TRACK 2: OPPORTUNITY ZONES BUSINESSES Combining OZs with

TRACK 2: OPPORTUNITY ZONES BUSINESSES

Combining OZs withTax Credits MODERATOR PANELISTS

Nicolo PinoliNovogradac

Cynthia ParkerBRIDGE Housing

Dionne SavageSavage & Associates Law Group, P.C.

Fred CopemanBoston Financial Investment Management, LP

Merrill HoopengardnerNTCIC

Denver 1930

Denver 1975

Denver 2016

OZ HTC Technical Issues• OZ Property must be acquired by purchase after 12/31/2017

• Impacts basis used for substantial improvement calculation• May eliminate ‘grandfathered’ HTC deals from OZ eligibility• Policy implications for existing building owners who – but for capital –

have been unable to rehab

• Continued uncertainty regarding NNN leases• Does HTC Master Lease structure work?• Valuation for “Substantially All” requirement

• Zero basis requirement – still no guidance• May impair ability to claim the HTC in single entity structure• May require suspension of losses

• Implications of 5-year vacancy rule

Historic Projects & Opportunity

Zones

Denver, CO

Importance of NMTC & HTC

• Ensure “guardrails” to promote preservation and community impact

• Requirements and prerequisites are built into HTCs and NMTCs to ensure investments prioritize preservation, job creation, and other quality community outcomes

• NMTC allows for debt or equity• Attractive financing opportunity for high impact projects

that would likely not have higher returns• i.e. community facilities such as the Swift Factory

• Incorporates mission-oriented intermediaries• Tax credit investors require ongoing compliance• Annual reports to monitor impact benchmarks are met

PRELIMINARY STEPS IN FORMATION OF OPPORTUNITY ZONE FUND

• Formation of an Qualified Opportunity Fund (QOF) as a corporation or partnership under state law

• Structure the QOF to be respected for tax purposes – avoid disregarding entities based on ownership

• Form a general partner or management company to act as the management for the QOF

• Include purpose provisions in the organizational documents of the OZF:

• The purpose of the Partnership is to operate as a “qualified opportunity fund” formed pursuant to Section 1400Z-2(d) and to investment 90% of all Partnership assets into “qualified opportunity zone property”

OPPORTUNITY ZONES AND SECURITIES LAWS INTERSECT

• OZFs are a Security• What is a Security - the term “security” is defined in Section 2(a)(36) of

the Investment Company Act – any note, stock, treasury stock, security future, bond, debenture, evidence of indebtednesss . . . .

• Issuing or offering the QOF’s interest (shares or partnership interest) to purchasers is an offering of a security

OPPORTUNITY ZONES AND SECURITIES LAWS INTERSECT (cont’d)

• Prepare an QOF Business Plan, including timing and prior ownership of real property and tangible business property

• Prepare a Private Placement Memorandum or other document that contains the offering terms of QOF interests

• Draft a Subscription Agreement • Draft an Investment Agreement (Partnership Agreement)

OPPORTUNITY ZONES AND SECURITIES LAWS INTERSECT (cont’d)

• Compliance with exemptions under the Securities Act, State Laws (Blue Sky Laws) and Filings

• Regulation D Offering • CIK Number from SEC• File Form D with SEC• State Law Notice Filings (all states where investors are domiciled – New

York investors seek legal counsel before offering)

Assurances that may be included in a QOF Partnership Agreement:

General Partner shall invest in “qualified opportunity zone business” within the meaning of Code Section 1400Z-2(d) and to assist the Limited Partners in complying with Code Section 1400Z-2, the Treasury Regulations and other guidance issued thereunder with respect to its investment in the Company (collectively, the “Opportunity Zone Requirements”), (y) ensure that the Partnership properly file and provide to the Limited Partners any information that is required to be filed under any regulations or guidance issued with respect to Code Sections 1400Z-1 and 1400Z-2, and (z) assist the Limited Partners with the maximization of the tax benefits available under Code Section 1400Z-2 (the “QOZ Tax Benefits”).

Steps in Formation of Opportunity Zone Fund

Steps in Formation of Opportunity Zone Fund(con’t)


In addition, if it is determined, at any time or from time to time after consultation with the Partnership’s tax advisors, that the Partnership or the Limited Partners fail to comply (or may fail to comply) with any of the Opportunity Zone Requirements or that the Limited Partners would be ineligible to obtain substantially all of the QOZ Tax Benefits, if requested by one or more Limited Partners, the Partners shall act in good faith to take such steps as may be necessary or advisable to comply with the Opportunity Zone Requirements and to enable the Limited Partners to be eligible to obtain substantially all of the QOZ Tax Benefits without creating material adverse consequences for the Partnership or the Partners. Such steps may include, without limitation, restructuring the Partnership’s ownership structure, restricting the types and amounts of assets owned by the Partnership, and amending this Agreement accordingly.


For purposes of this paragraph, the following shall not be deemed “material adverse consequences” to the Partnership or a Partner: (A) its respective costs of assessing, evaluating, processing or otherwise responding to proposed amendments (including the fees and costs of attorneys, accountants and other advisors engaged in connection therewith); and (B) its respective accounting and similar administrative costs. Such steps may include, without limitation, restructuring the Partnership’s ownership structure, restricting the types and amounts of assets owned by the Partnership, and amending this Agreement accordingly. For purposes of this paragraph, the following shall not be deemed “material adverse consequences” to the Partnership or a Partner: (A) its respective costs of assessing, evaluating, processing or otherwise responding to proposed amendments (including the fees and costs of attorneys, accountants and other advisors engaged in connection therewith); and (B) its respective accounting and similar administrative costs.

Steps in Formation of Opportunity Zone Fund(con’t)

• Few combined NMTCs and Opportunity Zone transactions have closed

• Non-qualified financial property restrictions prohibit QOFs to be NMTC leverage lenders to the NMTC Investment Fund

• Economic Substance tax concerns limit the ability to distribute Opportunity Zone equity invested in the QALICB to be used as a leverage source

• Opportunity Zone investments are generally restricted to being used at the QALICB level

SIDE BY SIDENMTCs and Opportunity Zone Incentives

YOUR PRESENTER

• Dionne Savage is the founder and managing partner of the firm. She represents public and private businesses in connection with corporate, securities,real estate and community and economic development matters.

• Ms. Savage has extensive experience advising clients in connection with transactions that utilize and combine various tax credit programs, including NewMarkets Tax Opportunity Zones, Opportunity Zones, Historic Rehabilitation Tax Opportunity Zones, Low-Income Housing Tax Opportunity Zones, RenewableEnergy Tax Opportunity Zones, grant programs and governmental financing, including HUD 108 financing, BEDI Grants, tax increment financing,Commonwealth Financing Authority and Pennsylvania Infrastructure Bank financing. She also advises clients in connection with applying for New MarketTax Credit allocations, forming community development entities and representing clients in all stages of New Markets Tax Credit transactions.

• For over three years, Ms. Savage has acted as the lead attorney in connection with closing over 250 multifamily and health care facility related real estatetransactions as outside closing legal contractor to the Office of General Counsel of the United States Department of Housing and Urban Development. Ms.Savage also advises lenders and developers in connection with FHA insured loan financings.

• Ms. Savage represents banks, thrifts, financial institutions, insurance companies and public and private businesses in connection with securities lawofferings (crowdfunding) & compliance, disclosure rules and regulatory issues affecting capital-raising transactions, acquisitions and complex financings.She advises senior management and boards of directors on corporate governance matters including regulatory compliance.

Dionne SavageManaging [email protected] 215.880.9441CELL 215.514.1901

Cynthia ParkerBRIDGE Housing Corporation

BRIDGE Pipeline of Projects in OZsProject Region Unit Count TDC

16th St NorCal 0 $55,000,000

4840 Mission NorCal 175 $110,841,646

West Oakland NorCal 500 $450,000,000

Fruitvale NorCal 181 $101,000,136

Mayfair Site NorCal 68 $30,825,809

Coronado Springs PNW 100 $31,545,966

RiverPlace Parcel 3 PNW 203 $64,038,311

Comm22 Lofts SoCal 70 $20,760,966

Anaheim SoCal 88 $50,845,881

Jordan Downs H SoCal 80 $43,223,874

Jordan Downs D+E SoCal 200 $88,163,701

Jordan Downs F+G SoCal 200 $88,163,701

Area I SoCal 105 $56,480,690

Total 1,970 $1,190,890,681

Riverplace Parcel 3 Phase 2 – Portland, OR

4840 Mission, San Francisco

MayFair Apartments - El Cerrito, CA

Opportunity Zones Investment• BRIDGE Housing is creating a Qualified Opportunity Zone

Fund (QOF) to take advantage of the capital being invested in designated Opportunity Zones (OZ)

• Through the use of OZ equity, we have found that we can accelerate time to build, create cost efficiencies, try out innovative construction methods and provide critical services funding

• We are focusing the first tranche of this fund to a large redevelopment project in Watts, Jordan Downs

The Jordan Downs Accelerator

Through the JD Accelerator Fund, BRIDGE will:

• Accelerate the delivery of housing units – cutting time to complete by at least 27%;

• Transition all phases to 4% tax credit projects vs relying on competitive 9% tax credits;

• Utilize innovative new construction technology that is anticipated to cut overall development budget by 10-15%;

Jordan Downs Site Plan

Phase I rendering

Impact Tracking

Individual Level•Number of people served•Number of jobs created•Increased household income due to affordable housing

Project Level•Number of units created•Number of community serving spaces developed (clinics, healthy food grocers, community centers,

etc.)

Community Level – Neighborhood Environmental Assessment (NEA) every 2 years

Cynthia ParkerBRIDGE Housing Corporation

Fred CopemanBoston Financial

BFIM Overview

• Oldest active syndicator of affordable housing• $11 billion Equity Raised Since Inception• $7.3 billion Total Equity Under Management • Superior investment performance track record• First syndication firm to offer a LIHTC/Opportunity Zone

Investment Fund

Combining Opportunity Zones & Housing Credits

• Most “Ozone” projects will involve market-rate real estate projects and operating businesses of various types

• LIHTC projects are a natural fit for Ozone development because they require a 15 year holding period & tend to be located in low-income communities

• Twenty-five to thirty percent of the 200 or so LIHTC projects in our acquisition “pipeline” are located in opportunity zones

• LIHTC projects will not provide the same hoped-for “residual tax-free pop” that market rate projects may generate. However LIHTC/Ozone properties will provide some premium over the yield in conventional housing credit deals because they will defer and reduce the investor’s capital gains tax liability

Challenges: Finding Equity

• The principal source of capital for Opportunity Zone projects is expected to come from high income, high net worth individuals working through family offices and investment advisors. Since individuals cannot (with rare exceptions) use housing credits efficiently this investment is a poor fit for individuals

• The largest source of LIHTC equity is from commercial banks. Banks, however, are not permitted to own equities, so they rarely have capital gains. Selling old LIHTC p/s interests with large negative capital accounts may be an option.

• The best option for LIHTC/Ozone investment seems to be life insurance companies. However, since these companies present their own challenges most LIHTC projects located in opportunity zones will not ultimately generate ozone tax benefits (except, perhaps, for their developers)

Ozone Capital Sources vs. LIHTC Equity Sources

1/ High income, high net worth individuals investing thru family offices or investment advisors2/ Institutional investors3/ “C” corporations

1/ The top 50 U.S. commercial banks subject to CRA regulation2/ Life insurance companies

Challenges: Finding Equity

• Like most corporate investors, life companies do not like leverage in excess of 35-40% and they are focused on keeping the price for housing credits below $1/$1

• Life companies are insisting on retaining the bulk of the ozone pricing benefit because OZ benefits are not transferrable

• The equity market is constrained by uncertainty about the tax rules, especially vis-à-vis 2026 taxation

What does the ideal Ozone project look like?

• Experienced, financially strong sponsor• Hard debt below 40%• A project that combines housing and historic credits• Either a low “crime score” or a well conceived mitigation plan• Limited reliance on market-rate and workforce housing units• New construction or existing projects with substantial

rehabilitation

CONTACTS

Fred Copeman Roy Faerber Catalina “Cat” VielmaEVP, Production EVP, Production VP, ProductionBoston Financial Boston Financial Boston FinancialInvestment Management Investment Management Investment Management101 Arch Street 8721 Sunset Boulevard, PH1 10599 E 25th DriveBoston, MA 02110 Los Angeles, CA 90069 Aurora, CO 80010(617) 488-3209 (310) 860-4550 (617) [email protected] [email protected] [email protected]

mailto:[email protected]



TRACK 2: OPPORTUNITY ZONES BUSINESSES

Combining OZs withTax Credits MODERATOR PANELISTS

Nicolo PinoliNovogradac

Cynthia ParkerBRIDGE Housing


Fred CopemanBoston Financial Investment Management, LP


TRACK 2: OPPORTUNITY ZONES BUSINESSES Combining OZs with

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