Hartford Business Journal

16 Hartford Business Journal • November 26, 2018 • www.HartfordBusiness.com By Gregory Seay gseay@hartfordbusiness.com O pportunity Zones (OZs), created in the last year to leverage tax-deferred investments to spur realty- and business-de- velopment in the U.S.' neediest com- munities, could soon explode onto the scene now that the federal govern- ment has issued draft regulations. Besides investors, anticipated beneficiaries are the 72 low-income neighborhoods in 27 municipali- ties across Connecticut that have been tagged as OZs. That includes 10 zones in Hartford's Parkville, Upper Albany and other neighborhoods that could jumpstart development beyond downtown, which has been the locus of most investment in recent years. Other OZs exist in West Hartford, East Hartford, Bristol, Middletown, Mer- iden and Manchester. Some tax lawyers and certified public accountants say they are already hearing from potentially eligible wealthy individuals, corpora- tions, partnerships, trusts, estates and developers eager to use the newest government-sanctioned vehicle for shielding some or all of investors' capital gains from federal taxation. Some firms are even beefing up staff- ing to meet expected demand. Hartford law firm Shipman & Goodwin just an- nounced the launch of a three-lawyer OZ team. Moreover, major Hartford employ- ers, including The Hartford, Aetna, Hart- ford Hospital, St. Francis Hospital and Medical Center and Trinity College, are located within or near an OZ and could be catalysts for some development. The U.S. Treasury Department and Internal Revenue Service released the new OZ draft guidelines in October and are encouraging in- vestment to begin immediately. One estimate is that as much as $6 billion of eligible capital gains could be invested in OZs. "Everybody thinks the reaction to Opportunity Zones will be great,'' says attorney John F. Stafstrom Jr., head of the public finance department at Connecti- cut law firm Pullman & Comley LLC. Hartford Mayor Luke Bronin says the city has been in touch with inves- tors, whom he declined to name, "who see the po- tential opportunity in Hartford." Each of the city's 10 OZs harbor realty proj- ects that already are in various stag- es of development, and are ripe for OZ funding, he said. "We've worked very hard to acceler- ate growth and [OZs are] an important new tool in our toolbox,'' Bronin said. Some Hartford area commercial developers say they are eyeing closely developments unfolding around OZs and OZ funds, but have not yet moved to take advantage of them. Elizabeth "Liddy" Karter, manag- ing director of Enhanced Capital Partners LLC in Stamford, said she is assembling a fund to pursue OZ investments. Her firm, which funds preserva- tion and rede- velopment of historic proper- ties nationwide into housing, and provides capital to small business- es and for sustainable-energy projects, is bullish about its prospects. "We like the focus of trying to invest in underserved communities,'' she said. But some OZ proponents fret that real-estate devel- opment, rather than financing small or startup businesses, which is permissible un- der OZ rules, will be the primary focus for inves- tors. In particu- lar, some see the requirement that to qualify for OZ investment, a firm must do at least 70 percent of its business in its home community as a steep hurdle. Catherine Smith, commissioner of What is an Opportunity Zone? An Opportunity Zone is an economically distressed community where new investments may be eligible for preferential tax treatment. They are designed to spur economic development by providing tax benefits to investors in the form of capital gains deferrals. First, investors can defer tax on any prior gains invested in a qualified opportunity fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or Dec. 31, 2026. If the QOF investment is held for longer than five years, there is a 10 percent exclusion of the deferred gain. If held for more than seven years, the 10 percent becomes 15 percent. Second, if the investor holds the investment in the opportunity fund for at least 10 years, the investor is eligible for an increase in basis of the QOF invest- ment equal to its fair market value on the date that the QOF investment is sold or exchanged. Source: IRS Investment Vehicles The door widens to 'Opportunity Zones' amid concerns about impact Brian Newman, Partner, CohnReznick LLP John F. Stafstrom Jr., Chair, Public Finance Department, Pullman & Comley LLC Elizabeth "Liddy" Karter, Managing Director, Enhanced Capital Partners LLC Catherine Smith, Commissioner, Department of Economic and Community Development The intersection of Jefferson and Washington streets, near Hartford Hospital, could benefit from new development because it's located within an Opportunity Zone. PHOTO | HBJ FILE

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