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Leaders discuss Opportunity Zone investments

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“It’s like the best-kept secret of the (2017) tax bill,” says Deborah Burns, chief executive officer of investUS LLC of Albuquerque, about Opportunity Zones during a Wednesday presentation held at the Roswell-Chaves County Economic Development Corp. offices. She and another presenter also talked about some of the risks involved in investing in the zones. (Lisa Dunlap Photo)

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Two people versed on the new Opportunity Zones say that the designated zones could provide investors with millions in tax savings and could bring needed community development to poorer areas in the state.

Deborah Burns, chief executive officer with investUS of Albuquerque, and Ryan Eustice, an economist with the New Mexico Economic Development District, talked with local business, government and economic development leaders Wednesday afternoon in the offices of the Roswell-Chaves County Economic Development Corp. about how investment in the zones works.

“From my perspective … this is ingenious,” said Burns, who explained that she appreciated that it leaves federal bureaucracies out of the process. “This is just the private sector deciding what the private sector thinks are good investments in underserved communities and the IRS writing the rules.”

Opportunity Zones were created as part of the 2017 Tax Cuts and Jobs Act passed in December as a way to provide deferrals, reductions or elimination of capital gains while giving incentives for investors to put money into underserved, underfunded areas, defined as census tracts with low household incomes. As it stands now, the Opportunity Zone credits would end in 2026.

Governors were asked to nominate tracts for consideration to the U.S. Treasury, and Gov. Susana Martinez nominated 63 tracts in 22 counties in New Mexico, all of which were accepted by the federal government.

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Three tracts are in Chaves County: one focused around the Roswell International Air Center, one centered around two “shovel-ready” land sites on South Main Street and another in Dexter.

As Burns explained, investors making a $10 million investment in property or businesses in Opportunity Zones could save millions in taxes if they hold the investment for 10 years. Because Opportunity Zones are meant to encourage long-term investment in underserved areas, tax savings increase the longer the investment is held.

Eustice and Burns told the group that there are still caveats associated with the zones.

The Internal Revenue Service still has not issued its definitions and rules, so risks exist with investing now until those rules come out, which is expected by the end of the year. That is especially true, Burns said, if the investment is not in property, but instead is in stocks or shares of existing businesses or partnerships, or involves new projects. She said some real estate investors already have made significant investments in Opportunity Zone properties, both because they have a limited amount of time to reinvest realized capital gains and because property investments are considered fairly straightforward. But real estate investments must involve “substantial improvement” to the property, she said, not just long-term holding of the assets.

She also recommended that investments be vetted by independent and experienced fund managers, tax counselors and due diligence experts, especially if an individual or group is investing money belonging to others.

Eustice added that it is also possible that U.S. tax law could change at some point to make the tax incentives associated with the zones less significant.

Although there are still unknowns involved, Eustice said the state Economic Development Department is preparing to market the state’s Opportunity Zones through its New Mexico Partnership arm and is creating a “storied” map of all 63 state zones to provide information on businesses and properties in the zones and give contacts for potential investors.

InvestUS is also one of the companies creating investment funds, with the plan to manage $125 million in three different types of funds: a low-risk growth fund, a medium-risk development fund and a higher-risk innovation and social impact fund meant to build, revitalize or provide needed services and facilities within the zones.

Local representatives with Carr RIggs & Ingram (CRI) Certified Public Accountants and Advisors also said that its office in New Orleans is already working with people on Opportunity Zone investments.

Mulcahy told the group that the South Main Street zone includes one “certified” site ready for development known as the Wetco site, near the Christmas by Krebs facility, and a second city-owned property that is in the process of becoming certified as development ready. The Dexter zone, he said, involves property near the railroad and includes about three-quarters of the area’s dairies, which are looking to develop new technologies. The zone that includes the Roswell International AIr Center has the added advantage, he said, of being a New Market Tax Credit area, which provides credits toward federal income taxes.

“Everyone I talk to wants to do a 1031,” Mulcahy said. “This appears to be much more appealing for commercial investment.”

Burns explained that 1031 investments require investors to reinvest their capital gains more quickly and to reinvest all of investment proceeds, not just the capital gains portion. And Eustice added that Opportunity Zones could be attractive because people could “layer” federal credits and funding sources, such as Local Economic Development Act funding or federal Job Training Incentive Program funds.

Some groups have voiced concerns that potential investment projects could “gentrify” lower-income neighborhoods, pushing poorer people out, or will benefit wealthy investors more than low-income residents. Others have said that similar “enterprise zones” have been tried before in other countries and by states, without resulting in significant economic growth in low-income areas.

But proponents say that the fact that federal zones can involve investors from throughout the country and make no limitations on size or number of investments possible — and the fact that many people in the country are looking to reinvest what is estimated to be up to $6 trillion in capital gains nationwide — could make Opportunity Zones a boon to both investors and lower-income populations and communities.

Senior Writer Lisa Dunlap can be reached at 575-622-7710, ext. 310, or at reporter02@rdrnews.com.