Finance & Incentives
The QOZ program is a long-term strategy, since much of the positive tax treatment is in the exclusion of gain when the asset is sold in year 10 or thereafter.
To reduce risk and optimize returns, our team believes that those embarking on a project should consider the availability of other incentives and financial tools that may be available. Our Project Management Consultants professionals and Commercial & Public Finance attorneys have vast experience assisting in identifying and obtaining financing for development and construction projects. Our services include proforma development, feasibility and economic impact analyses, development of intergovernmental funding strategies, identification and selection of lenders, negotiation of public sector bond financing, and application assistance for new markets tax credits (NMTCs) and historic tax credits. Our team is also aware of special incentives that may be available for certain QOZ areas.
QOZ projects may need additional incentives to reduce risk and ensure returns. For instance, most QOZs are in locations that are eligible for NMTCs. And since the goal is to redevelop low-income communities, many QOZ projects will meet the criteria for funding. The legal ramifications of using these two tools together could be daunting, with compliance issues to be considered as the deal is put together.
Based on the locations of many of the zones, Historic Tax Credits and State Historic Tax Credits may also be available to be used with the QOZ program. Since Historic Tax Credits and QOZs share the same definition of substantial investment, it seems that this was considered when the law was passed and regulations drafted.
Given the 31-month safe harbor period for QOZ projects that acquire, construct and rehabilitate property in the QOZ, there will be time to put together complicated projects using tax credits with the QOFs.
For those considering apartment projects, QOZs were established to incentivize investments in low-income communities. In many areas, there is a concern about gentrification; however, using QOFs for non-housing components of multi-use projects and Low Income Housing Tax Credits for the housing component can help bring multi-use projects to areas that may be changing quickly due to new investments.
Similarly, while NMTCs are not available for stand-alone residential projects, they may be available if the residential component is included in an integrated retail and office complex. Also, in contrast with the 31-month safe harbor in the QOZ regulations, the NMTC program provides only a 12-month safe harbor period for holding cash for use toward real estate construction. Accordingly, careful consideration needs to be given to melding these programs.
We recognize that diverse multifamily housing can work to improve a community. Our legal team has worked on market rate, mixed-use and affordable housing projects and can help incorporate QOFs into projects.
Our team has closed scores of real estate projects that have used various types of credits and incentives and have followed the new regulations for QOZs. We are ready to help navigate the legalities of these tools for a successful project.