The Recession’s Impact On The OZ Marketplace, With Brett Siglin

The economic recession of this year has had impacts across the broad financial markets, including real estate transactions, impacting Opportunity Zone investors.

Brett Siglin, partner at Jennings Strouss, joins the show to discuss the impact of the recession on the Opportunity Zones marketplace, and what he expects for 2023.

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Episode Highlights

  • Key takeaways from the Opportunity Zones legislative update at the OZ Expo in Phoenix.
  • How accounting and tax filing mistakes (Forms 8996 and 8997) may have a negative impact on the OZ industry.
  • Why allowing for “fund of funds” investment would improve the Opportunity Zones policy, and increase transaction volume.
  • How recessionary trends such as low consumer sentiment and high inflation are impacting the Opportunity Zone marketplace (whether we’re technically in a recession or not).
  • How the low interest rate environment of the last decade-plus has created the economy we know today, and how that is starting to rapidly change.
  • The impact that rising interest rates are already having on OZ deals, and how further increases in 2023 may impact construction deals.
  • Some examples of good and bad Opportunity Zone deals.
  • Ideas for getting more investors involved in Opportunity Zones.
  • Examples of impactful projects, and why producing impact and great returns need not be mutually exclusive.

Today’s Guests: Brett Siglin, Jennings Strouss

Brett Siglin on the Opportunity Zones Podcast

About The Opportunity Zones Podcast

Hosted by founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

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Show Transcript

Jimmy: Welcome to the Opportunity Zones Podcast. I’m Jimmy Atkinson. And joining the show today is Brett Siglin, a real estate capital markets business attorney at Jennings Strouss. He joins us today from Phoenix, Arizona. Brett, great to see you. Welcome to the show.

Brett: Great to see you too, Jimmy. And I’m so glad to be a part of this today.

Jimmy: Fantastic. Great to hear that. Brett, you and I interacted at the OZ Expo in Phoenix, just a couple blocks from your office, back in early October. You and I both served on the legislative panel, the first morning panel at that OZ Expo, along with Reed Thomas from JTC Americas, Shay Hawkins from The Opportunity Funds Association, and formerly out of Senator Tim Scott’s office was also on the panel, and, of course, Dan Kowalski, formerly with the Treasury Department. And he was the one who essentially wrote the regulations for opportunity zones. What were some of your key takeaways from the legislative panel at that event that you and I served on, Brett?

Brett: Yeah, well, I think one of the first takeaways was I don’t think anybody knows whether or when… Well, certainly, I think, you know, the legislation will pass, but we don’t know necessarily when. So it could be in the next month or two or it could creep into next year. And that was kind of an interesting takeaway. I think, either way, you know, everyone agreed that, you know, this is a necessary pending change. You know, the four or five things that came up, obviously, whether or not to introduce more reporting requirements, that was something that I found really interesting. And we talked, you know, at length about whether and how that will impact sponsors and others out there. You know, I think one of the takeaways is that, you know, it’s probably going to, you know, affect smaller funds, smaller sponsors maybe more than others. I think some of the larger funds out there are probably kind of ready for those reporting requirements to be enacted.

Jimmy: And a lot of them are already collecting a lot of the reporting data that they’re expecting they may need in 2023 and beyond. Right?

Brett: Yeah, agreed. And I think, you know, it’s interesting, you know, at the outset of this five years ago, everybody expected there to be, you know, reporting requirements. And I think just because of, you know, the nature of the legislation was passed on the Tax Cuts and Jobs Act in 2017, you know, there was a cost to imposing reporting requirements. So that was dropped. But, you know, I think everybody’s kind of geared and ready for that. One of the other takeaways, though, for me, though, I think is, you know, there’s already been a lot of mistakes made, if you will, in the industry, just to know in the first few years. And I don’t know that this has gotten that much publicity yet. But we’ve had, you know, three years of practice now. And there’s been, you know, a lot of mistakes, sort of, you know, with the 8609 filings and…sorry, the 8996 filings, and then, you know, also the investor filings on their tax returns. And we’ve seen, you know, the IRS come back and issue letters to fund sponsors that, you know, they had made mistakes on their 8996 filings.

And there’s been several 100 of those this year. And my concern is that going forward, you know, as we see more and more tax returns from, say, the 2021 tax year, compared to 2019, 2020, there was exponentially more activity, there’s probably more people out there making mistakes on those forums or maybe their accountants were making mistakes. And I’m concerned about what that does to the industry and then, you know, sort of the uptick in an audit at the IRS. And so, you know, one of the things that this pending legislation does is it not only reinstates those reporting requirements, but it also imposes pretty strict penalties for failure to report. So I think that’s something that a lot of folks in the industry, especially smaller funds that maybe haven’t, you know, hired, you know, the most, you know, experienced accountants are gonna need to be really mindful of in the coming years.

Jimmy: Yeah, absolutely. That conversation reminds me of a podcast interview that I did with Kirk Walton a few weeks ago. We talked about some of the filing issues where QOZBs were filing Form 8996 erroneously and then you got into a situation where the IRS considers that some QOF investments were made into other QOFs. It created kind of a whole mess there, and I don’t know if there has been a clear way to unwind from that yet. But anyways, I’ll make sure I link to that episode in the show notes for today’s episode if anybody wants to go down that rabbit hole a little bit further, but certainly a lot of speculation regarding the legislation. I think, by and large, the industry wants this legislation to pass. The industry is ready for additional reporting and transparency requirements. We consider it a good thing on the whole.

And we’re certainly looking forward to having the provision, the Opportunity Zone Tax policy extended for an additional two years, reopening up some of the five and seven year or I guess now it’s gonna be a six-year window for the 10% and 15% basis step up. So if you don’t know what I’m talking about, this going over your head. I’ve got a recap of the legislation. I’ll be sure to link to that on the show notes page for today’s episode as well, you can find those at When it passes, I think, is a matter of speculation. I’m still expecting it to pass. I’ve been on the record since April, telling people I think it’s gonna pass before the end of this year. Sometime in December after the election, but before the end of the year, probably as part of a larger tax extenders bill. There was one panelist who was a little bit more pessimistic about that view. And he thinks, you know, it likely might undergo some more changes, and maybe it’ll eventually get passed in 2023. Hopefully, it passes one way or another sooner or later. But I didn’t wanna belabor the talking points on the legislation too much longer. I wanted to talk about macroeconomic trends, but I don’t know if you had any final words about the legislation before we move along.

Brett: Yeah, sure. I mean, I think, you know, just to kind of add to what you were saying, Jimmy, you know, I think ideally, it would pass at the end of the year. You know, I think we’ve seen a lot of you know, fourth quarter activity the last three years. I think it would really help to foster activity at the end of 2022, especially if there is that, you know, 15% step-up available for investors this year. That was a huge windfall for folks the last few years. And then, you know, I guess, you know, the fund-to-fund concept is another one that I think would really help the industry. You know, I know there’s a lot of opportunity funds out there that would love to, you know, invest in smaller funds. And there’s also, you know, smaller funds out there that, you know, may struggle to find deals. They’ve set things up, but, you know, if they could, you know, be involved in a larger fund, I think that’ll help only increase activity.

Jimmy: Oh, yeah, absolutely. Yeah, I can appreciate if you are a smaller fund, maybe you’ve got $1 million or less than that even in gain that you rolled over into your own Qualified Opportunity Fund. Now, you’re kind of running up against your deadlines for finding projects to invest in, it might be easier if you could just simply stroke a check to a different fund and have your QOF invest directly in another QOF. That would certainly simplify that for those types of individuals and would help, at the end of the day, drive more capital investment into these opportunity zones.

Brett: Yeah, no doubt. I mean, it’s a rather artificial impediment that was instituted at the outset. And, you know, I think the good news about this too, Jimmy, is that this is bipartisan, bicameral. You know, I’d venture to say that this incentive has been from the outset, so I think it’s one more reason why, you know, both sides are working together to try to make this work. And I think going into a recession, that’s gonna be even more important that we wanna continue to encourage folks to go out there and do deals.

Jimmy: Yeah, well, let’s talk about that recession. When you and I were speaking at the OZ Expo a few weeks back, we were talking about a future podcast episode we could do, which we’re recording today now, finally, Brett. And one of the topics that you wanted to touch on was the recession’s impact on opportunity zones. It looks like we were in a recession. It kind of would depend on who you ask. I don’t think that NBER officially ever stated that we were in a recession for the second half of this year, even though we did experience GDP declines in both Q1 and Q2. Very coincidentally, though, just this morning, the Commerce Department came out with their most recent GDP figures and it actually surprised me how good they were. They showed a 2.6% annual growth rate in the third quarter which reversed those declines in Q1 and Q2. So, we did experience two consecutive quarters of GDP decline, which is the technical definition of a recession, depending on who you asked.

I think we were in a recession it looked like, although there were some conflicting economic data, like, strong job market that could run counter to that. But in any case, if we experienced GDP growth in Q3, technically we’re out of a recession as of today, I believe. But that said, I think maybe a recession is on the horizon, consumer sentiment is still very low, inflation is running very high despite a strong job market, though. That said, if we are in a recession or heading toward a recession, what would a recession’s impact be on the opportunity zone marketplace in your mind?

Brett: Yeah, well, I mean, it’s a fascinating topic, whether or not we’re in a recession, whether we’ve been in recession, whether we’ll be in a recession, but I think what’s clear is there are recessionary trends happening and they’re already affecting fund sponsors, fund investors, developers, and pretty much everyone in the industry. You know, I think it’s safe to say that, you know, the last three or four years, the vast majority of the projects that are getting done are real estate projects, you know, for better or for worse. And there’s been, you know, quite a lot of activity, of course, in the multifamily and industrial sectors. And, you know, I think even before we were in a recession, the inflationary trends were happening with the supply chain shortages, you know, coming out of COVID, you know, with the long delays of materials, sitting, you know, dockside, on the West Coast last year. You know, we’ve been seeing the effects of that. Over the last year, I had a lot of deals, you know, that the cost of lumber more than quadrupled at one point. You know, we’re seeing the cost of other materials, you know, concrete, windows, appliances, just about everything, steel has been affected by that over the last year. And that’s costing sponsors, and developers, and their underlying investors.

Jimmy: And not just materials cost, but labor costs too, right?

Brett: No doubt about that. Yeah. And there’s been a labor shortage. So it really has less to do with the recession, than it does with just sort of larger trends that are outside of our control and how that’s impacting deals. And, you know, I think there’s no doubt, you know, inflation has become a major issue for the first time maybe in, you know, our adult lives, Jimmy. I mean, I haven’t thought about inflation since I was in grade school in the 80s. And I think we’re seeing for the first time what life might look like when interest rates creep up. I mean, we’ve been living in this world, maybe artificially, for 10-plus years with these really low, advantageous interest rates, and it’s created this entire economy if you will. So what I’m seeing, you know, working with clients, talking with people is that they’ve gotta get a lot more creative than they did even just a few months ago, finding…construction debt is becoming increasingly difficult.

The amount of leverage that can be brought into a deal is significantly less than it was a year ago. I mean, we were seeing deals 70%, 75% leveraged, and now I’m hearing, you know, 50 to 55, might be, you know, more realistic, at least during the construction term. And, of course, you’re probably more familiar with, you know, where rates are and where rates are going. But, you know, my concern, too, is that I think it’s pretty much a foregone conclusion that the Fed is gonna continue to increase rates, at least one or two more times.

Jimmy: Yeah. Yeah, they’ve already raised rates quite a bit. I think it’s been three consecutive meetings that they’ve raised rates by 75 basis points. They have another meeting coming up soon, and that may lead to another 75-basis-point increase this episode will probably air after that meeting, actually, I’m realizing now. But they have really put a lot of upward pressure on rates by raising the federal rate quite dramatically in a very short period of time. So we’ve now got… If you put a pro forma together for an opportunity zone deal in 2020 or 2021, maybe you were expecting to get a construction loan at, you know, a low rate and now, suddenly, it’s much higher, maybe it’s creeping up to 6% or more. And if you were planning on doing a permanent debt refinancing after the asset is stabilized and you were expecting a 3% or 4% rate, that’s suddenly no longer the case. What impact does that have on deals or what impact has that already had on deals, these rate increases? And also, Brett, what will further increases do to 2023 new construction deals in your view?

Brett: Yeah, I guess, you know, in my experience and my exposure to that is that it’s making it a lot harder to get deals done already. And you’re right, a year ago, you could probably get a construction loan at 3% or 3.5% and now you’re looking at 6 or more. You know, what happens when the Fed raises the rates two more times? You know, we’re looking at potentially 8% rates in 2023. My fear is that deals just won’t get done. It’s almost impossible to pencil a deal, you know, in this current program, you know, with the way deals are modeled. I think what it does is it puts a lot of pressure on sponsors to go out and raise money. You’ve gotta be less leveraged and then you’re gonna have to bring in more investors or bring in bigger investors. But that’s gonna cost you too. And I think… You know, so you sort of have to struggle with, well, what happens to yields and how do you attract investors when you’re under-leveraged, so to speak?

I think that’s gonna be, you know, the challenge going into 2023. I don’t know how it affects institutional money. I guess I’m hopeful that we’ll continue to see more and more high net-worth individuals, you know, come into this place, this space, and play. You know, ideally, you know, there’s still gonna be a wave of investors here, you know, at the end of this quarter, as there has been for the last several years. You know, we always see an uptick in fourth-quarter activity. You know, I get the sense that there’s been somewhat of a stock sell-off over the summer. So you’ve got 180 days from the time that, you know, those people were selling assets to potentially invest in a new QOF. And then, you know, maybe there’s more people out there that sold real estate or businesses, you know, maybe people in the 1031 space that just are having a hard time finding replacement properties, maybe we see more of them, too, coming to play in this space, you know.

So I guess, you know, the bright side is that this incentive has continued to attract more and more equity. I think, you know, you’re well aware of the numbers that Novogratac keeps. And, you know, the trends have continued to improve each quarter, the number of dollars invested in these funds. And, you know, I’m hopeful with maybe, you know, the proposed legislation passing and, you know, other incentives, especially that 15% step up. You know, that might attract more and more people into the space that, you know, maybe helps us carry through this 6 to 12-month dip, whatever you wanna call it if it’s a recession or just reaction to inflation.

Jimmy: Yeah, yeah, the marketplace had some… And I guess, actually, just, in general, the real estate market, equities markets had tailwinds at their backs for the last decade or more, really. And now we’re experiencing headwinds here.

Opportunity zones are becoming I guess, more and more prevalent in the minds of investors. Every day that goes by, more and more investors and advisors become more familiar and aware of the program. But there are some headwinds that we’re facing now with these macroeconomic conditions and the stock market drawdown as you mentioned. Just to put a little bow on this and talk about Novogratacs numbers for a moment, they came out with their Q3 numbers just about a week or so ago, from when we’re recording this episode. Their Q2 to Q3 actually was was roughly flat, I guess, maybe slightly up, maybe slightly down depending on if you’re calculating on aggregate or on a per-fund basis. But Q3, year over year, from the same period and the previous year was actually down slightly, I don’t know if that’s too alarming.

On the one hand, you know, there is a lot more uncertainty in the market than there was a year ago. And I do think you’re absolutely correct, Q4 is always the strongest quarter for opportunity zone investment. It has been since the first numbers started coming in 2019. I’m expecting that we’ll have a strong Q4, particularly if…I think you’re right about section 1031 exchanges. There are just fewer transactions happening, transaction volume for real estate has declined quite a bit this year with interest rates rising and it just being harder to get a deal done. So, I hope a lot of that money finds a new home in opportunity zones. And I don’t know if we’re gonna see equities investors, stock market investors come in more or not. I guess we’ll find out over the next several weeks and months here, but I can kind of buy into that idea that maybe there was a big sell-off in the summer. And I guess 180 days is coming up pretty quick for some of those investors. So…

Brett: Yeah, it’s a bit speculative. But, you know, I guess the other thing that maybe is encouraging is I think there’s more and more people out there that are tired of the 60/40 balance stocks to bonds. And, you know, it’s been historically difficult, you know, even for high net worth people maybe to find a real estate fund that they can invest in and trust and really understand, you know, it’s a different model. But I’m hearing more and more that, you know, maybe that 60/40 approach is sort of going by the wayside, and that there might be some more room for every day, you know, high net worth folks to say, “Look, maybe we should park 10% to 20% of our investments into a real estate fund or a Qualified Opportunity Fund.

Jimmy: Yeah. So now you’re speaking my language. And we talk about this concept a lot on my other podcast, the ”Alternative Investment Podcast” at our sister site,, which covers the alternative asset classes more broadly than just OZs. And, you know, one of the stories we’ve been hearing this year, and retelling this year has been that shift from 60/40 to more of a 50/30/20 model, 50 stocks, 30 bonds, and then 20 in alternative assets like non-liquid real estate, like non-liquid opportunity zone funds. And by the way, I say the 50/30/20 with a bit of a grain of salt, those numbers are meant more conceptually than as precise asset allocations. You need to talk with your own financial advisor to determine what the best asset allocation is for you. But conceptually, I think that there’s a trend there where a lot more investors and advisors in the retail, non-institutional sector are considering alternative asset plays a lot more. And I think opportunity zones help incentivize that trend and accelerates that trend quite a bit.

And I’ll actually just speak personally as an LP myself, I’ve done just that I have shifted out of a 60/40 style portfolio and have invested into some opportunity zone funds and some other illiquid alternative assets myself over the past 18 to 24 months as I saw the stock market hitting new highs and thought I was a little bit overexposed to stocks. I took some chips off the table and rebalanced my asset allocation a little bit there. So, Brett, I did wanna move on and shift gears a little bit. And I know you…

Brett: And before you do, Jimmy.

Jimmy: Yeah, go ahead, Brett. Some final thoughts there. Sure.

Brett: I wouldn’t mind just throwing a bone to you and your team too because I think opportunity DB and OZworks Group has really done a great job of getting this message out to, you know, folks that might otherwise be on the sidelines, that wouldn’t otherwise be inclined to invest in a real estate fund, and certainly not a Qualified Opportunity Fund. I mean, it’s sort of, you know, an old-boys network still out there. But I think you and your folks have done a great job of getting the message out to more of the masses. And I hope that helps to continue to attract more and more investors to this space.

Jimmy: No, sure. Yeah. One of our missions is to help democratize access to these types of asset classes or investment instruments, what have you, that typically have been only institutional. I think more and more access to these types of investments, real estate funds, or other types of alternative asset classes are becoming more for the mass affluent or for high net worth accredited investors, more of the retail segment of the investor world for sure. And, you know, we’re happy to be doing what we’re doing to try to get that message out and try to further democratize access to these types of investment products. And, you know, a lot of kudos goes to the fund sponsors out there as well for setting up these deals such that they are accessible by that type of investor.

So, let’s move along now to talk about…you wanted to talk about, Brett, specific examples of good opportunity zone deals and bad opportunity zone deals. I don’t know if I’ve heard…we didn’t prep for this too much, I didn’t hear any of the good or the bad. So maybe it’s the good, the bad, and the ugly. I’m not sure what you’re gonna give us here. But walk us through, in this next segment here, what you consider to be characteristic of a good deal or a bad deal.

Brett: Yeah, I would say, you know… And, again, I’ve played mostly in the real estate sector over the last three or four years, since the incentive was instituted. And I would say that the best deals, the best clients that I work for, are the ones that have a project in mind or have a group of projects in mind, they’ve got a plan, they know exactly where they’re going with the money, they’ve studied the market, and they have a product or an asset class that’s really gonna take off. They’ve done market studies and they time it well. So, there’s certainly luck and timing, but there’s also…you know, just finding a really good site is a huge part of this. And one of the challenges, I think, really from the outset, has been even though there’s 8,700 plus opportunity zones out there, very few of them have actually seen investment.

And it’s unfortunate, really, because, of course, the whole idea of the incentive is to encourage investment, and development, and expansion of low-income communities. But the fact is that money chases the best deals and the best sites. And so, it’s been extremely competitive to find good opportunity zone sites. And I think it gets harder and harder each year. And so, you know, the good ones were the ones that really did the research or maybe got lucky early on, maybe they even had a site that was already in a zone that was in their pipeline and it just sort of…they just got lucky, it was icing on the cake for what was already going to pencil out as a good underwritten deal.

And on the flip side, I think the bad deals are the ones, you know, their sponsors… I’ve seen a lot of groups that just sort of come together, maybe they haven’t, you know, they’ve all done great things, you know, throughout their careers, but they haven’t necessarily been on a team together. They come together, they’ve got all these great ideas, pie in the sky kind of approach, but they don’t really know what they’re doing. And I’ve seen, you know, a handful of those, where they have great intentions, they know what they wanna do, but they haven’t really pinned down a site. And they sort of take that for granted that there’s gonna be a good site and that their model is gonna work. But the blind pool approach doesn’t seem to be terribly effective, frankly. You know, most of the successful clients that I’ve worked with have either done single-asset funds or they’ve had, you know, a fund with two or three or no more than four deals in the pipeline. But they have a really good idea of exactly what they’re gonna do.

I can say one class that’s really knocking it out of the park has been, you know, student housing, you know, especially student housing on a campus that’s in an opportunity zone. And if you’ve got an experienced developer that’s sort of been in that class and understands that market and has the relationships on the ground, you know, which contractors to work with, which subs to work with, you know, how to get things done at the city or county level, and then execute, and build, you know, a project in, you know, under 16 to 18 months, and then be ready to launch when the new class comes in, in the fall. And what a great way to stabilize in less than two months. You know, I’ve built this project, it’s brand new, you know, all the rich kids on campus wanna live there. It may not be exactly what the framers had in mind, but it’s been a phenomenal model for investors and sponsors out there.

And I think, in general, you know, good multifamily deals have just killed it. And, you know, I think there’s a lot of really good multifamily developers out there that understand where they need to be. You know, we hear about the smile of the United States, you know, starting from the Carolinas down through Georgia, Florida, you know, up through Texas, and then into the Southwest and then up the Coast. And, you know, that’s where we’re seeing the most successful deals. I think everybody’s chasing a lot of the same sites in that region. And, unfortunately, you know, I think that the other area that I’ve seen this project struggle has just been in rural areas. It’s been harder for sponsors outside of the major metros to attract capital. I think that’s always been the case. But, yeah, I’ve noticed that the groups that have a local network of people that sort of buy into their product or buy into their business model, if they’re gonna succeed, you know, it’s gonna be a smaller-knit group.

But if I’m out, you know, on the rez, so to speak, you know, sort of far from a metro, and I don’t have a good network of potential, you know, investors to tap into, it’s gonna be really difficult to not only raise money but to get good leverage.

Jimmy: Sure. And that makes sense. I mean, those are just kind of larger problems that the opportunity zone policy incentive can’t fix all by itself, right? Why don’t we kind of hone in on one thing you said about opportunity zone funding going to housing for rich college kids? I wanted to just kind of point out one fact about the OZ reform legislation. So a lot of opportunity zones got placed in or adjacent to college campuses where most of the residents are students and students are technically low-income, even if they do come from wealthy families and have access to plenty of money. So I think that may have been an oversight initially by the legislation and the people who slated the opportunity zones across the country. But the OZ reform legislation, if I understand it correctly, would disqualify a lot of those types of zones and, instead, use a different metric to get at whether or not the census tracts are low-income.

Now, so I would say if you are interested in doing student housing in some of these technically low-income, but typically higher, wealthier students, now might be your last chance because the funds that do make the investments prior to the legislation getting passed will get grandfathered in. But I don’t know if that’s a good long-term trend to hold on to if the reform legislation passes. Do I have that right, Brett? Have you heard anything like that or anything different?

Brett: Yeah, no, I mean, I think that’s sort of the third rail of that legislation, you know, that we haven’t really talked about yet here today but we did talk about on the panel at the Expo. And, yeah, I think that’s gonna be really controversial, Jimmy, that process for decertifying opportunity zones. And, of course, you know, one of the concerns, I think, out there is that, you know, the original zones were designated based on 2010 census tract data. Of course, you know, a lot can change in 10, 12 years. So I think, you know, going forward, you know, the new certified or decertified zones would certainly be based on 2020 census data, but we’re always gonna have this problem. I mean, the census data is stale as soon as it’s collected, and with each passing year, you know, there’s demographic changes, there’s population shifts.

And so, you know, I think that, you know, that’s gonna be a very political and challenging process. There’s certainly, you know, tracts in certain states that were maybe handpicked or designated by the governors and their staff that they really wanted to incubate more development in certain areas. Sure. I guess the problem now is, well, what if, you know, the poverty rate…or the income is 130% greater than the regular area median income? They’re gonna be on the chopping block. I have not heard anything that, you know, campuses are being targeted, in particular.

Jimmy: Well, the one thing is… And this is…I didn’t want to get too technical, but I guess I’ll be for a minute here. They’re redefining the metric that they’re using. So, previously they were using median household income to get at whether or not a census tract qualifies as low income, and now they’re going to use a metric called family household income, I think it is. I’ll clarify this in the show notes, and I’ll have links to this, but family household income is going to somehow get around the student population. And so, if you’ve got a large pocket of students in a particular census tract, they will no longer count as low-income going forward. That’s my understanding at least.

Brett: Yeah, no, I mean, that’s a good point, Jimmy. I’m looking at it now and you’re right. It would disqualify OZs if the median family income exceeds 130% of the national median family income. So…

Jimmy: Previously, they were losing median household income.

Brett: Yeah, that word changes a lot. It does change a lot. Yeah. But I think it’s also a concern for, you know, maybe areas that are gentrifying in certain, you know, metros that…

Jimmy: Absolutely. Not only that but the data is getting updated. It’s much fresher than it was when the OZ got slated originally for sure.

Brett: Yeah, I guess, I mean, the good news is, if I’ve already, you know, hand-picked a site, and I got lucky enough to be in one of those zones, and I’ve, you know, done my offering, you know, maybe I’ve even taken down the land or at least spent $250,000, then I’m pretty well grandfathered in, I think, under the current proposed legislation. So, you know, maybe I can say, you know, I got onto the block, and no one else will. So maybe that’s an even bigger advantage.

Jimmy: Yeah, maybe, it may be. And, again, if you are going to get into one of these zones that might be on the chopping block, the time is now or never potentially, because if this legislation gets passed in the next few weeks or months, you’ll be grandfathered in if you got in and time, but otherwise, it won’t be available going forward. And then one other issue with the decertifying is… And this is a little bit technical, as well, but I think our viewers and our listeners should know is that we are using the 2010 physical geographic boundaries of the census tracts as opportunity zones, but the new data doesn’t use those same physical boundaries. It uses the new 2020 map. Oftentimes, the physical shape of the opportunity zones in 2010 is no longer the shape in 2020. So the 2020 data for any one particular zone may not really map into that zone one-to-one if that makes sense. So, it’s going to be very difficult to actually crunch the numbers on which of these tracks, in fact, is no longer eligible.

Brett: Yeah, and, again, my concern there too is I think you’re gonna see a lot of lobbying. You know, if this legislation passes with this provision in it, at the state level and at the local level, and even at the national level, there’s gonna be pushback when certain tracts are decertified. And it’s unfortunate, I mean, there’s no easy way to do this. I think, you know, four or five years ago when the original census tracts were designated, people really weren’t paying that much attention. So, it gave governors and their staff a ton of discretion, and anyone at the local level that was lobbying then probably, you know, got their way, so to speak.

Jimmy: I’ve seen it quite possibly, depending on which state you’re in, for sure. But now, the governors will have a chance to replace any early disqualified census tracts. So, that’ll at least be another bite at the apple.

Brett: Yeah, but also an inherently political process.

Jimmy: And, of course, it will be an inherently political process as well because they will have, you know, several dozens, if not hundreds, of zones to choose from, depending on which state they’re in.

Brett: Yeah, for sure.

Jimmy: They’ll get to select a handful that get to be newly designated as opportunity zones. It will be an interesting process to watch unfold for sure.

Brett: Yeah. I agree. Yeah.

Jimmy: So, well, Brett, I think we’re kind of running out of time here, unfortunately. We spent a lot of time talking about macroeconomic conditions and the legislation. Just to kind of wrap up our conversation now, any high-level thoughts from you on how we can get more investors into opportunity zones later this year and heading into 2023? How do we turn the tide a little bit and get more investors into OZs?

Brett: Yeah, that’s the $10 million question, I guess. I think just continue to do what we’re doing, Jimmy. You know, I think getting the message out, going on the road, talking to folks, you know, sort of breaking the mold, if you will. You know, I still think there’s quite a few folks out there that are ambivalent, or just a little gun shy about investing in a real estate fund. They may not understand it. You know, it takes a lot of trust in the sponsor. And, you know, so I think one of the biggest challenges of this program too is that, you know, I’ve got to park my money for 10 years. And, you know, if I go to any other real estate fund out there, you know, I’m only likely to do so for three to five or seven. So I think, you know, tapping into those investors out there that maybe are looking to be a little more patient, maybe going into this, you know, downward spiraling of economy, recession, whatever you want to call it, maybe there’s gonna be more opportunities to find those people that just, they don’t know what to do because the stock market is not a great market to invest in as much nowadays.

Jimmy: It certainly is. It certainly hasn’t been this year. It’s down I think about 25% through Q3. And it’s been very volatile here in Q4 so far as well. So it has been tough for stock market investor, that’s for sure. Well, hey, Brett. I wanted to thank you, again, for coming on the show today. It’s been great to get your insights if we have any listeners or viewers out there today who are interested in learning more about you and the good work that your law firm Jennings Strouss provides, where can they go to learn more and to get in touch?

Brett: Sure, they can reach me at, you know, [email protected]. Check out our website and feel free to reach out. I’ll just give me my phone number, 602-262-5842. And I really appreciate this opportunity, again, to be on your show, Jimmy. I love what you’re doing. And let’s keep it going.

Jimmy: Absolutely, Brett. And again, for our listeners and viewers out there today, I will, of course, have show notes available for today’s episode at And there I will have links to all of the resources and the contact information for Brett Siglin. Be sure to subscribe to us on YouTube or your favorite podcast listening platform to always get the latest episodes from the Opportunity Zones Podcast.” Brett, again, been a pleasure. Thanks so much.

Brett: Thank you.


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OZ Pitch Day

March 7, 2024