Opportunity Zones are new, tax-advantaged vehicles for investors to earn more on their money. Created by the Tax Cuts and Jobs Act of 2017, the first qualified opportunity zones (QOZs) first hit the market in early 2018. Designated by state authorities, there are now thousands of QOZs in the US designed to boost development in selected communities. Investors receive a break on capital gains taxes which can be significant. Local officials can spur economic development which leads to more jobs. Online investment platforms immediately saw the opportunity intrinsic to QOZs with multiple platforms now offering investments in developments that benefit from these tax breaks.
Recently, Crowdfund Insider spoke with Soren Godbersen, a Vice President at EquityMultiple, a platform that has now raised over $11 million via three Opportunity Zone investment options. Godbersen explained to CI why their offerings are different than some of the others.
Our discussion is shared below.
Why are your Opportunity Zone Offerings better than some others available on competing investment platforms?
Soren Godbersen: There are a number of firms out there now marketing Opportunity Zone offerings to investors. We’re proud of what we have been able to offer to our investor network and there are a few things about our Opportunity Zone investments that are unique:
We make them more accessible to all accredited investors with a relatively low minimum investments ($50k or below). Some competitors are exclusively offering Opportunity Zone investments to Qualified Purchasers.
We conduct extensive diligence and underwriting on all of our offerings, and Opportunity Zone deals require a higher level of scrutiny given the required investment / development components in order to qualify for all of the investor tax benefits. To date, We have only selected five out of the hundreds of potential Opportunity Zone investments we have evaluated.
Our Opportunity Zone investments are distinct and diverse. In comparison to a blind pool funds or funds with a targeted geographic concentration, or both – our nationwide sourcing capability enables us to source potential OZ investments across markets and property types while presenting investment theses to our investor network that are compelling and being executed by experienced operators.
Is EquityMuliple using Reg A+ or Reg D (securities exemptions)?
Soren Godbersen: As with all of the offerings to date on our platform, our investments are structured using Reg D.
What type of returns are you expecting for these offerings? Are they all debt based? What type of properties?
Soren Godbersen: All of our Opportunity Zone offerings to date are equity investments.
Typically, these investments are anticipated to be 10-year+ target hold periods in order to optimize the tax benefits of the Opportunity Zone program. However, we provide our partners flexibility to the extent that if they execute at such a high level, our investors would be economically neutral to being repaid earlier.
Typically, the IRR’s in these offerings are in the mid teens, but we believe a more important metric when considering this type of duration is your multiple on invested equity, which we are targeting approximately 2.5X area.
In addition, we expect our operators and partners to start making distributions in the initial phases of the investments or upon stabilization, which is typically in years 2-4 depending on the extent of the development component of the project.
In addition to the robust returns on these investments, there are the additional tax benefits to investors, which we detail interactively on our Opportunity Zone Investing Resource Page.
Summarily, qualifying investments provide investors deferral and a reduction on taxes paid on invested capital gains and the opportunity to pay no tax on capital gains realized on the qualified opportunity zone project.
What type of demand are you experiencing from investors?
Soren Godbersen: Interest from investors has been overwhelmingly positive.
Our investors are realizing and deploying capital gains from a variety of sources, including stocks, sale of ownership interests in a small business and of course, real estate. The mechanics of the tax benefits and complexity around ensuring your capital gains receive QOZ tax treatment can be complicated and nuanced, so we have a dedicated Investor Relations team to hand-hold interested investors through the process.
How do Opportunity Zone offerings fit within your traditional real estate offerings?
Soren Godbersen: We believe our platform benefits investors by providing a conduit for low minimums, an efficient online process, and a wide array of risk/return profiles. Our investment approaches aim to include, direct investments, fund offerings and tax deferral strategies. Opportunity Zones are the second of these three investment verticals and an extension to our proven direct investment solution.
EquityMultiple investors have committed in excess of $10 million towards these Qualified Opportunity Zone projects. We are excited to scale our volume of Opportunity Zone offerings as we have for our bread-and-butter direct offerings as we surpass the milestone of $100 million in assets under management.
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