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Despite Tax Unknowns, Opportunity Zones Attract Plenty Of Investors

Since its launch more than a year ago, the qualified opportunity zones program has been both celebrated and criticized. The program was designed to encourage private investment in underdeveloped or disadvantaged areas by allowing investors to defer capital gains tax on income invested in the zones. 

The ability to defer taxes was welcome news to investors. Stakeholders in these areas also appreciate how the new law is making their areas more attractive. However, many are questioning whether the areas selected are actually underserved. In some areas, land prices in the opportunity zones are not significantly lower than those outside of them. 

Here in the Puget Sound, the zones seem to be well-placed, according to Nitze-Stagen CEO Peter Nitze and Smartcap co-founder and President Tim Shoultz. Both will be discussing the topic at Bisnow’s Seattle Opportunity Zones event March 20.

Smartcap is currently developing an industrial warehouse in Arlington and is under contract to acquire 12.5 acres for an opportunity zone project.

Both have already invested in opportunity zone properties and see great potential. For Nitze, the zones fit right in to where his firm has been investing all along. 

“We’ve had a long-standing commitment to the areas that are now designated opportunity zones,” he said. “This creates a powerful tool to enable and expand what we are already doing in these neighborhoods. My view is that Seattle did a pretty good job of selecting the zones and they are — for the most part — good. Central District, Chinatown, Pioneer Square, SODO. They are all ripe for this.” 

He expects developers will now attempt to invest in networks of buildings in these areas, which will collectively have a greater impact on the neighborhoods. 

Shoultz also sees great opportunity in the SODO area. His company is currently working on plans to invest in the SODO area as a co-developer, he said.  

Meanwhile, Smartcap is currently under contract to acquire 12.5 acres in an Arlington opportunity zone to develop an industrial building. The company is also looking at opportunities in the Marysville area.

Nitze-Stagen converted Merrill Place in Pioneer Square into a high-tech office campus in 1998.

Though the first-movers may have an advantage in the opportunity zone market, it is not too late, Shoultz said. At the same time, investors shouldn’t feel rushed to get involved.

There are still many unknowns as to how the tax laws will actually play out. 

“Before investing, people need to be aware of the complexity of the law,” Shoultz said. “Some sponsors are planning on refinancing and returning the equity to investors, but it is not clear we can do that.”

Shoultz said investors should be sure that their sponsors (the developers of the project) have a deep knowledge of how the program works. 

“Investors have to approach this carefully,” Nitze said. “The enthusiasm exceeds the reality. They have a fear of missing out. I don’t mean to compare this to cybercurrency, but it’s important to understand what you are getting into. A lot of folks are getting into this without understanding the dangers.”

Smartcap co-founder and President Tim Shoultz

While opportunity zones open up a whole new landscape of investments, look before you leap, Nitze cautioned.

That said, properties in these zones can provide a once-in-a-lifetime opportunity to invest in a project that will not be taxed, Shoultz said.

Hear more from Nitze and Shoultz and others on the topic of opportunity zones at the Bisnow Seattle Opportunity Zones event March 20 at the Kimpton Hotel Monaco Seattle.