Presenting a live 90-minute webinar with interactive Q&A. Today s faculty features:

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1 Presenting a live 90-minute webinar with interactive Q&A Qualified Opportunity Zones: New Tax Incentives for Commercial Real Estate and Other Investments Deferred Capital Gains and Tax Abatement Under New IRC Section 1400Z; Forming Qualified Opportunity Funds TUESDAY, JUNE 26, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Ryan D. Bailine, Shareholder, Greenberg Traurig, Miami James O. Lang, Shareholder, Greenberg Traurig, Tampa, Fla. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 1.

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5 Qualified Opportunity Fund Finance A Powerful New Tax Incentive for Real Estate Investors, Venture Capital, Private Wealth, Family Offices, and Private Equity JUNE 26, 2018 James Lang langjim@gtlaw.com Ryan Bailine bailiner@gtlaw.com

6 Introduction to A New Tax Incentivized Investment Program

7 Introduction to Qualified Opportunity Zones New Program in the 2017 Tax Cuts and Jobs Act O-Zone financing intended to unlock the private investment potential of the over $3 trillion captive capital gains across private individuals and companies New Section 1400Z of the Code Subject to technical corrections, clarifications, and additional guidance 7

8 Introduction to O-Zones 1. Tax Deferral vs. Tax Abatement 2. Tax-Free Post-Investment Appreciation on Certain Qualifying Investments 8

9 Introduction to O-Zones Tax Advantaged Returns for Investors Capital Stack Gap Fulfillment through Equity Infusion for Project Sponsors Project Realization Fund Management and Asset Management Opportunities 9

10 Introduction to O-Zones Varied Asset Classes, Project Types, and Operating Ventures Significant and Creative Structuring Opportunities Leveraging Benefits of Investment May be combined with existing tax incentive, governmental grant, subsidized lending, and public finance projects May be most significant long-term provision of new tax law 10

11 Updates State Designations and Certifications Self-Certification Guidance Expected programmatic guidance/regulations 11

12 Investing in Opportunity Act

13 Brief History The Investing in Opportunity Act (S. 293) Bi-partisan, Co-sponsored Legislation Economic Innovation Group Supported based on bi-partisan economic analysis for revitalizing America s left-behind communities Realization as a late Senate Amendment to tax reform legislation (Section 1400Z of the Code) 13

14 Purpose Economic Revitalization (Forgotten Communities) Innovation/Entrepreneur/Start-up Mechanism Economic Development Community Development Long-Term Investment 14

15 Basic Application

16 Application Scenario $200 Equities Sold $100 Short-Term or Long-Term Capital Gains Discussion of Gains 1231 Gains/Carried Interest? Investment in Qualified O-Funds within 180 Days of liquidation/disposition/sale to third party Measured with Investor or with Partnership? Carried Interest Differentiation to Section 1031 Deferral New limitations on Section 1031 Deferral 90% O-Fund Investment Threshold 16

17 Types of Uses Multi-Family Single Family Office Retail Operating Business/Venture Start-ups Stadium Adaptive Reuse/Historic/Multi-use Not-For Profit Oil & Gas R&D 17

18 Application Scenario Initial Benefit $100 Invested in O-Fund into Qualified O-Zone Property (discussed later) New use vs. Substantial Improvement Tax Basis of $0 Immediate Deferral (Example: Liquidation Year 4) Year 5: 10% Step-up in Basis Year 7: 5% Step-up in Basis December 31, 2026: Recognition Event Subject to extension 18

19 Application Scenario 10 Year Benefit 10 Years: Upon disposition, step-up in basis to Fair Market Value All post-investment appreciation tax free after 10 years $100 Investment now worth $600, $500 not subject to capital gains taxation upon disposition No Depreciation Recapture Debt Distributions 19

20 Operating Companies and Equipment Discussion of relocation/start-up activity Existing Operating Businesses in an O-Zone 2026 Benefit Discussion Appreciation on Portfolio Companies Twinning with Real Estate 20

21 Types of Investors 1031 Family Offices Private Equity Venture Capital Real Estate/Specialty Funds Hedge Funds* 21

22 Advanced Structures and Opportunities

23 Initial Strategies 2026 Fair Market Value Inside/Outside Debt Carried Interest and Promote Synthetic Debt A & B Companies 23

24 Structuring Limited Partnerships/Preferred Interests Project Finance Return Targets for Investors Options/Exits Replacement of Debt and Enhancement of Equity O-Fund Equity invested with Non O-Fund Equity Warehousing 24

25 Where are Opportunity Zones?

26 Opportunity Funds ( O-Funds )

27 O-Fund Certification Corporation or Partnership organized for the purpose of investment in Qualified O-Zone Property LLC treatment? Self-Certification 90% Investment Requirement Timing Issues Examples Safe Harbors? Measurement of assets? List of States with Certified O-Zones as of 6/19/18 27

28 Qualified O-Zone Property 1. Qualified O-Zone Business Property Tangible Property used in a Trade or Business 2. Qualified O-Zone Stock Domestic corporation acquired after December 31, 2017 as original issue During substantially all of the holding period, the corporation is a Qualified Opportunity Zone Business 3. Qualified O-Zone Partnership Interest Capital or profits interest in a domestic partnership acquired after December 31, 2017 During substantially all of the holding period, the partnership is a Qualified Opportunity Zone Business 28

29 Qualified O-Zone Property 1. Acquired by purchase after December 31, 2017 Leasehold Interest Related Party Rules Structure for Existing Property 2. Use of Property 3. During substantially all of the holding period, substantially all of the use was in a O-Zone 29

30 O-Zone Business Property Use Qualification Original use must commence in O-Zone or be subject to substantial improvement 30 month basis analysis Purpose/Partnership Treatment/Guidance Equipment Considerations When is property subject to test (original vs. existing use)? Restrictions: NQFP Sin Businesses Intellectual Property not used in trade or business Related Party Transactions 30

31 Qualified O-Zone Business Substantially all of the tangible property is Qualified O-Zone Property At least 50% of total gross income is derived from the active conduct arising from Qualified O-Zone Property Area for additional guidance in relation to acquisition of existing businesses and going concerns Discussion of businesses involved in developing intangible property (R&D) 31

32 Additional Considerations Sale and reinvestment in businesses and property within an O- Fund (churning or recycling of investments) Safe harbor for Qualified O-Zone Businesses where tangible property ceases to be O-Zone Business Property for the lesser of 5 years or the date the property is no longer held by the Qualified O- Zone Business 15 Year Timeline for Program/5 year Timeline for Investment Anti-abuse Regulations 32

33 Strategies for Today

34 Strategies 1031 vs. Opportunity Fund Pending Acquisition Trailing Sale 34

35 Not-for Profit and Governmental Financing

36 Not-For Profit and Governmental Financing Subsidiary Structuring Community Impact Investing Real Estate Acquisition and Development for Not-For Profit and Governmental Entities Project Finance Equipment Leasing and Programmatic Activities 36

37 Guidance

38 Potential Guidance Questions Churning/Recycling? Safe Harbors for Initial Investment/Construction or Treatment of Construction Disbursement Account as Reasonable Working Capital? Active Conduct Gains? LLC Treatment Substantially All? Substantial Improvement and Partnership Treatment Sale or Disposition within a Partnership No disposition within 15 years? Debt Distribution vs. Redemption (Sale or Exchange Treatment?) Acquisition of Property Prior to December 31, 2017 and Operating Businesses Reasonable Expectations for Active Conduct and Trade or Business? 38

39 Frequently Asked Questions

40 FAQs 1. How can I find maps of Qualified Opportunity Zones? 2. What about churning of investments within an O-Fund? 3. What happens to carried interest for fund managers in an O- Fund? 4. How quickly do liquidated capital gains need to be invested? 5. What about 1231 Income? 6. What about construction projects? 7. What about acquisition of going concerns or active businesses? 40

41 FAQs 8. Will the 2026 date be extended? 9. Will the Qualified Opportunity Zone legislation translate to other incentive financing programs? 10. What if I liquidate before December 31, 2026? 11. Can I invest with the market and still invest my current (short or long-term) capital gains? 12. What about investment in businesses focused on development of intellectual property or software? 13. What about businesses involved in oil/gas/mineral extraction? 14. What about opportunities for short term capital gains of hedge fund managers or developers? 15. What about inherent timing issues? 16. What if debt is a better fit for my project? 17. Can I structure an O-Fund now or should I wait for additional guidance? 41

42 Questions?

43 James O. Lang Ryan Bailine