The alternative investment industry is expected to grow by 59% by 2023, reaching $14 trillion in assets. What factors do you think are driving this dramatic increase in asset allocation?
I think investors are looking into new, untapped markets to see large returns.
Do you have any advice for individual investors looking to branch out into alternative investments, specifically CRE?
When considering a CRE investment, consider looking at an investment in a Qualified Opportunity Zone. The tax benefits that the 2017 tax reform legislation introduced for these zones mean that, if you hold your investment long enough, you may not have to recognize any capital gains when you sell it.
Investors are allowed to use their SDIRAs to invest in alternative investments, but there can be tricky tax ramifications to navigate. What are some of the key things would-be investors need to understand about using their SDIRAs?
If the investment has leverage as part of its structure, which most CRE deals do, the debt can have negative tax ramifications for the SDIRA. For example, the presence of leverage could result in the SDIRA having to pay income tax at a corporate tax rate (i.e., 21%).
You mentioned in one of your blogs that there are still a lot of unanswered questions around Opportunity Zones. What are some of the first things you hope to see the IRS address?
One of the key questions that we are still waiting on an answer to is what constitutes an active trade or business (a requirement for opportunity zone treatment). More specifically, I’m hoping to see clarification on what level of activity is needed for rental real estate to qualify. Additionally, I would like to see guidance that a long-term leasehold interest (30+ years) qualifies as a Qualified Opportunity Zone business property. I think this guidance is crucial to the CRE industry.
Opportunity Zones represent a huge opportunity for investors (pun intended). What do you think is the single most important thing investors need to understand about OpZones?
You can only qualify for the tax benefits if you have capital gains that are being reinvested. If you simply take new funds and invest, you do not get any of the tax benefits. I speak to potential investors about this point every day and they are almost always surprised by it.
Recent changes in regulation and technology have significantly impacted the historically staid real estate industry. What other regulatory changes and innovations do you hope to see in the next five years?
I would like to see further tax changes to spur investment, whether in the form of designating more Opportunity Zones, increasing allocations of new market tax credits or rolling back of the legal and regulatory restrictions that can often tie the hands of investment managers. For example, the REIT marketplace is continually expanding to more innovative investment areas (think cell towers, solar farms, etc.), while the tax guidance clarifying what constitutes “real property” continues to lag behind the marketplace.
With crowdfunding enabling the democratization of CRE, do you have any predictions regarding the mainstream adoption of CRE investing over the next decade?
I think it will continue to increase and become more popular as people that previously were unable to enter the marketplace are now able to do so.
You originally studied mathematics. What brought you to the legal profession, and ultimately how did you come to specialize in tax law?
I enjoyed the logic and theory that is fundamental to mathematics, and the same is found in tax law. A big component of tax law, especially in my practice, is problem-solving. So the leap from mathematics to tax law was not as significant as you might expect.
You advise clients on the structuring and operation of private equity funds, real estate funds and timber funds. What exactly is a timber fund? How does managing a timber fund compare to a real estate fund?
A timber fund is a fund that focuses solely on the ownership of timberlands. Managing a timber fund is different in that there are several tax provisions that are unique to the timber industry. For example, Section 631 provides special beneficial tax treatment for the cutting and harvesting of timber that was the result of Congressional efforts a hundred years ago to encourage landowners to harvest their timber as part of the war effort.
You served as an adjunct professor at Emory University School of Law. How did being a professor compare to working in corporate law?
As an adjunct professor, I was focused on the theoretical applications of the law and I was able to spend a lot of time discussing and analyzing all the different shades of gray. In corporate law, my clients need a clear answer or structure, and they need it quickly.
You’ve been listed in Best Lawyers in America from 2014-2019. How does it feel to earn that kind of recognition so many years in a row?
It is an absolute honor to be able to practice in an area that I love and be recognized for it.