Jack Power & Charlie Dunlap

Jack Power & Charlie Dunlap
Jack Power is a Summer Associate on RRA Capital's Sales & Marketing team. He is an Echols Scholar at the University of Virginia.

Charlie Dunlap, a former partner of Trammell Crow, is the Founder and Chairman of RRA Companies. His more than 50 years of experience in the industry has involved the development, construction, rehabilitation, and management of assets valued at more than $2 billion.

Recent Posts

A Bridge Lender's View of Opportunity Zone Financing

Posted by Jack Power & Charlie Dunlap on Aug 14, 2019 2:20:12 PM

Opportunity Zone investor incentives can sound compelling.  Where else can an investor receive increased returns (by paying little or no federal capital gain taxes) and at the same time help revitalize a local community?

Although Opportunity Zones provide substantial tax breaks for investors, they can be risky endeavors for bridge lenders and sponsors alike.  In this article, we will explain what Opportunity Zones are, why they were created, and how bridge lenders may approach their underwriting of projects within these zones.

What are Opportunity Zones?

Opportunity Zones (OZs) are designated areas throughout the United States that have been selected by state and federal agencies for economic revitalization.  In order to invest in OZs and receive federal tax breaks, investors must invest in a Qualified Opportunity Fund (“QOF”).  According to the legislation, a QOF is “any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified Opportunity Zone property…that holds at least 90 percent of its assets in qualified opportunity zone property.”  The legislation imposes a “substantial improvement” requirement on the QOF.  In order for an existing building to be designated as a qualified OZ project, the QOF is required to make improvements to the building in an amount equal to or in excess of the purchase cost of the building (less the land value).  Additionally, these improvements must be substantially completed within 30 months of the QOF’s purchase of the building.  As an example:

A Qualified Opportunity Fund buys a property for $1 million.  The land is worth $250,000 and the building is worth $750,000.

In this example, an additional $750,000 must be invested into the building within 30 months of the purchase date.

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Topics: Bridge Loans, Investors, Sponsors