Tax

Cresset's Big Qualified Opportunity Zone Ambitions

Tom Burroughes, Group Editor, October 29, 2019

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The wealth management firm talked to this publication about its QOZ investment strategies.

Whatever else can be said about recently-launched Qualified Opportunity Zones, Cresset Capital Management is determined to be a prominent, if not the biggest, player in these areas benefiting from tax incentives. 

Introduced in the 2017 package of tax changes under the Trump administration, the zones are designed to spur economic development and job creation in what are deemed to be distressed communities in the US. Taxpayers may defer tax on eligible capital gains by putting money into a zone and by meeting other tests. A taxpayer must realize capital gain income, invest it in a Qualified Opportunity Fund within 180-days of realizing the gain, and elect to defer the gain on his or her tax return.

Cresset was among the first wealth firms to launch such a fund, called the Cresset-Diversified QOZ Fund, and another is planned. This form of investing straddles traditional investment and a style increasingly familiar to the wealth management space - impact investing. This approach seeks to put money to work toward achieving a certain goal, such as alleviating poverty, reducing crime or improving education – while earning a monetary return. Investments cover areas such as affordable housing, infrastructure, parking, senior housing, sports stadiums and student accommodation.

“Our Qualified Opportunity Zone investment philosophy is no different than our general philosophy of investment,” Stein said. “We are creating institutional quality investment opportunities for high net worth families and family offices,” Avy Stein, one of the founders of Cresset Capital Management, told Family Wealth Report recently. “The tax benefit is very significant adding as much as 500 basis points to the annual return for the project.”

The tax benefits from QOZs are an attraction, although Stein argues that the affected areas would have lured capital at some point anyway. “They would all have been properties that I would have been interested in acquiring at some point in time,” he said. 

In total across the US, about $2.5 billion is held in QOZ investments; Cresset accounts for more than $300 million of it. Dozens of QOZ funds have been launched; readers can scan some of them via websites such as www.opportunitydb.com, for example. That site lists funds with names such as The Berenda Opportunity Fund (run by William B Pitman); Fundrise Opportunity Fund (Fundrise Advisors); Palace Way Fund (Palace Way Management LLC); Affordable Housing Opportunity Fund (LIHTC Development), and HeroHomes.com Opportunity Zone Fund I (HeroHomes.com). There are more than 8,700 opportunity zones in the US.
 

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