File 016413
Email on Opportunity Zones Investment Strategy - File 016413
Email from Paul Morris to Jeffrey Epstein regarding investment opportunities in federally-designated Opportunity Zones, including analysis of tax incentives and regional development projects across the United States.
Summary
Paul Morris sends Jeffrey Epstein an email with comprehensive reporting on Opportunity Zones, a 2017 tax law provision allowing investors to defer and eliminate capital gains taxes on investments in low-income areas. The document includes detailed case studies of opportunity zone development activity in the South Bronx (including Port Morris Distillery), Alabama (through lawyer Alex Flachsbart's nonprofit efforts), and Baltimore (involving developer Steven Siegel and billionaire Kevin Plank's Under Armour-related projects). The analysis discusses both the potential for genuine community revitalization and concerns about wealthy investors capitalizing on tax breaks for projects they would have undertaken anyway.
From:Sent:To:Subject:Attachments:Morris, Paul V1/15/2019 4:44:33 PMjeffrey E. [jeeyacation@gmail.com]Opportunity Zonesimage001.jpg; image002.jpg; image003.jpg; image004.jpgImportance: HighHope all well, are you doing anything around these or clients?In a former warehouse on a dimly lit street in the South Bronx, developers sipping PuertoRican moonshine listened as a local official urged them to capture a new U.S. tax break byrebuilding the decaying neighborhood.In Alabama, a young lawyer quit his job after seeing the same tax break's potential to helpone of the nation's poorest states. He now spends his days driving his Hyundai from townto town, slideshow at the ready, hoping to connect investors with communities.And on a conference call with potential clients, a prominent hedge fund executive pitchedinvestments in a boutique hotel in Oakland, which he described as San Francisco'sBrooklyn. The project is eligible for the same tax break, designed to help the poor.Betting on Opportunity ZonesSales of development sites are surging in areas eligible for tax breaksSource: Real Capital AnalyticsFervor about opportunity zones is heating up across the U.S. For a limited time, investorswho develop real estate or fund businesses in these areas are able to defer capital gains onprofits earned elsewhere and completely eliminate them on new investments in 8,700 low-income census tracts. The goal is to reinvigorate these areas. But the question is whetherthe 2017 tax law will, as U.S. Treasury Secretary Steven Mnuchin predicts, pump $100billion into places that need it most, or if investors will play it safe by funding projects in afew zones already on the upswing.QuicktakeWill 'Opportunity Zones' Help the Rich, the Poor or Both?There's no lack of optimism among officials in shrinking Rust Belt towns, wind-sweptWestern landscapes and hurricane-ravaged Puerto Rico, who hope to jump-start localeconomies. The incentives are so flexible they could be used for everything from affordablehousing to solar farms.Yet on the investor side, much of the attention is fixed on how to turn a profit in alreadythriving areas. They include neighborhoods surrounding Manhattan, Atlantic beach townsdrawing vacation-home developers, bedroom communities near Silicon Valley andanomalies like Portland, Oregon, where the entire downtown was deemed eligible for thebreaks."The phrase I keep thinking of is 'gold rush,' " said Michael Lortz, an accountant whoworks with developers in Portland. "There's a lot of money from out of town that's cominghere."HOUSE OVERSIGHT 016413Already, a policy debate is raging. Backers are urging people to reserve judgment and saythe tax breaks have galvanized cities, businesses and investors to think creatively aboutboosting parts of the country most in need. Critics say the incentives were poorlycalibrated and may amount to a boondoggle far in excess of the official $1.6 billionprojected cost.Americans may have to wait months or years to learn which side is right. That's becausethe law doesn't require investors to disclose projects, making it difficult to tell which areasare benefiting the most.But there's plenty of evidence that a boom is brewing. Goldman Sachs Group Inc., whichalready had an investment team focusing on struggling communities, has disclosed about$150 million in projects in recent months. Purchases of sites inside opportunity zonesspiked as the tax law took effect, outpacing growth in other areas, according to RealCapital Analytics, which tracks property sales. Altogether, investors spent 62 percent moreon properties eligible for tax breaks in the 12 months through September, compared withthose in the same census tracts a year earlier, its data show.Here are snapshots of what's happening across America:Bronx BoostPort Morris Distillery, which makes a high-alcohol rum called pitorro, was the perfect spotfor an opportunity zone pitch. It's on a block with a colorful mural, industrial buildingsready for loft conversions and views of the Manhattan skyline. Much of the surroundingSouth Bronx is now an opportunity zone."We have always been the most ignored," Marlene Cintron, the borough's head ofeconomic development, told an audience of developers and lawyers in November. "Theseopportunity zones are here for you to take advantage of them."The case for the Bronx, where incomes are among the lowest in New York, is that it's thelast borough awaiting revitalization. The tax incentives are designed to unleash it. Ifdevelopers can buy at current Bronx prices, before seeing a Brooklyn-like rise, the breakswould be massive.HOUSE OVERSIGHT 016414The Bronx Tavern and Port Morris Distillery.Photographer: David 'Dee' Delgado/Bloomberg"Huge, huge upside that you're not going to get if you build a strip mall in Topeka," saidTerri Adler, managing partner of law firm Duval & Stachenfeld LLP, who also spoke at theevent.Yet the Bronx faces a formidable problem: It's competing with other zones across the city,including waterfronts in Brooklyn and Queens with stronger momentum. The tax breakBronx officials hope will rejuvenate their borough may instead lure more money to whatlooks like a safer bet across the river.In November, Amazon.com Inc. selected Long Island City for its next headquarters.Portions of that Queens neighborhood, including a former plastics factory the retailerplans to occupy, are inside opportunity zones, even though they're among the city's fastest-growing areas. In 2017, more apartments were built there than in any other neighborhoodin the city.Driving AlabamaAlex Flachsbart, 30, has a lot of time to talk when he's in his SUV crisscrossing Alabama. Alawyer who specialized in economic development grants and tax breaks, he quit his job lastyear to start Opportunity Alabama, aiming to connect capital to worthy projects. For thepast several months, he's been educating people about opportunity zones, speaking tolocal officials, businesses and investors."I have done the OZ PowerPoint God knows how many times," Flachsbart, who grew up inthe Bay Area, said from behind the wheel one day in December.HOUSE OVERSIGHT 016415Alex Flachsbart gives a presentation on opportunity zones in Athens, Alabama.Photographer: Nicole Craine/BloombergWhen he read about opportunity zones in a 2017 draft of the Tax Cuts and Jobs Act, hismind reeled. Here was an uncapped subsidy far more flexible than anything he'd usedbefore. It could draw investment for an array of projects. He imagined funding startups inHuntsville, where NASA's presence has lured a deep bench of talented engineers, and therenovation of an old civic complex in Mobile.Flachsbart's nonprofit—which has board members from the state's largest utility and itsbiggest bank, Regions Financial Corp.—is now in talks for 10 potential projects that needmore than $loo million in equity investment, he said. None have been funded yet, but he'scertain some will be. Meanwhile, he keeps driving.Baltimore BillionaireOne of the arguments over opportunity zones is whether the U.S. is handing wealthyinvestors and companies big breaks on projects they would've done anyway. One example:Hedge fund executive and former White House spokesman Anthony Scaramucci plans tobuild a "swank, boutique hotel" in Oakland. The paperwork for the permit was filedmonths before the neighborhood was designated an opportunity zone.But that project pales in comparison to what's happening in Baltimore. More than a yearbefore President Donald Trump signed the law, real estate developer Steven Siegel helpednegotiate one of the largest public financing deals of its kind for a client, a company ownedby billionaire Kevin Plank, founder of athletic-wear maker Under Armour Inc.HOUSE OVERSIGHT 016416Port Covington area of Baltimore.Photographer: Sarah L. Voisin/The Washington Post via Getty ImagesIn 2016, Baltimore's city council approved a $660 million financing package for a 235-acremixed-use development, including new offices for Under Armour, along the city'swaterfront. The area was already designated as an enterprise zone and a brownfield site,connoting additional lucrative tax breaks, and the project attracted a $233 millioninvestment from Goldman Sachs's urban investment group.Then came the opportunity zone designation.The tax break is only supposed to apply to real estate purchased after the law took effect.But lawyers across the country quickly began working around that to get the benefits forprojects planned before the law was passed. Many tax experts have recommended sales tonew entities. So long as the seller owns no more than 20 percent of the buyer, thetransaction counts as arm's-length and qualifies.Siegel said his firm, Weller Development, has found enough new investors to comply withthe arm's-length requirement. The company has seen so much demand, he said, that he'slooking to replicate the project elsewhere."We've been fielding a lot of inbound interest," Siegel said, declining to name cities thathave approached him. "That stimulated us to take this show on the road."Boulder BalksIn mid-December, during a marathon city council meeting that stretched past midnight,Boulder became perhaps the first jurisdiction in the country to reject its own opportunityHOUSE OVERSIGHT 016417zone. Officials in the Colorado town imposed an 18-month moratorium on almost alldevelopment in its only census tract earmarked for the incentives.The move highlights how local officials have the power to respond to criticisms of thelaw—in this case, that investors may rush to build projects the community doesn't want.Boulder has long been a favorite spot for growing companies because people want to livethere, thanks to its college-town vibe and quick access to nature."People think we have too much" development, said Bob Yates, a council member. "We'renot Detroit."An eyebrow salon is surrounded by empty stores at Diagonal Plaza in Boulder.Photographer: Rachel Woolf/BloombergThough Yates, a former telecom executive, opposed the moratorium and worries it willmake things difficult for businesses in the zone, he understands why people in Boulder, aliberal enclave, were skeptical of an idea enacted by a Republican Congress. He just wisheshis city would take a more measured approach.The zone includes an aging mall called Diagonal Plaza. The tax incentives could havespurred investors to redevelop it to include affordable housing, which is sorely needed, hesaid."Boulder's teachers can't live in Boulder," he said. "It's not a healthy thing to havesocioeconomic divide where lower-income people have to live outside of town to servehigher-income people in town."HOUSE OVERSIGHT 016418Paul V. MorrisManaging Director —The Morris GroupPrivate Banking and Investment GroupBank of America Merrill LynchOne Bryant Park, 28th FloorThis message, and any attachments, is for the intended recipient(s) only, may contain information that isprivileged, confidential and/or proprietary and subject to important terms and conditions available athttp://www.bankofamerica.com/emaildisclaimer. If you are not the intended recipient, please delete thismessage.HOUSE OVERSIGHT 016419