Opportunity Zones & Utilities

2019 UEDA Summer ForumNate Green

Partner, Director, Economic Development

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Montrose Wrote the Book on Economic Development

Opportunity Zones Basics

OZs provide investors the ability to invest capital gains into 8700 underserved areas across the Country

Investors

Stock of Qualified OZ Corporation

Qualified OZ Tangible Personal

Property

Qualified OZ Partnership

Interest

Opportunity Zone Funds

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Opportunity Zone

Benefits

§Temporary deferral of capital gains taxes until 2026 when investors roll them into an Opportunity Zone Fund

§Step up in basis and therefore a reduction in capital gains tax if held for 5 years or 7 years

§Elimination of Capital Gains if held in Opportunity Zone Fund for 10 years

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OZ Critical Components

§OZ funds must be established by the private sector through a partnership or corporation organized under state law (LLC)

§OZ funds are responsible for certifying with the IRS

§OZ Funds must invest substantially all of their assets (90%) into OZ Qualified Investments

§OZ Funds will be audited twice a year to ensure they are in compliance

§OZ Funds are being established locally, regionally, and nationally

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OZ Critical Components

§50% gross income test§ Service providers

§Manufacturers

§ Logistics companies

§Original use of tangible personal property; first in use test

§Capital Gain must be invested in the QOF during a 180-day period that begins on the date of the sale or exchange that generated the gain

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How an OZ Investment Works

Step-up in basis for capital gains for

original investment is increased by

10% if held for at least 5 years, and

5% more if held for at least 7 years, excluding up to

15% of the original gain from taxation

Permanent exclusion from

capital gains tax for Software HQ

Campus LLC investment if held

for 10 years

Investor

Software HQ Campus, LLC

createdDesignates

investment for land acquisition,

construction of a building & expenses

necessary for the project

substantially improving the OZ

50% of gross income from Software HQ

Campus LLC is based upon

services by hours, amounts paid, or

tangible property and management

or operational functions

Software HQ Campus LLC

Investor immediately

invests $1 M capial gain in a software

company's HQ located in a

Qualified OZ with substantially all

(70%) of its assets devoted to trade

and business

Opportunity Fund Investment

Investor recognizes gains

from individuals, C or S corporations, mutual funds, real

estate investments, partnerships, trusts

& estates from an unrelated person

Realizes $1 M capital gain after

12/31/19

Investor

Organized as a corporation or

partnership for an eligible

Opportunity ZoneCertified by US

Treasury as a Qualified

Opportunity FundInvests 90% of its

investments in Opportunity Fund Property/Business

Opportunity Fund

Certified Opportunity Zone

SiteCreation of a Site

Development PlanLand Use

Entitlements & Incentives

• Tax Abatement• Infrastructure

Investments

Opportunity Zone Site

OZ LANDSCAPE

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National Landscape

• 200 funds have been established with $48 billion in investment capacity, according to Novogradac

National OZ Funds

• Access Ventures Opportunity Fund

• Affordable Housing Opportunity Fund

• The Amina Fund• Bedford Funds, LP (OZF)• Belpointe REIT, Inc.• 50+ funds…..

OZ Project: Multi-City Fund Builds Homes for Teachers

● RBH, developer of Newark’s Teacher’s Village

● Mixed-use developments with workforce housing

● Replicate model throughout that nation; first investments underway in Miami and Atlanta

● Tech entrepreneurs, David and LeilaCenter, invested $40 million aligned withinterest in improved education

● $150 million Opportunity Fund anticipated to support $700 million in development

“The Opportunity Zone program made us take notice of this important initiative which matches our goal of finding sustainable solutions to important societal issues. Supporting efforts to build in underserved communities and supply affordably priced housing for teachers, we see as part of my family’s mission.”

- Developer of Newark’s Teachers Village launches Opportunity Zone fund

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OZ Project:The Tappan - Cleveland, OH

● Local Developer, Sustainable Communities Assoc

● Mixed-use, mixed-income rental property

● Retail space for local entrepreneur

● 95 apartments; 60% affordable workforce homes

● SCA leveraged tax benefit to provide discounted rents, creating apartments affordable for those earning under $46,000.

“Some of our investors are able to invest into this project and take less of a return than they typically would, because they have all these tax benefits from the Opportunity Zone. What that means is our capital stack is less stressed for dollars, so we’re able to take some of the units and [charge less for] them, and still pay back our investors.”

- Tremont project The Tappan would include apartments, first-floor bakery on Scranton Road

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National Certified OZs

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How to Launch an Opportunity

Zone

5-Steps to Launching an Opportunity Zone

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Develop Site Plans & Infrastructure Finance Strategies•Opportunity Zones are attractive to investors with strong site development plans that outline target industries and infrastructure finance strategies

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Enact Land Use Entitlements & Tax Incentives•Opportunity Zone sites need required zoning, water and sewer agreements and local and state tax incentives to make the site operational and attractive to investment

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Advocate for an Opportunity Zone Policy Agenda•Opportunity Zone success will result if state and local leaders align government tax policy and tax incentives to support development in Opportunity Zones

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Market the Opportunity Zone•Whether as a single site, regional sites, statewide or nationally, Opportunity Zones need a strong marketing package attractive to investors

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Seek Professional Guidance•Launching and operating and making investments in an Opportunity Zone fund involve federal tax and securities law and other accounting issues that require professional help.

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Launching an Opportunity

Zone

Determine Highest and Best Use of a Site

Industry Cluster AnalysisReal Estate Market Analysis

Developer Recruitment

Infrastructure Plan

Engineering and construction site analysis

Transportation Plan

Engineering and construction site analysis

Land Use Entitlements

Enacting zoning, easement and transportation policies

Infrastructure Finance

Public Finance, local, state, federal and developer financing

Develop a Site Plan & Infrastructure Finance Strategies

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Market The Opportunity Zone Site

Focus on Impact

Investors

Focus on an

Industry

Secure a Developer

\

OZ Prospectus

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OZ Fund Investor

Recruitment

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Build or Recruit an

Opportunity Zone Fund

IRS Regulations

Securities Regulations

Investment Policy

Business and Credit

Analysis

Recruit Investors

Make Investments

Role Utilities Play in

Opportunity Zones:

Investor

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§As an Investor§Utilities can invest capital

gains in Opportunity Zones in their service territory

§ Long term equity play toinvest in industrial sites

§ Infrastructure investment in Opportunity Zones

§Establish Opportunity Zone Fund for Utility service territory to invest capital gains and defer corporate tax

Role Utilities Play in

Opportunity Zones:

Site Development

Plans

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§Site Development Plans§Fund site development plans

for communities and developers

§Partner with communities to fund site certification in OZs

§Encourage communities toprepare development plans for sites

§ Identify potential sites in OZs for communities

Role Utilities Play in

Opportunity Zones:

Prospectus

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§Prospectus §Fund the development of

prospectus for communities and regions

§Hire consultants to develop prospectus for OZs

§Encourage communities toprospectus

§ Identify sites for prospectus

Role Utilities Play in

Opportunity Zones:

Developer and Company

Recruitment

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§Developer and Company recruitment §Work with community

partners to identify sites in OZs

§Compile list of regional, state and national developers

§ Identify targeted industries for OZ sites

§Actively recruit developers and companies with capital gains to OZ sites

Opportunity Zones & Utilities

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Conclusions

Thoughts

Questions

• Nate Green, Partner, Director Economic Development, Montrose Group LLC

• 100 East Broad St. Suite 1340 Columbus OH 43215

• ngreen@montrosegroupllc.com• 740-497-1893

Contact