Tag Archives: Brad A. Molotsky

Opportunity Zones – Government Shut Down Stalls US Treasury Clarifications

Putting aside partisan points of view on the wall and whether a government shut down to get a wall paid for is a good idea, the shut down is already impacting US Treasury’s ability to finalize new regulations to clarify certain aspects of the Opportunity Zone program.

Comment letters have been sent in by various trade association and OZ groups my team and I are involved with to the IRS and Treasury but, unfortunately, the clarity we are looking for will need to wait until the shutdown has been resolved plus two weeks thereafter (at least) per a notice posted in the Federal Register. Open issues that the Real Estate Roundtable, Novogradac’s OZ team and others are seeking include the following:
◾Defining original use and substantial improvements
◾Two tiered structures and the “working capital” impact – 31 months
◾How vacant land might qualify as “original use” property
◾Clarifying how and when the 180 day rule applies to certain pass through entities
◾Clarifying how Section 1231 gains of pass through entities are eligible for deferral
◾Seeking a removal of the fixed end of 2047 for sale purposes to qualify for a stepped up basis
◾Clarification regarding the methodology for applying the 90% and 70% asset tests
◾Requesting limitations on non compliance penalties to the portion of the aggregate assets of a QOF that are funded with gains for which a deferral election has been made
◾Definition of “substantially all” – keeping the definition at 70% and generally requiring real property businesses to hold 90% of tangible property inside a QOZ
◾Clarifying if property that straddles a QOZ can treat the improvements as being all within the QOZ
◾Clarifying the requirement that a substantial portion of the intangible property of a QOZB be used in the “active conduct of a trade or business” in the QOZ
◾Clarifying the timing of capital gains and dividend treatment for REITs

While our clients are still closing deals and effectively using the OZ program to defer, reduce and ultimately, hopefully, create a capital gain free sale after 10-years at the federal level, additional clarity would, in fact, be nice.

Border security for sure, but let’s get these rules clarified now so we can spur investment where its needed without the histrionics and the child like tantrums.

See attached Novogradac letter to US Treasury for more details – https://www.novoco.com/system/files/group/Opportunity%20Zones%20Working%20Group/novogradac_wg_comment_letter_proposed_regs_122818.pdf

Looking into the 2019 Crystal Ball – Opportunities (and Zones) Abound

As 2019’s first full week moves towards a close (well, so what if we are working tomorrow or Sunday :)), wishing all fellow P3, public-private partnership and Opportunity Zone participants and those delving into the area, a Happy and a Healthy New Years.

2019 looks to be a busy year in the #OpportunityZone space. With one of the key benefits of the federal program (i.e., a 7-year investment time period with related 15% reduction in invested capital gains) expiring at the end of this coming year, many clients and prospects are extremely focused on deploying capital gains capital into this space in 2019.

My prediction is that if 2019 is anything like the number of calls and conversations and meetings we have been hosting and fielding in the 4th quarter of 2018, it will be a very robust, active and busy year in the OZ space. Having closing multiple deals in the 4th quarter for family office owners, developers and having many on-going conversations regarding Qualified Opportunity Zone businesses and funds, I am very excited for 2019 and all it will bring.

Have a fabulous January and I look forward to speaking with you about OZs and P3s in 2019!

-Brad A. Molotsky

ESG – Is anybody listening, does anybody care – YES indeed!

Who Cares About ESG?

Before we answer the question “Who cares about ESG?” I think we should first define it. The acronym itself stands for environmental, social and governance factors that apply to a business or enterprise. According to Investopedia, E-S and G are the three main factors investors consider with regard to a firm’s ethical impact and sustainable practices. The site gives some examples that fall under each of the broad headings, including “the company’s impact on climate change or carbon emissions, water use or conservation efforts, anti-corruption policies, board member diversity, human rights efforts and community development.”

ESG and sustainability are often used interchangeably (even though they are not) because the investor community tends to refer to ESG whereas companies tend to refer to these criteria under the umbrella of sustainability. Regardless, Nasdaq reports that both terms refer to the ESG factors that “can impact a company’s ability to execute its business strategy and create value.”

So, who cares about ESG? Certainly member states of the U.N. who signed on to the organization’s Sustainable Development Goals (SDGs) are monitoring, measuring and verifying these criteria. And, moving from the perspective of the nation state to an enterprise, more than 12,000 have pledged to support the 17 SDGs of the 2030 Agenda for Sustainable Development. Drilling down to the individual level, Thomson Reuters notes that we’re in the midst of the “the largest inter-generational transfer of wealth ever seen, with some US $24 Trillion expected to be under the control of the millennial population by 2020.” Yes, by next year. And, just as millenials value purpose in their work, they also choose investments that reflect their values.

At Duane Morris, we strive to serve our clients as trusted business partners so we can deliver them exceptional value. Throughout the year, starting later this month, we will be convening business leaders to take a deeper dive into various ESG topics that are affecting their companies and creating opportunities for investors and venture partners. In addition to this blog, we will also be hosting a webinar series and will seek to create additional content as ESG-related issues arise through new legislation and regulatory mandates.

With so much of the world’s attention on the impact we’re having on our collective environment and in our communities, and with so much of the world’s wealth at stake, perhaps the real question is not who cares about ESG, but, rather who isn’t concerned about ESG?

#ESG #sustainability #GRESB #SDG #SASB #GRI

ESG – Relevant in this day and age or just a fad?

I had the pleasure of attending the National Association of Corporate Directors (NACD) – Philadelphia Chapter meeting yesterday morning at the Union League in Philadelphia.  Very good attendance to hear Dave Stangis (Campbell’s Soup), Jamie Rantanen (US Trust) and Jennifer Wong (Glenmede) discuss the topic of ESG (“Environmental, Social and Governance”) as it relates to public company and private company investment.

ESG provides companies and investors with a systematic means to identify risk within the lens of environmental issues, social issues and governance issues.  Different, but related to, Corporate Social Responsibility (“CSR”) which is the means of improving social outcomes within an organization and how and organization measures its ESG outcomes.

Super conversation and some interesting questions from the audience during the presentation that touched on aligning values with investment outcomes (i.e., impact investing), risk mitigation through focus on ESG, the Sustainable Development Goals (or SDGs), the increase of shareholder activism in the investment space, including an increased focus on ESG issues, the Sustainable Accounting Standards Board (or SASB) and their focus on measurable sustainability metrics, and the difference between philanthropy, impact investing, ESG investing and standard market investing.

To the question about ESG and is it relevant from the audience member focused on mutual fund investing – the panel and this author firmly believe yes, ESG is relevant, becoming more relevant and an increasing amount of investors are seeking to invest in companies that align their ROI with ESG.  No, not everyone, of course, but more and more as time goes on.  I for one believe ESG will continue to become more relevant as a lens within which to view investing, efficiency, and alignment of investor interests with companies that more closely match their values.

I look forward to engaging in the conversation as the year progresses and to including some of my friends and colleagues in a monthly chat on ESG. Come join us if of interest.

Check out RBS’s chart at http://go.pardot.com/l/441592/2018-09-18/jjjrt8 for some interesting data

See also, Larry Fink, CEO of Blackrock’s statement on ESG – https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pdf

#Sustainability #ESG #SRI #impactinvesting #governance #SASB #environmental, social, governance