Opportunity Zone Investment Tips For High Net Worth Investors

OpportunityDb founder Jimmy Atkinson has called the opportunity zones program “the greatest tax incentive of all time.” And many investors agree, as they have poured billions of dollars into the program in its short life so far.

But the true potential of the OZ program has largely been left unlocked, according to Jimmy. Here are seven opportunity zone “secrets” that every High Net Worth investor, RIA and family office should know.

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Episode Highlights

  • How big the opportunity zones program really is (hint: it’s bigger than you think).
  • Why many sophisticated OZ investors aren’t asking “how soon”, but rather “how long” when it comes to hold duration.
  • How cost segregation adds significantly to triple-net returns for OZ investors.
  • Two surprising asset classes that can be held inside a QOF (including real world examples).
  • Jimmy’s prediction on what happens with OZ legislation at the end of this year.

Today’s Guest: Jimmy Atkinson, OpportunityDb

About The Alternative Investment Podcast

The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.

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Show Transcript

Andy: Welcome to “The Alternative Investment Podcast.” I am your host, Andy Hagans. And gosh, I just have an awesome show planned today. We are talking about opportunity zones and specifically, because I know a lot of our viewers and listeners are already LPs in qualified opportunity funds and already understand the benefits of this program, but we wanted to dive deeper and uncover some of the secrets, some of the little details that some investors, some family offices, some IRAs may not be aware of.

And with me today I have the man in the opportunity zone’s world. Can I describe you that way, Jimmy, the man, the opportunity zone’s man?

Jimmy: I’ll allow it.

Andy: Okay. And Jimmy, to disclose, you were my original co-host of “The Alternative Investment Podcast.” And you know what? You’re always going to be an honorary co-host, but both of our shows have gotten so busy that you’ve left me running it solo over here for the most recent while.

Jimmy: Yeah. You got your wings and took flight and I realized you didn’t really need me as much anymore. You were doing it just fine, Andy, and I think you’re well equipped to take this Alts DB platform and your podcast to new heights without me. But I’ll come back on the show and talk with you as often as you want.

Andy: Well, I do need you because…today I need you because we want to dive a little deeper into opportunity zones investments. And like I said, I know amongst our listeners we have sponsors, we have LPs already investing in opportunity zones projects. But there are some aspects of this program that are either underappreciated or simply unknown even among people who are familiar with the program and its benefits.

So, you know what? I’m going to assume, anyone listening right now, I’m going to assume you already know, at least, you know, the bare basics of what the opportunity zones program is. And if you do not, go back and listen to the first three episodes of “The Alternative Investment Podcast” because Jimmy and I talked a lot about the opportunity zones tax incentive.

So, that’ll give you the basics but, you know, the short story is, Jimmy, I have a quote from you, I’m putting this in the show notes, that you’ve called the opportunity zones program “the greatest tax incentive of all times.” So, I think it’s worth diving in into the nitty-gritty and uncovering some of these little hidden gems in the program that investors may not know about.

So, let’s start at the top. You have seven, is it seven secrets today?

Jimmy: Yeah, seven secrets. And I don’t know how well kept a lot of these secrets are. If you’ve been listening to my opportunity zones podcast for a while, my guess is you know most, if not all of these. But I’m hoping I surprise everybody with at least one or two of these. And if you’re new to the program, I think this will be really eye-opening for everybody.

Andy: So, let’s start at the top. What’s the first surprise? What’s the first secret that a lot of folks aren’t aware of?

Jimmy: Yeah. So, the first secret is this asset class or investment vehicle or investment program, tax policy program, whatever you want to call it, is way bigger than you might think, and it’s actually way bigger than initial estimates would’ve indicated. Former treasury secretary, Steven Mnuchin, a Trump appointee, you know, that administration not known for realistic expectations a lot of the time.

They like to talk a big game, so they came out talking about… – A big, beautiful program. A big, beautiful… – Exactly.

Andy: Yeah.

Jimmy: And they each came out talking about opportunity zones as the next big thing. Secretary Mnuchin shortly after the provision was enacted estimated that it would become a $100 billion program. And if you look at the recent Novogradac data, they are reporting right now that as of through the end of June of 2022, so through the end of Q2 of this year, just the funds that they track have raised $30 billion in equity already under opportunity zones, but they admit that… And this kind of gets buried a lot of the time underneath all the big headlines is that they’re only able to track a small subset of the total qualified opportunity zone fund universe.

And as such, they estimate that we are likely three to four times larger than that number. And I’m on the record as saying, I think we have already surpassed the $100 billion equity raise mark. And if you consider debt financing and other sources of capital that may come into the capital stack on some of these…

Andy: So, that’s like what, $300 billion, maybe more?

Jimmy: I don’t think it would be a stretch to say that it’s possible that we already have $0.5 trillion of opportunity zone on projects in the pipeline right now. And there’s still… What are we at right now? We’re mid-2022. There’s still five more years of capital raising for this program. So, I think this is going to be much, much bigger.

It already is much, much bigger than most people would’ve suspected. And just to put in the context of other alts, Andy, you and I have referred to Stanger reports on our podcast here at Alts DB a few times in the past. I would say it’s roughly on par with non-treated REITs and BDCs, maybe a little bit shy of that this year for 2022.

And it seems like it’s much bigger than DST capital raising for this year, which is in the single-digit billions of dollars of capital raise, whereas opportunity zones have likely raised already, Novogradac reports $6 billion raised through Q2. Again, they’re probably shy about… They’re only counting about 33%, maybe 25%. So, maybe call that $18 to $25 billion raised just this year already alone.


Andy: Yeah. And Jimmy, you mentioned…

Jimmy: That’s where we’re at.

Andy: You mentioned non-traded REITs. I mean, they’re an 800-pound gorilla now, non-traded REITs. So, the fact that opportunity zones QOFs would even be in that same, you know, ballpark.

Jimmy: Weight class, I like to call it, right?

Andy: Yeah, weight class. Yeah. I like the boxing analogy. And I think also, you know, qualified opportunity funds and opportunity zones, a lot of people have kind of pigeonholed them or, like, they’re kind of their weird little corner of the alternative investment universe. And maybe the alternative investment universe is already a weird corner of the investment universe, but what this shows me, you know, is that sophisticated investors, family offices, both shared offices and larger family offices and ultra-high-net-worth individuals are heavily investing into this program because you don’t get past $100 billion in equity, you know, raising $10 at a time.

You’re talking some big sophisticated private investors. And another interesting thing about this program, because it’s tax-incentive program, it’s all private money, right? There’s no reason for CalPERS or a lot of types of institutional investors to invest in this program. So, I think that first not very well kept secret, you know, that you’ve just announced, it implies that a lot of private money has already flowed in, a lot of smart money, a lot of patient capital is already there.

Jimmy: That’s absolutely right, Andy. And yeah, you’re right to suggest that institutional funds don’t need opportunity zones because they don’t pay taxes anyway. You only need to really be aware of this program and invest in it if you have a capital gains tax liability. So, it is private capital. It’s family offices, it’s ultra-high-net-worths who are taking advantage of this program. And I think it’s still got a long way to run because a lot of folks still aren’t really even aware of the program or they’ve only heard of it and they haven’t really taken a deep dive into why it’s such a great tax incentive, what I call the greatest tax incentive ever created.

Andy: Sure. So, what’s our second surprise? What’s our second hidden secret?

Jimmy: Okay. So, the second surprise involves timing of qualified opportunity fund investing. And when you first start learning about opportunity zone investing, one of the things that sticks out to you is you can only achieve the full tax benefit if you hold the qualified opportunity fund investment for at least 10 years.

And some people immediately start to roll their eyes at that. They think, “Oh, I can’t do that. That’s too long of a period of time.”

Andy: And Jimmy, just to stop you there, I’ve even heard private equity GPs folks that are very sophisticated in this space roll their eyes at that. So, I think a lot of people aren’t aware of this. Go on.

Jimmy: Yeah. Yeah. And even a lot of opportunity zone funds that pitch on our OZ Pitch Day events, for instance, kind of work their presentation or at least, part of their presentation around an exit strategy happening in year 10 or 11 and trying to get the capital back to their investors as quickly as they can.

And it is a concern for investors. Investors hear that and their first reaction is, “Boy, that’s a long time. I don’t know if I want my money tied up for that long.”

Andy: Right.

Jimmy: And instead, I really think they’re missing how powerful this could ultimately be, which is you don’t necessarily want to think of, “How quickly can I get out?” Instead, you want to think, “How long can I stay in?”

Andy: It’d be like, Jimmy, “How quickly can I cash in my Roth IRA or something?”

Jimmy: I was getting to that next, Andy. You read my mind. So, Ashley Tyson coined the phrase or, at least, he was the first one that I heard it from, so I’ll give him credit, “Opportunity zones are like a super Roth IRA.” It’s tax-free growth. And if you consider that… If you were, you know, a few years away from retirement and you could start…and you could liquidate your Roth IRA account, let’s say, in five years when you hit age 59 and a half, just completely liquidate the whole thing, I don’t think you would do that, right?

But that option is on the table for you. But no, you want that Roth IRA to compound tax-free for as long as you can and take distributions when you need to. I think that’s how opportunity zone investing needs to be thought of more and more. How long can I keep my capital in? And according to the current regulations, you have until the end of 2047 before you finally do have to take that fair market value step up in basis.

Andy: And Jimmy, Jimmy…

Jimmy: Yeah, go ahead. That’s 25 years though, Andy, was my final point there.

Andy: Yeah. That… Okay. Back to the first point with the amount of money raised and you’re talking north of $100 billion in equity, your estimate, $0.5 trillion project size. And my point, you’re not getting there without family office money. You’re not getting there without ultra-high-net-worth, what we call patient capital.

Jimmy: That’s right.

Andy: And, you know, what you’re talking about patient capital is really family offices that have a certain amount of money that they can invest and hold illiquid almost indefinitely, right? Money that they don’t…part of their portfolio that they don’t need to be liquid, certainly not in the next 2 or 3 years or even 5 to 10 years. They’re now talking about generational wealth.

So, to me, point number two here is actually related to point number one, the fact that so much money has flowed in here, I think a lot of generational wealth is flowing into this program. And the smart generational wealth for the exact reason that you said it doesn’t actually need to come back out in 10 years with that step-up basis.

It can stay in longer. And if you have that very long-term mindset of patient capital, you should be listening to Jimmy right now.

Jimmy: And yeah. And that’s a good point to point out, Andy, is it does require patient capital. I would say if you are a mass affluent or a high-net-worth and, you know, you might need the money. If you’re uncomfortable tying up your money for 10 years, you know, opportunity zone investing might not be the right structure for you, right? If it’s going to eat into a significant part of your net worth, you want to make sure that… And also I’ll just caveat this.

I’m not a financial advisor, so, please do consult with your professional before making any investment decisions because it’s not a decision to be taken lightly.

Andy: No. And an investor has to be aware of their liquidity needs. And this is my exact point is a family office or ultra-high-net-worth investor is going to have very different liquidity needs relative to their whole portfolio. Okay. So, number one, this program is way, way bigger than a lot of folks think in terms of inflows and investments into it.

Second secret is a lot of the smart money, a lot of the family office money isn’t thinking about pulling their money out at that 10-year mark. They’re thinking about keeping it in and getting more and more tax-free compounded growth. What’s our third secret, Jimmy?

Jimmy: Okay. The third secret is a little bit tax nerdy. So, I’m kind of speaking to the CPA crowd now. But investors should be aware of this too and especially if you manage a qualified opportunity fund or if you’re a developer in an opportunity zone, you need to keep your eye on this next point, which is depreciation and cost segregation. So, first of all, just to kind of zoom out on that, there’s three main benefits of opportunity zone investing.

You get to defer your initial capital gain for a few years. You were eligible to take a reduction in the amount of gain that you recognized. And then, of course, after that 10-year hold, you get to escape all capital gains tax on the appreciation of the opportunity zone investment. Those are the three benefits that are usually cited. There’s a fourth hidden benefit that I like to talk about, though, which is depreciation recapture doesn’t exist for opportunity zone investors.

So, you can take depreciation along those 10, 15, 20, 25 years however long you are invested in an opportunity zone project. And then when the exit comes…

Andy: And sorry, Jimmy, the max is 25 years? Is that when it… Or is it 50 years?

Jimmy: It’s 25 years from right now roughly. You have to make the… I think you have to dispose of the asset or somehow step up the basis to fair market value at or before December 31, 2047. That’s according to the current regulations.

That could change.

Andy: Got it. Okay.

Jimmy: But that’s about 25 years from now.

Andy: Twenty-five years from now. Okay. So, sorry. Go on. So, depreciation recapture would be normal. Whatever the length I held the asset, whether I held it for 5 years, 10 years, 25 years, that gets recaptured on the back end when I sell the asset.

Jimmy: Correct.

Andy: In this case…

Jimmy: You owe a big tax bill essentially because of that recapture.

Andy: So, in this case, I’m not paying the capital gains tax on the gain that happens within the opportunity zone investment.

Jimmy: That’s right.

Andy: But I’m still able to take the depreciation all along the way, which it’s a near-term tax benefit.

Jimmy: Correct. And it never gets recaptured at the end, which is a huge benefit that doesn’t get talked about nearly often enough. And, you know, you hear about those three main ones. but if you have an investment in an asset that is highly depreciable like a real estate building, a multi-family property, for instance, you know, and you’re depreciating it for 10-plus years, you get to escape that big recapture tax bill that you would normally pay in a non-OZ investment.

Andy: Got it.

Jimmy: So, that’s only half of it, by the way. That’s just my setup. So, kind of the secret is you can further juice the after-tax returns of an opportunity zone investment by doing cost segregation on your investment, particularly if it’s a depreciable asset. And what cost segregation is, and I only recently learned a lot more about this when I did my podcast interview with Valerie Grunduski and Jeremy Sompels at Plante Moran just a few days ago…

Andy: Which served… That was like getting an MBA in accounting right there, just doing that interview, right?

Jimmy: It was a crash course. Yeah, it was a 30 or 45-minute crash course getting my MBA in accounting or at least in cost segregation. Essentially… I won’t go into the specifics, but essentially it allows you to achieve accelerated depreciation of your real estate assets. So, normally, you would depreciate a real estate asset, a building over a 39-year time period.

There’s some instances where you would do it over 27 and a half years. And essentially, when you do a cost segregation study, you get to appreciate or accelerate a lot of the different assets within that building, say, the carpet or the copper piping, etc., for a couple of examples there, and you get to take more appreciation more quickly, which in a non-OZ deal is fantastic because you get to write off more taxes more quickly, although it does get recaptured on the backend.

Now, on an OZ deal, it’s magnified even more because you can jam those depreciations within the first 10 years and then exit at year 11, you never recapture. So, it becomes… Cost segregation essentially gets an injection of steroids, I would say. It’s cost segregation on steroids when you do it in an opportunity zone deal.

Andy: So, Jimmy, I know you interact with a lot of opportunity zone sponsors. Do you get the sense that most or all of them are doing this or, like, is it universally known and applied or are there still some sponsors who are figuring this out?

Jimmy: No, no, no. I think for sophisticated real estate sponsors, cost segregation they’ve been doing for a long time. And I would expect that any type of sponsor with any sort of sophistication is doing cost segregation.

Andy: An institutional-grade sponsor has figured this out. But it might be the case that a smaller operator with a smaller project, you know, maybe that doesn’t have a private placement offering. This may be something that they could learn from a larger operator, more institutional-type operator.

Jimmy: Yeah. So, I think there’s two points here, Andy. One is, if you are a smaller QOF owner, maybe you’ve self-funded your own QOF and you have a real estate deal, by the way, it has to be of a certain value. Jeremy Sompels gave me a $2 million rule of thumb.

If the project value is less than $2 million, doing a cost segregation study likely isn’t worth the additional complexity and time.

Andy: Sure.

Jimmy: But if you’re investing in something that’s at least $2 million or north of $2 million, it’s worthwhile to have that conversation with your CPA and look into cost segregation because it could really benefit your returns. And then the second point is, just to drive home for potential limited partner LP investors who just write a check to a qualified opportunity fund, you should ask, “Are you guys doing cost segregation?”

And most likely they are or they’ll have a good reason why they are not. And just be aware of the fact that it’s going to help under… It’s going to help kind of drive home why their returns might be as high as they are. If they’re quoting some wild IRRs it might be because they’re jamming a lot of depreciation into those first 10 years.

Andy: Got it. So, it’s that, you know, when you’re looking at an opportunity zone deal or any kind of tax advantage deal, the IRR, you know, you generally want to look at it. Well, what would the IRR be if this were taxable? So, you know, what’s the equivalent given the stacked tax advantages or the stacked tax incentives in this case?

And, obviously, that’s a huge part of opportunity zones investing, although, you know, every sponsor that I’ve talked to, every institutional quality sponsor that I’ve talked to, I should say, you know, they’re very upfront, You shouldn’t let the tail wag the dog. It’s not just about the tax benefit. You’re looking for a high-quality project that makes sense, you know, but that extra tax benefit, boy, does that share juice returns.

And your point is cost segregation juices it even further. So, let’s move on to our next well-kept secret about the opportunity zones program.

Jimmy: Yeah, that’s right. So, I don’t know how well kept this one is either, especially if you have been on any of my OZ Pitch Day events or if you’ve followed my podcast for any amount of time. But the fourth one deals with Puerto Rico. So, before I get to Puerto Rico, I just want to kind of lay out how the opportunity zones were designated very quickly.

The governor of every state and territory of the United States and the mayor of Washington DC were able to nominate opportunity zones for their jurisdictions to the federal government, to the department of treasury. And they were able to select up to 25% of their low-income census tracts as defined in the tax code.

So, you know, you look around the country and California has the most opportunity zones. They’ve got 879, I think. And places like Montana only have 25. But then you go to Puerto Rico and they actually have the second largest amount of opportunity zones in the country just behind California. I’m looking at my screen right now, they have 863 opportunity zones in, like… And you look at the map of Puerto Rico and the whole island, almost the entire island lies within an opportunity zone.

And the reason why is because Congress shortly after the opportunity zone rules came out, they allowed for a special exception for Puerto Rico, that 25% rule got bumped up to a 100%. So, Puerto Rico was able to designate all of their low-income census tracts as opportunity zones. And as such, I think it’s about 98% or 99% of the total land mass of the island falls within an opportunity zone.

So, Puerto Rico is kind of this interesting secret here. By the way, the reason for that was to help with recovery from Hurricane Maria and the earthquake that hit a few years back and kind of devastated a lot of the island and a lot of the island’s infrastructure. So, opportunity zones are being leveraged there to help rebuild the island.

On top of that, Puerto Rico also has some really interesting tax incentive programs at the territory level, you know, sponsored by the local Puerto Rican government. There’s too many to go into, but…

Andy: And I don’t think, Jimmy, I don’t think everybody knows about these. I honestly do think that these are a little under the radar unless you’re already investing in Puerto Rico.

Jimmy: Yeah. No. I think that’s right, Andy. But there are… And forgive me. I don’t know all of the Puerto Rico tax code off the top of my head, but I know that there are tax incentives for relocating to Puerto Rico. I know that, Andy, you and I are involved in a deal there, the Island Paradise QOF that’s taking advantage of a 40% tourism tax credit, so essentially every $1 that they put into their hotel deals, they’re getting 40 cents from the island of Puerto Rico to help subsidize those projects there, if I’m understanding that correctly.

And there’s been much more activity from Puerto Rico than you would’ve suspected. I’ve talked with numerous operators in Puerto Rico. I think I’ve had three or four different opportunity zone funds present on webinars or at my OZ Pitch Days or on my podcast that were located in Puerto Rico. There’s just a whole lot of activity down there on the island and I think it’s worth looking into there, Andy.

I don’t know if you had any thoughts.

Andy: Well, yeah. And I’ve noticed just watching attending the last several OZ Pitch Days that are hosted by your platform, OpportunityDB, usually, there’s one or more Puerto Rico-focused funds in sight. I think there was either one or two at the last event, including Island Paradise QOF, and we’ll make sure to link those.

Jimmy: Yeah. There were two at the last event. Puerto Rico, the Island Paradise one, and then there was also the industrial facility in Aguadilla from Kira Golden’s group.

Andy: Yep. And I’ll make sure to link both of those in the show notes for everyone, by the way. But another thing I’ll say is just I’ve noticed a lot of investor excitement. I mean, there are some investors who just aren’t necessarily interested in Puerto Rico for one reason or another. But I know that our partner group, OZworks Group that has partnered with OpportunityDB they’ve hosted events in Puerto Rico.

And there are investors that are just excited to physically fly there and, you know, look around and see what’s being built. There’s just that kind of buzz or a sense of excitement over it, which I think is wonderful because, you know, Puerto Rico needs investment. After a hurricane, there’s so much devastating damage.

And so to have so much investment flowing into Puerto Rico, I just think is awesome. But it’s really, when I talk to people and I talk to investors, it’s not every investor, not every opportunity zone investor, but there are some of them and they’re like, “That’s where I want to be. That’s where I want to invest.” And I think some of those extra tax incentives that you’re talking about when you do the math, I mean, it compounds right?

The incentives, the stacks…

Jimmy: The IRRs are through the roof on some of these projects in Puerto Rico because they’re taking into account a lot of these additional add-ons that kind of multiply or magnify the opportunity zone incentive. Now, the reason for that is it’s a little bit of an opportunistic play. There’s certainly some challenges in Puerto Rico, but there’s a lot of great opportunity there as well.

Andy: Absolutely. And if you think about the opportunity zones program, you know, you mentioned it’s an opportunistic play, well, you know, the opportunity zones program isn’t the best place for the safe, you know, 5.5%, 6%, or 6.5% return type investment. Quite frankly, you want to weight that type of investment towards the capital gain because the massive tax benefit applies to that capital gain.

So, I mean, it makes sense to me that there are folks looking at that and saying, “Wow.” If you invest here into an asset or a portfolio of assets, if they get stabilized, if they’re throwing off cash flow and we see a big capital gain in 10 years or longer. Once you factor in these stacked tax incentives, the math, like you said, those IRRs, they can look kind of crazy, but some of these deals are penciling and they’re happening.

Jimmy: Yep. Yeah, for sure. I’m excited to see what the future will bring for that island, but I think opportunity zones are going a long way toward helping rebuild that island and their assets there and their infrastructure.

Andy: Yeah. And Jimmy, so we have… Let’s see. What have we covered so far? Number one…

Jimmy: Oh, let’s see. Well, we’ve got it’s way bigger than most people would suspect.

Andy: Yep.

Jimmy: Ten years is the wrong way of looking at it. You want to hold it for as long as you can. Three was depreciation and cost segregation. Four was Puerto Rico.

Andy: Right. And four, five, and six, to me, these are all just sort of interesting little sectors that some folks don’t necessarily know or even like part of the opportunity zones program or that, you know. So, what’s the next one? We’ve covered Puerto Rico. I think this one is actually legitimately going to surprise some people.

Jimmy: Right. So, four, Puerto Rico was a location that you don’t really think about oftentimes. Five is an asset class that you might not think about for opportunity zones. So, mainly with five and six, opportunity zones don’t have to be limited to real estate deals. A lot of people… That’s a misconception among a lot of people is, well, it’s just real estate.

No, it doesn’t have to be just real estate. It’s number five is there are venture capital funds that are taking advantage of opportunity zone tax incentives. So, a good example… There are a couple of good examples actually that I can think of off the top of my head. One is Len Mills has the Verte OZ Fund.

He’s located in the Mid-Atlantic region of the country. And he invests in early-stage startups, typically healthcare or tech-based stuff. And then another one, what I think of is, really, the flag waiver as our friend Will Walker likes to say sometimes, Andy, is Hall Labs in Provo, Utah.

And just full disclosure. Andy and I are both shareholders in the Hall Labs qualified opportunity fund.

Andy: We’re LPs. Yeah. I mean, you know, it’s such an intriguing operation they have going there. And it’s funny, you know, hearing the story, they sort of just lucked into having their incubator or their physical space was in an opportunity zone, well, why not?

I mean, in venture capital, it’s one of those segments, again, like an opportunistic real estate investment where you are hoping for that large capital gain.

Jimmy: Right. So, Hall Labs is backed by the Hall family office and Hall Venture Partners. The Hall family is now going on their third generation, I believe, of entrepreneurs that develop patent-protected technologies in several different sectors. They’ve got a car manufacturing facility down there.

They’ve got a biomedical smart toilet device. They’ve got a chip manufacturer, a few other… Oh, they’ve got, like, a space helmet-type thing that’s supposed to, like, filter out microparticles which actually got a lot of publicity during the early days of COVID.

And they’ve got a handful of other startups that they’re incubating there. And they have a really great history of exiting at profitable levels over several decades. And this campus that they have in Provo, Utah located, I think, it’s like three or four miles south of BYU’s campus.

I was out there just about a year ago. I was out there last fall. It’s unbelievable the stuff they have going on there. And it just happened to fall into an opportunity zone. So they didn’t go out of their way to put it in an opportunity zone. It was already there. And so now what they’re doing is every business that gets incubated in their little incubator campus they structure it as a qualified opportunity zone business, a QOZB or a QOZB some people say, and they have a Hall Labs’ qualified opportunity fund that wraps around those businesses.

So, if you invest with them, you get some exposure to a lot of these different businesses within that fund. A really cool concept and I’m surprised there aren’t more of these types of venture capital funds out there, but there are…

Andy: Well, you know, Jimmy, it’s…

Jimmy: …at least one or two examples I gave you.

Andy: Yeah.

Andy: Yeah. I think the thing is it needs to be a very specific type of venture capital fund because I think with Hall Labs where they have their incubator, they have so much space on their campus. They can sort of host their portfolio companies right on their campus right in their opportunity zone, right?

But if you think of a typical venture capital fund might be investing all over the place, right, all over the country if they don’t have, like, a physical incubator where these companies are physically located. So, I think it’s… Venture capital is absolutely a sector that you can invest in if you want to invest in a QOF, but it’s going to need to be a very specific type of venture capital fund that’s going to pull it off, right?

Jimmy: I think that’s right. I thought that some colleges and universities around the country that oftentimes have incubator campuses either on their campus or just off campus might take advantage of this because a lot of those were slated into opportunity zones, but I haven’t really seen a lot of traction there, but that could be a potential use case down the road. Maybe somebody influential is listening right now and might pick up an idea or two here, hopefully.

Andy: So, venture capital, I think that one probably surprised folks and really any type of operating business, right? But if you’re an LP or a family office who’s a listener or a viewer, you know, I think a lot of LPs are already investing in venture capital, already investing in QOFs. There’s actually an opportunity to combine those.

And speaking…

Jimmy: Might want to marry the two. That’s right.

Andy: Exactly. So, speaking of that, let’s talk about our next surprising segment where you can invest through an opportunity fund into a non-real estate investment.

Jimmy: Yeah. So, the next segment is oil and gas. And there aren’t a lot of oil and gas qualified opportunity funds, but I’ve come across a couple of them. One of them is U.S. Energy Development Corporation. They actually figured out a few years ago that some of the oil wells that they were drilling in the Permian basin just happened to fall into opportunity zones.

So, what they did was they decided, “Hey, if we’ve got any land that we’re about to drill into, why don’t we just put those plots into a qualified opportunity fund structure, and then we meet substantial improvement or new construction simply by putting the oil rig or oil derrick on there?”

And then the brilliant thing about the oil and gas play, Andy, is unlike real estate development which has to be new construction or substantial improvement, and oftentimes takes years before the property, the asset is stabilized and start to cash flow, the oil and gas, at least the folks I’ve talked to at USEDC told me that it can start cash flowing from day one.

Andy: How fast can we drill the well, right?

Jimmy: Pretty much. Yeah. So, that’s a…

Andy: Jimmy, go get the drill. Let’s do it.

Jimmy: That’s a really interesting play there. I wish I knew more about oil and gas, Andy. I know you’ve had some oil and gas folks on your podcast. Maybe you can hook up with them and…

Andy: And I think we have USEDC scheduled at “The Alternative Investment…”

Jimmy: Yeah, you do. You do. So, you should ask him a little bit more about what he’s doing.

Andy: Oh, we’ll definitely be talking about opportunity zone investing. But, you know, I think oil and gas, again, it’s one of those cases, a lot of high-net-worth, a lot of family office are already investing in that. There are just massive tax benefits. I know depending on the structure of the investment, you can write down a huge percentage of it right away in year one.

So, I don’t know within the oil and gas segment how those tax incentives may interact or stack or not stack together. But it’s just really interesting to me. That’s another sector I can invest in through a qualified opportunity fund. And, you know, back to your first point of just the amount of money that has been invested. And I know through the OpportunityDB network, you’ve interacted with RIAs and family offices and also just ultra-high-net-worth individuals, some of which will have exited a business.

They might be sitting on $100 million capital gain for instance. And if you have that kind of capital gain, what is that? A nine-figure capital gain. You’re definitely going to want to look at deploying at least some of that, maybe most of it into opportunity zone investments.

And so the intriguing thing, what we’ve talked about today a little bit, you can get a lot of diversification within real estate, right, because you can invest in industrial, you can invest in multi-family, you can invest in Puerto Rico. There’s all kinds of sectors within real estate, but then you can even invest in venture capital and oil and gas all through that QOF structure.

And I think for ultra-high-net-worth and family offices, that’s just a really intriguing value proposition.

Jimmy: It absolutely is, Andy. And, you know, a person with that $100 million gain, good for that guy, first of all. And second of all, yeah, you’re absolutely right. I mean, that’s a lot of money to play with and you can really put together a nice diversified portfolio of QOF investments, and then… I don’t know what the principle was or the cost basis was of that $100 million gain, but…

Andy: I’m going to call it zero. It’s a software startup where I just…

Jimmy: Well, then there’s nothing left over. You might want to save some of that away for…

Andy: Why didn’t I learn to code, Jimmy? I should have learned how… Actually, you know what? God bless me, I tried. I tried to learn how to code when I was in school. This is just way too hard.

Jimmy: I’ve seen you code. You’re not that great at it.

Andy: Okay. We’ve covered six. Six secrets. I think you’ve probably surprised most people with at least one of these. And the last one is kind of a bonus one, right?

Jimmy: Yeah.

Andy: What’s number seven? What’s the seventh opportunity zone secret that every high-net-worth investor or RIA or family office should know?

Jimmy: Well, a lot of people know that opportunity zones is a perishable tax incentive. And in fact, some of the benefits have already expired. And wrongly, some people thought that opportunity zones were already gone, they already expired completely. No, no, no. That’s not the case. So, currently, you have through the end of 2026 to trigger a gain that would then be eligible for investment into a qualified opportunity fund.

And depending on how you trigger the gain, you may have until early September of 2027 to ultimately put that money into a qualified opportunity fund and be eligible for all of the tax benefits of opportunity zone investing, but there’s new legislation that was introduced earlier this year.

It has not been passed yet, but it is bipartisanly supported and it was introduced into both the House and the Senate, so it’s got a lot of weight behind it. It’s likely going to get passed before the end of this year or early next year before this session of Congress is out, possibly in a lame-duck session. And the legislation is going to do quite a few things, but one of the things it’s going to do that I’ll focus on is it’s going to extend opportunity zones for an additional two years.

So, it would move that 2026 end date to the end of 2028.

Andy: A stay of execution. It wouldn’t be made permanent.

Jimmy: A stay of execution for two years. And the way a lot of these new tax policy programs work is they’re given a limited time period initially, and then if there’s traction, they can oftentimes get some legislation around them and get passed in a tax extenders bill on the regular every year or every couple of years.

Andy: I mean, and honestly, Jimmy, with budgeting and all sorts of other parts of our tax code, there’s all this continuing resolution. With the way the CBO scores things, it’s almost like that’s just the way legislation happens now is you just extend things a couple of years at a time.

Jimmy: That’s exactly right. Because at the time when you initially pass it, you can say, “Hey, it’s only going to cost this much,” but then you end up extending it forever essentially. So, that’s my main point is that this legislation is great, I’m praying that it gets extended, that it does get passed. And if it does, I’m going to go on the record right now, Andy, and predict that I think it’s just the first step toward getting this extended permanently.

And hopefully, opportunity zones are here with us for a long time. The 1031 exchange started as temporary and it’s been with us now for about 100 years. So, if you can imagine opportunity zones being with us here for that long, that’s really powerful. That’s going to really drive a lot of private capital investment into places all around the country that sorely need it and it’ll offer a great tax benefit for a countless number of investors all over the country.

So, I’m hopeful it gets passed and it’s the first step among many to get the thing eventually permanently extended.

Andy: You heard it here, folks. First, folks, that the opportunity zone man, the man in opportunity zones, Jimmy Atkinson, is telling us, not only is this going to get renewed, it’s going to get renewed again and again and again just like 1031s. But you know what? That is great news. I mean, I love the opportunity zones program.

Just conceptually it makes sense to me. I think it’s easy to explain how it benefits our society, how it benefits areas of our country that need investment, that need housing, that need infrastructure. And it allows patient capital the ability to invest and, you know, to be put to work building things, and so many exciting projects, so many exciting, you know, sponsors that we’ve seen at OZ Pitch Day, and also a lot of stuff that’s under the radar, which I think you did a great job detailing for us today.

So, Jimmy, I think for some of our viewers and listeners, you gave them a taste of opportunity zones, nitty-gritty, but where can they go to learn more if they’re interested in following up with some more in-depth information on opportunity zones investing?

Jimmy: Yeah. Well, thanks for having me on the show today, Andy. It’s great to be back. And if you’re interested in opportunity zones and you want to keep up with everything that’s going on opportunity zones-wise and keep your finger on the pulse of OZs, I would highly recommend you listen to my podcast, “The Opportunity Zones Podcast.” You can find u at opportunitydb.com/podcast, or you can just search for “Opportunity Zones Podcast” on YouTube or your favorite podcast-listening app.

Andy: And I’ll make sure to link that in the show notes too. And, yeah. Jimmy, your podcast, super popular. I checked the stats on that. It gets thousands and thousands of downloads every month. So, even though there’s, you know, a lot of hidden, you know, under-the-radar secrets and surprises in this program, I think the word is out, especially among the smart money.

And with that being said for our listeners, all of the links that we talked about, all the specific private placement offerings and funds, I’ll be sure to link those in the show notes. You can access those anytime at altsdb.com/podcast. And don’t forget to subscribe to the show on YouTube or on your favorite podcast-listening platform so that you can receive our new episodes as we release them.

Jimmy, thanks again for coming on the show today.

Jimmy: Thanks, Andy. It’s been a blast.

Andy Hagans
Andy Hagans

Andy is co-founder and co-CEO at WealthChannel.