Molotsky – Opportunity Zones – Insights From the Land of OZ

December 30, 2020December 30, 2020 by Brad A. Molotsky

COVID-19: PA to Allow More Restrictive Dec. 12th Space Limit Orders to Lapse on January 4th at 8 am – previous restrictions still in place

As of this afternoon, December 30, 2020, PA announced that the time-limited mitigation orders put in place on Dec. 12 will expire at 8 a.m., Jan. 4 as planned.

With the expiration of the Dec 12th time-limited orders, mitigation efforts will revert to the original mitigation orders in place on Dec. 11.

Mitigation efforts that will remain in effect on Jan. 4 include:

Business, work, school, child care and congregate settings:

Child care may open, complying with guidance
Congregate care restrictions remain in place
Prison and hospital restrictions determined by individual facilities
Schools subject to CDC and commonwealth guidance.
Telework must continue unless impossible
Businesses with in-person operations must follow updated business and building safety requirements
Masks are required in businesses
All in-person businesses may operate at 75% occupancy, except where noted
Self-certified restaurants may open at 50% capacity for indoor dining; Restaurants that have not self-certified are at 25% capacity for indoor dining,
On-premises alcohol consumption prohibited unless part of a meal; cocktails-to-go and carryout beverages are allowed
Serving alcohol for on-site consumption must end at 11 p.m., and all alcoholic beverages must be removed from patrons by midnight
Personal care services (including hair salons and barbershops) open at 50% occupancy and by appointment only
Indoor recreation and health facilities (such as gyms and spas) open at 50% occupancy with appointments strongly encouraged; fitness facilities directed to prioritize outdoor activities.
All entertainment (such as casinos, theaters, and museums) open at 50% occupancy.
Construction at full capacity with continued implementation of protocol.
Hospitals are still being monitored to determine if elective procedure reductions should be ordered regionally.
The out-of-state testing requirement is still in place.
Local governments may still have more strict guidance in place.
Social Restrictions:
Gatherings limits determined using maximum occupancy
Face coverings are required to be worn indoors and outdoors if you are away from your home.
Unnecessary travel should be limited.

Gov. Wolf also noted that the new Department of Health COVID-19 Vaccine Dashboard launched today. The dashboard provides the number of vaccinations administered by county and demographic information about the people being vaccinated.

The data on the dashboard is aggregated from vaccine providers that are reporting information relating to the individuals to whom they administer the COVID-19 vaccine. That information is reported into the Pennsylvania Statewide Immunization Information System (PA-SIIS).

Per the PA press release, currently, 142 hospitals, health systems, Federally Qualified Health Centers, and pharmacies have received COVID-19 vaccine, with 56 facilities expected to receive doses this week. To date, more than 90,000 Pennsylvanians have been vaccinated. Some of these facilities have previously received vaccine, and some are receiving vaccine for the first time.

“The Federal Pharmacy Partnership (FPP) also launched this week with 126 Long-Term Care Facilities across the commonwealth scheduled to receive the Pfizer-BioNTech COVID-19 vaccine, according to information provided by Operation Warp Speed.

Dr. Rachel Levine announced today that she has signed an executive order to ensure vaccine is available to health care providers not affiliated with a health system, federally qualified health center or pharmacy.

“Effective Jan. 6, the order I signed today requires vaccine providers, such as hospitals, federally qualified health centers and pharmacies to designate at least 10 percent of their vaccine shipments for non-affiliated health care providers to ensure there is supply available,” Dr. Levine said. “It also requires vaccine providers to set up a point of contact for these non-affiliated providers to register for vaccination appointments.”

Duane Morris has created a COVID-19 Strategy Team to help organizations plan, respond to and address this fast-moving situation. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Elizabeth Mincer, Sharon Caffrey, or the attorney in the firm with whom you are regularly in contact.

Be well and stay safe. Best wishes for a happy and healthy New Years to you and yours!

December 14, 2020December 14, 2020 by Brad A. Molotsky

HUD – 12-15-20 Webinar on Opportunity Zones 1-3 PM EST – Leveraging Public and Private Resources

Check Out tomorrow’s HUD webinar on OZs – If Opportunity Zones are of interest to you, come and join the White House Opportunity and Revitalization Council and HUD for the third session of “Bolstering Growth in Opportunity Zones: Leveraging Public and Private Resources” focused on establishing policy tools and incentives, partnering with aligned organizations and measuring the impact, tomorrow, Tuesday, December 15, 2020 from 1:00 – 3:00 PM EST.

Registration is still open for Session 3: Develop Your OZ Action Plan to Build or Strengthen Your Local OZ Ecosystem.

Confirmed Speakers:
• Marc Alexander, Vice President, Investment Services, Invest Atlanta
• Stacy Cumberbatch, Managing Director, Blended Impact Labs
• Sherri Francois, Chief Impact Officer, SoLa Impact
• Ajit Mathew George, Founder, Second Chances Farm, LLC
• Dr. Eloisa Klementich, CEcD, President and Chief Executive Officer, Invest Atlanta
• Catherine Lyons, Director of Policy, Economic Innovation Group
• Dr. Leonard Mills, Chief Executive Officer, Verte Opportunity Fund
• Daffney Moore, Chief Opportunity Zone Officer, St. Louis Development Corporation
• Dr. Brien Walton, Chief Executive Officer, Acadia Capital Management, LLC

You must have a HUD Exchange account to register. Follow these instructions for registering.

Duane Morris has an active Opportunity Zone Team to help organizations and individuals plan, respond to, and invest in Opportunity Zones and low income areas throughout the USA, including the US Virgin Islands and Puerto Rico. We have closed over 61 OZ deals since their inception and are actively working on over 38 OZ projects for owner/developers, investors and business owners. We would be happy to discussion your proposed project with you. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Art Momjian, Scott Gluck, Lee Potter, Keli Isaacson Whitlock, AK Kastrinakis, or the attorney in the firm with whom you are regularly in contact.

February 22, 2019January 3, 2020 by Brad A. Molotsky

Leveraging Renewables in Opportunity Zones – Powerful Indeed!

Back on October 19, 2018, the U.S. Treasury Department issued proposed regulations for the federal Opportunity Zone tax incentive program created under the 2017 Tax Cuts and Job Act.

These regulations were highly anticipated by the real estate development and fund creation communities, which have been eagerly awaiting clarity from Treasury since the creation of the Opportunity Zone program earlier this year. We are in the same position now as we await additional guidance from Treasury that is expected in the next two weeks.

The program could become the most impactful federal incentive for equity capital investment in low-income and distressed communities ever. It offers significant capital gains tax benefits for taxpayers who invest in projects and businesses in low-income areas, allowing investors to delay, reduce and potentially eliminate capital gains taxes on appreciated assets or business located in and on Qualified Opportunity Zone investments.

Qualified Opportunity Zones are census tracts located in all 50 states in a low-income community. A detailed interactive map by state identifying the applicable opportunity zones is available, https://eig.org/opportunityzones.

As Forbes magazine indicated, there is likely $6 trillion of capital gains in the U.S. that represent potential available investment capital that could use this program to drive investment into applicable Qualified Opportunity Zone businesses or real estate.

The program is not limited to any specific product type nor does it mandate any job creation requirements as part of the investment in a Qualified Opportunity Zone. Thus, the program is applicable to any type of investor with capital gains from the sale of personal property or real property and to developers/owners of all property types including multi-family rental, retail, hotels, industrial, commercial, office, industries, self-storage, assisted-living, affordable housing, etc.

General Overview:

Under the Opportunity Zone program, individuals and other entities can delay paying federal income tax on capital gains until as late as December 31, 2026 – provided those gains are invested in Qualified Opportunity Funds investing 90 percent of their assets in businesses or tangible property located in a Qualified Opportunity Zone. In addition, the gains on investments in Qualified Opportunity Funds can be federal income tax-free if the investment is held for at least 10 years. These tax benefits could reduce the cost of capital for these projects, making them more viable, especially when paired with other development incentives like the New Markets Tax Credit or Low-Income Housing Tax Credit.

Specifically, appreciation on investments within Qualified Opportunity Funds that are held for at least 10 years are excluded from gross income. Thus, the longer one has an investment within a Qualified Opportunity Fund within an Opportunity Zone, the more one can reduce its capital gain – either by 10 percent or 15 percent, and if one stays in the zone for 10 years or more and the property or qualified business appreciated in value, the appreciation is not subject to capital gains tax at the federal level. The regulations as proposed give the investor/owner until December 31, 2047 to sell the business or property in order to take advantage of the no capital gains to be paid on the sale of appreciated assets rules.

Additionally, owners of low tax basis properties can sell their properties and defer the capital gains to the extent the gains are invested in a Qualified Opportunity Zone, which will likely attract investor capital that is looking to defer capital gains, thereby making the Qualified Opportunity Zones potentially more valuable than non-Qualified Opportunity Zone properties.

In addition, an Opportunity Fund may combine the tax incentives available in Opportunity Zones with other incentives, including those for renewable energy projects.

Renewable energy projects typically are “project financed,” meaning that the project sponsor invests equity and raises debt on a nonrecourse basis where the debt is serviced from the cash flow generated by the renewable energy project. Federal tax incentives such as the investment tax credit (for solar), the production tax credit (for wind), and accelerated depreciation are available to renewable energy projects; however, the project sponsor may need to partner with a tax equity investor in order to take advantage of these incentives because the project company often is a newly created entity with no tax liability of its own. States may also offer tax and other incentives for investing in renewable energy projects, with the most significant being renewable energy certificate (“REC”) programs.

One REC represents one megawatt-hour of electricity generated by a renewable energy resource. In states that have a renewable portfolio standard (“RPS”), electric utilities are required to supply a certain percentage of electricity from renewable energy resources to their customers. If an electric utility is unable to meet its RPS requirement, it may offset the shortfall by purchasing RECs (or, for solar, SRECs) from a secondary market. Even if a renewable energy project is not located in a state with an RPS, it may be able to sell its RECs into a regional market. Thus, renewable energy projects can offer investors significant federal and state incentives.

Thus, having a development project with potentially lower cost equity due to OZ investors receiving the above stated OZ benefits and when combined with the powerful SREC benefits, accelerated depreciation and lower costs of utilities represented by being able to generate your own electricity, all aggregate to present not only an attractive OZ investment opportunity but one that combines incentives for powerful usage and consumption savings which will be reflected in the overall return for the project and which should inure to the benefit of the owner or their occupants.

A powerful gift that keeps on giving in power consumption savings and cost savings and potential upside on sale after ten years. Let the sun shine!

By Brad A. Molotsky and Patrick L. Morand