I’m glad this is finally getting some attention and sorry I hadn’t gotten on it earlier. The AP ran a piece yesterday about how Jared and Ivanka stand to profit from a wildly sleazy developer tax credit they pushed in the big tax cut bill last year. They’re called Qualified Opportunity Zones. And they create huge – and I mean huge – potential tax shelters for extremely wealthy people, especially those who play in the real estate game.
I hadn’t really focused on this or known much about it until a few weeks ago when I chatted with a big time real estate player who walked me through how it works. This person told me – and it’s hardly surprising – that basically every private banker and investment advisor is hitting up the 8- and 9-figure set with new investments to use the QOZs to all but stop paying taxes on gains on big chunks of their wealth. That’s not our world. But in that world it’s like the heavens just started raining money and the rain will be more or less permanent.
Now, these sorts of investment zones aren’t a new idea. And while I am very skeptical of these policies in general, in theory they may have some logic if you create incentives for investment in places that are starved for new capital and investment. Again, in theory, though they tend to be giveaways. But in this case, the plans were set up in such a way that you get to stop paying taxes for investing in places that are booming, places where it’s all but impossible to lose money. Beyond the legislative rules, the Treasury Department regulations that are governing it give lots of extra benefits, extra time to move money between investment, rules that create windfalls that are hard to see unless you’re an expert on that kind of stuff.
It’s the ultimate rip-off, the upshot of which is to incentivize the extremely wealthy to stop paying taxes. Examples? Well, get this. There are significant Qualified Opportunity Zones in Manhattan!
A decent number of these are in Harlem, so parts of the city where the gentrification boom is relatively recent. But c’mon! Manhattan is one of the most priced up real estate markets in the world And they’re not just above 125th street. Not at all.
There are significant areas abutting right up on Greenwich Village, in Chelsea, Hell’s Kitchen and a huge part of the East Village and the Lower East Side.
The map on the right is Lower Manhattan. The highlighted areas are generally the less luxe parts. But there’s basically no part of Lower Manhattan that should be part of this program. Many of the blocks you see here have extremely high-priced real estate markets where prices are going up permanently. Brooklyn? Almost all of Brooklyn is a QOZ. Click here to see the Brooklyn map.
Who determines these? There’s blame to go around. The governor of each state nominates areas and then Treasury needs to sign off. So a lot of this must stem from the Cuomo administration, though some of it may be baked into the legislation itself. It’s basically an invitation to corruption and more than that an invitation to the super rich to all but stop paying taxes.
It’s probably a bad idea even when it’s targeting areas legitimately starved of capital and jobs. But clearly they’re including a lot of areas where you all but can’t lose money on real estate.
There are already lots of outrageous examples. Jared and Ivanka are cashing in. Trump’s pal Richard LeFrak is already doing a $4 billion development in North Miami and now that’s in a zone too.
It’s the most comical invitation to the ultra-rich to pay minimal or close to no taxes unless for some reason they just like paying taxes.