John Pantekidis, CIO and general counsel for multi-family office TwinFocus, recently contributed an article to Forbes explaining why Qualified Opportunity Zone investments could be considered a “once-in-a-lifetime” program for high net worth individuals (HNWIs) and ultra high net worth (UHNW) families.
Pantekidis makes several interesting points in his article about unknowns, including:
- In some cases, other TCJA provisions could create certain tax inefficiencies that would not otherwise exist with partnership investments.
- Depending on projected real estate IRRs over different time periods, an investment period of less than 10 years may still be preferable in some situations, despite the loss of tax benefits.
- We still do not know whether the 10-year holding period requirement is satisfied if the partnership flips the underlying investment within the period, or whether the holding period applies only at the individual partner level, i.e., when a partner sells his interests in an qualified opportunity fund.
- We also still do not know whether we are allowed to distribute free cash flows from rental income to partners or use them to refinance the partnership after development and distribute out part of the equity to investors.
He also points to what he calls a “hidden gem” of the program, in terms of how it can help hedge fund managers deal with the short term gains they will be reporting on their K-1 schedules due to the TCJA’s new carried interest rules:
An investment in a Qualified Opportunity Fund may be just what the doctor ordered. While Trump’s landslide tax legislation took from one hand, it may give back much more to the other. […]
Think about it – hedge fund managers sponsoring Qualified Opportunity Funds can defer their carried interests to realize even more carried interests. Talk about luck.