As the federal government provides additional rules governing Opportunity Zones, funds and businesses are looking at Tucson O-Zone space for projects and operations.

Tax-saving funds are starting to invest in Tucson Opportunity Zones, or O-Zones, and a second round of federal rules helps clarify how businesses can take advantage of operating in these zones.

The 200,000-square-foot DoubleTree by Hilton that broke ground in May is financed by the Caliber Tax Advantaged Opportunity Fund LP. The hotel will be attached to the Tucson Convention Center and provide much-needed visitor lodging that will strengthen downtown Tucson’s economic renaissance.

Most of downtown is a Tucson Opportunity Zone, one of 27 designated economically depressed census tracts for which private investment in real estate, businesses and business assets hopes to improve. The federal government encourages this investment by

• giving tax deferments on capital gains that are moved into Opportunity Zone funds
• tax savings in appreciation of fund investments such as the ones offered by Caliber.

The hotel is one of Caliber’s first Opportunity Zone fund project. Rio Nuevo, the entity that directs the redevelopment district to revitalize downtown, is contributing financing for an adjacent parking lot.

Another project in Tucson O-Zone space, this one by PEG Capital Partners, is in the works. Jameson Haslam, the Utah-based firm’s chief operating officer, described the yet-to-be-announced project as a mixed-use development with a large multi-family housing component.

“We’re actively involved in looking at projects in Arizona,” says Haslam. “We like the market. Arizona as a state did well in selecting attractive Opportunity Zones.”

More O-Zone Rules

A second round of rules from the U.S. Department of Treasury clarified some issues with businesses that operate in O-Zones. You’ll want to review your lease to make sure you are operating as a qualified O-Zone business.

That’s important if you want to set up your own fund to finance your operations in Tucson O-Zone space. If you meet certain conditions, the fund could own a building that you would then lease. The fund also can finance some business costs in tangible and intangible assets.

Here are some of the issues from the second round of rules that I can help you navigate. KPMG LLP is one of several sources I use to stay up to date.

Triple Net Lease. Owning and operating an O-Zone property requires an active role by the owner. The rules do not count triple net leases as active involvement. Lease agreements will need to be reviewed to see if they adhere to this rule. Triple net lease in itself sometimes can be a cost-saving strategy, so you’ll need to weigh the benefits of changing.

Leased property. Owners of O-Zone land and buildings are required to provide a certain level of improvement. The first round of rules did not address the leasing of tangible assets.

Now, there is a way for existing leases to count as a “good” O-Zone business property, depending on when and how the leases were finalized.

Safe harbors for startups. Startups originally couldn’t become qualified O-Zone businesses because they would not be considered an active trade or business until they started generating revenue. The new rules extended safe harbors—methods to allow some businesses to operate below income requirements—to startups.

Property straddling an O-Zone. It’s been clarified that companies whose operations are partially in an O-Zone and that is partially and contiguously outside the zone may be able to become a qualified O-Zone business.

What’s Next

Contact me to learn more about how Tucson Opportunity Zones can help your existing business or startup.

I can help you find land, building sites, contractors and Tucson O-Zone space.

I also can introduce you to fund managers who are looking for projects to invest in.

For more information: “New Tucson Opportunity Zones May Spur Growth”