The key to Opportunity Zones Deals

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Got asked an interesting question by a journalist at the Opportunity Zone Expo, and wanted to share my answer here.

Question: What is the most important thing to look out for when considering an opportunity zone investment?

Answer: By far the most important thing is the quality of the deal itself.

Right now, Opportunity Zones are a gold rush, and there are already a million amateurs “mining experts” out there. I guarantee that most of the deals these experts are pushing will end up being disastrous… that’s what happens when a whole bunch of capital pours into the hands of inexperienced operators.

So, if someone pitches you an OPZ deal, you need to focus on the numbers, and the question you need to ask yourself is: “Is this a deal I would do with free (ie non-tax deferred) capital?”

If the deal is “blah”, and you would not be interested but for the tax benefits, run. The tax benefits are uncertain… the regulations are not totally in place yet, and even when they are, some unfriendly Congress years from now might change the rules and reduce / remove the benefit.

And, as we all know, most deals don’t outperform their pro formas (though I like to think we have a pretty good record of doing so!). Things can go wrong, and numbers can degrade. So, if you’re starting at “blah but for the tax benefits”, there’s a pretty high probability of ending up at “yikes, with attenuated tax benefits”.

If, on the other hand, the deal is good enough that you’d do it with fresh capital, and you layer the various tax benefits of the OPZs on top, then you’ve got yourself something pretty awesome.

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