released in October 2018, “is that real estate projects tied to small, local retail (think coffee shop) and multi-family projects were likely to qualify for the program but projects that actually create high-wage jobs would not.” A second wave of regulations published April 17, 2019, provides a clearer road map for the use of Opportunity Zones in corporate site location projects, and “could well be the key to transforming the federal Opportunity Zone program from a way to develop housing, mixed use and retail projects into a tool for creating high-wage jobs.”

First, the April 2019 regulations establish clear rules for how leased property could benefit from the Opportunity Zone program. “The new Treasury regulations treat leased property held by an Opportunity Zone Business, as lessee, as tangible property for purposes of the 70% substantially all test, and they apply the same rule for the 90% asset test for an Opportunity Fund.”

Second, the April regulations clarified there is no substantial improvement requirement with respect to unimproved land nor with respect to a building that has been vacant for an uninterrupted period of at least five years. Finally, the Treasury regulations addressed what many believe to the largest impediment to the successful use of the Opportunity Zone program through the discussion of several Safe Harbors related to the “50% test.” In an effort to prevent “shell corporations” from using Opportunity Zones without any economic investment, the October 2018 Treasury regulations established that at least 50% of the gross income of an Opportunity Zone Business must be from the active conduct of a trade or business within the Opportunity Zone. The April regulations keep the 50% test but create several Safe Harbors that should encourage corporate site location projects in Opportunity Zones. 

“It is worthy to note,” said the Montrose analysis, that the regulations “do not require an Opportunity Zone Business to have 50% of their customers in the Opportunity Zone, do not make local employment requirements, nor do they have any requirements related to the company’s supply chain.”

Adam Bruns
Editor in Chief of Site Selection magazine

Adam Bruns

Adam Bruns is editor in chief and head of publications for Site Selection, and before that has served as managing editor beginning in February 2002. In the course of reporting hundreds of stories for Site Selection, Adam has visited companies and communities around the globe. A St. Louis native who grew up in the Kansas City suburbs, Adam is a 1986 alumnus of Knox College, and resided in Chicago; Midcoast Maine; Savannah, Georgia; and Lexington, Kentucky, before settling in the Greater Atlanta community of Peachtree Corners, where he lives with his wife and daughter.


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