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May 28, 2020

A Carve Out for Vacant Properties in OZs Allows Them to Avoid Certain Requirements
By Les Shaver

If the fallout from COVID-19 continues, there is little doubt that the number of abandoned and foreclosed properties will likely increase.

To show how the CRE environment will change, Newmeyer Dillion Partner Mike Krueger points to restaurants. The ones that are allowed even to open will have fewer customers.

“If you had a big 8,000 square foot restaurant that allowed you to have 150 customers at one time, the most you're going to have is likely going to be half of that because you're going to have spacing requirements and you're going to have certain limitations," he says. “Then you're also going to have limitations on how food is going to be prepared. You will no longer have chefs in the kitchen working shoulder to shoulder."

He says the space equation will be “turned on its head."

“That is why I believe we're going to see massive vacancies in commercial real estate," he says. “Those vacancies aren't going to be restored anytime soon. They're going to be repurposed."

Krueger says an increase in abandoned properties could present an opportunity for Qualified Opportunity Fund (QOF) investors in Qualified Opportunity Zone Businesses (QOZBs). In its third round of guidance, the Treasury Department included a special carve-out for vacant property that could allow investors to avoid the requirement to “substantially improve" properties. That provision could potentially save QOF investors time and millions in development fees. Read more.

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