Idaho Business Review forum: Experts discuss Opportunity Zone investment

For those willing to invest patient capital into projects in areas primed for redevelopment, an Opportunity Zone might be the right option, said speakers at a Sept. 24 Idaho Business Review Experts Forum.

The subject of Opportunity Zones – 28 census tracts in Idaho are designated as such – was also discussed by panelists on May 20 at the Eighth and Main building. That event, also hosted by the Idaho Business Review, attracted about 100 attendees who heard about long-term investment in low-income urban and rural communities through tax breaks, especially on the capital gains front, a concern for many high-net-worth individuals.

The presenters at the Sept 24 program at the Inn at 500 are the principals of Galena Opportunity Inc., a fund created last year that intends to raise $250 million this year from investors. Moderating the program was Ryan Martin, co-owner of the Laska Company, a business brokerage firm.

Because it’s a new and evolving investment opportunity, people still have questions about it, said Bill Truax, president of Galena Opportunity Inc., whose fund is concentrated in the real estate sphere in the Pacific Northwest, northern California and Rocky Mountain regions.

In the Northwest, Galena is looking at developing new apartments for middle-income earners, mixed with some retail and other services, in places like Twin Falls, Meridian, Bremerton and Tacoma.

The planned apartment communities are at various stages in the development cycle, with the exception of the Twin Falls project, 16^th Main Street, a six-story, 48-unit multifamily complex in the downtown area. Construction on 16th Main Street will begin this winter, Truax said.

In getting the word out, Truax said Galena has made a strong effort to pitch the investment opportunity to business brokers, wealth management and financial advisors who can better explain the pros and cons to clients.

“There’s a whole bunch of rules,” he said, both at the front end and exiting the fund.

Truax and Dan Fullmer, Galena’s director of investor relations, both spoke about the process, benefits and challenges of developing in an Opportunity Zone. The project they are teeing up on in Meridian – a large, mixed-scale development – has a complicated land transaction that needs to be resolved before shovels can turn.

There also is an altruistic aspect to investing in an Opportunity Zone since ultimately, it helps lift low-income neighborhoods, said Fullmer. Some investors are looking for a nontraditional tax benefit as well as a chance to participate in the revitalization of an area, he added.

“Education is part of this very complex” investment vehicle, said Truax. “You’d also be wise to have your CPA or attorney in the room” to see if all the rules and regulations governing Opportunity Zones make them worthwhile to pursue, he cautioned.

The universe of possible Opportunity Zone investors is relatively small — but wealthy — since the tax break is available only to individual or corporate taxpayers who declare capital gains income on their tax returns. In 2016,  just 7.3% of all U.S. tax returns declared capital gains income, although the total value of the capital gains income declared was $634 billion.

Truax and Fullmer had presented to potential investors in New York City the day before the Idaho Business Review experts forum. So far, it’s mostly out-of-state money backing their fund.

“Ten percent of the investors are from Idaho” and they hope more will get on board, said Fullmer.

Galena hopes to wrap up the first round of investment money by Dec. 31 of this year, which is the deadline to take maximal advantage of an Opportunity Fund investment.