Eight Key Issues for Potential Opportunity Zone Investors

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By Paul S. Rutter and Peter Swain

Wealthy investors often want to diversify their holdings by putting money into real estate developments with an experienced developer as the general partner.  On April 17, 2019 the IRS issued proposed regulations on the Opportunity Zone tax incentive created by the Tax Cuts and Jobs Act of December 2017.  There are estimates of over $20 billion of capital ready to be invested in Opportunity Zone Funds with investors eager to roll their gains on stocks into real estate and reap the benefits of the new federal tax incentives. 

However, smart investors need to understand the pros and cons of investing in a real estate development venture, as compared to a public or non-traded REIT, a private equity fund or direct ownership. There are certain key issues that such an investor should consider in the venture agreement with a general partner.

For purposes of this article, the investor will be the Limited Partner (LP) and the developer will be the general partner (GP) in a joint venture (JV), although in many cases the GP is really the managing member of a limited liability company (LLC) and the LP is the non-managing member of the LLC.

In a JV, the LP has a direct legal and business relationship with the GP who is usually the developer and operator of the real estate.  In the JV structure, as compared to REITs or fund investments, a problem at either the property level or the JV level can become the LP’s problem.  To navigate the potential issues, the LP needs to understand the legal and business parameters of a real estate JV.

Here are some suggestions for the LP in negotiating the JV agreement


Paul S. Rutter and Peter Swain are partners in the Real Estate Finance practice group at Cozen O’Connor.

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