Saturday, November 9, 2019

The End Zone

The biggest scam of the Trump nightmare is the tax breaks that provided Real Estate Developers with a tax break to develop in specific areas of a city called "Opportunity Zones."  The opportunity is that they get a ten year tax break in which to write off capital gains and hold their interest with little concern to overall use, income generation or even purpose or occupancy rates until they sell the building.  And as always property on land regardless of what sits on top is what determines value so having a structure sit vacant with overpriced under utilized facilities is not a problem, return on investment is.  And there are structured payments in line with expectations under conventional development that investors expect in REIT's or more structured lending packages. Not this one.

The current Congress in between Impeachment hearings are looking into the next Trump fraud to see how to circumvent this after reading about one of the more infamous fraudsters of another decade was brought to the forefront for his role in these capital plans.   Michael Milken was one of the 80s dynamos that gave us Trump and right there is a reason to hold suspect.  He, however, did time.

Chris Christie, the former Governor of my new current State home is another who is profiting from these vaguely needed high end luxury developments alighting my area where rents are Manhattan levels without the benefit of living in Manhattan.  But like the former Governor, they seem to be out of gas.  Maybe Trump was right to leave that lemon.

Here in Jersey they are called "Investment Opportunities" and you see the shiny key syndrome going on all over Jersey City as it was declared an "it" city like Nashville was five years ago but this is still Jersey with all the reputation, the commute issues among others that frankly have allowed some development to go through but like all things in Jersey, you don't mess with the people here or they will push back.  And this past week we saw them stand up to AirBnb and prohibit the unfettered growth in the fake home sharing business that is like WeWork only smart enough to have beards by having real people rent out homes or rooms to provide the face of the average host.  Wrong, wrong and more wrong as they too are largely investors and businesses that are buying or leasing properties with fake hosts posing on the site as the actual owner.  Gee Trevor in Nashville has a hell of a lot of properties and sure enough they found that in Jersey that was the case and they said, fuck that shit. Watch the growth of rentals add to an already large rental market with overpriced units aligning the landscape. The it city status was not something they ran amok on as they did in Nashville and again AirBnb rears its ugly head with the party house bullshit that led to a shooting.  In Nashville they have plenty of shootings in the street but its AirBnb that provides the security they need to keep those Bridezilla floats alive and chugging down the streets of the city.

Meanwhile across from my building they are erecting a 20 floor luxury build that was in the pipeline a little late for entry but if this is an "investment" it will pay back in the views that now blocked and the increased traffic to an already congested area.  Its all good that my view is partially gone as they are building more and more with other views and eventually all good things crash and this is one coming hard.  Let's hope rents fall instead of the buildings however.

But despite it the boon of apartments, storage units and other odd builds that rarely offer affordable housing or development that the everyman can use as Congress is finding.

Lawmakers Increase Criticism of ‘Opportunity Zone’ Tax Break

Congressional Democrats are calling for investigations and legislative fixes in the wake of reporting by The Times.

By Eric Lipton and Jesse Drucker
The New York Times
Nov. 6, 2019

Lawmakers are voicing mounting concerns about a federal tax incentive, known as an “opportunity zone,” that is supposed to encourage investors to pump money into the nation’s poorest neighborhoods.

Leading Democrats in the House and Senate have sent a flurry of letters demanding answers and action by federal agencies after recent New York Times articles detailed how wealthy investors and real estate developers, including those with ties to the Trump administration, are poised to profit on the initiative.

In August, The Times highlighted how tax-advantaged money was beginning to flow to development projects that were underway in affluent neighborhoods even before the opportunity-zone incentive was enacted as part of President Trump’s tax cuts at the end of 2017. The initiative enjoyed broad bipartisan support.

An article last month described how the financier Michael Milken, a longtime friend of Treasury Secretary Steven Mnuchin’s, is among the investors who stand to benefit from the way the Treasury Department is writing the rules governing the tax incentive.

Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee, said he was introducing legislation this week that would eliminate hundreds of opportunity zones in relatively wealthy neighborhoods.

Other lawmakers have written letters, citing The Times’s reporting, to Mr. Mnuchin and called for investigations by the Treasury Department’s inspector general and the Government Accountability

The tax incentive is supposed to help struggling communities by attracting new businesses, housing and other real estate projects. If investors with capital gains — profits on stocks, real estate or other assets that have increased in value — invest them in one of nearly 8,800 opportunity zones, they get a discount on their capital gains tax bill, as well as the potential to avoid any future capital gains taxes if the new investment increases in value.

While the incentive has driven money into economically ailing cities including Erie, Pa., and Birmingham, Ala., much of the money has gone to projects that were already planned or being built in rapidly gentrifying neighborhoods in places like Houston, Miami and New Orleans.

Two Democrats and a Republican on the House Ways and Means Committee introduced a bill on Wednesday to require funds that invest in opportunity zones to file annual reports with the Treasury that disclose details of their development projects and any new businesses.

The bill would impose $500-a-day penalties for failure to file the report and require the Treasury to make the reports public. The Treasury also would have to release an annual report on job creation and poverty reduction attributable to the tax break.

“It’s our job to conduct oversight and ensure the zones work as intended everywhere,” said Representative Mike Kelly, Republican of Pennsylvania, a co-sponsor of the bill.

Mr. Wyden’s bill would go much further. It would make it harder for developments that were underway before the tax break to qualify for the incentive. It also would disqualify about 200 zones that are adjacent to low-income census tracts but are not themselves poor.

“We’re seeing examples that are enormously troubling” among designated zones, Mr. Wyden said in an interview, citing the Times articles. “I am proposing to terminate those zones until we get out in front of this.”

A number of industries are already not permitted to benefit from the tax break, including liquor stores, massage parlors and racetracks. Mr. Wyden’s bill would expand that prohibition to self-storage facilities and luxury housing, which have been popular destinations for opportunity-zone money.

Some of the loudest calls for changes in the tax incentive are coming from members of the Congressional Black Caucus, who in many cases represent poor urban areas that were supposed to see some of the biggest opportunity-zone investments.

Representatives Emanuel Cleaver II of Missouri and James E. Clyburn of South Carolina, both Democrats, said they were extremely disappointed with how the opportunity-zone initiative was playing out, though they acknowledged that the results might improve over time.

Mr. Cleaver said he had spent many weekends organizing meetings in his district to bring together business leaders and local officials to try to lure opportunity-zone dollars to distressed neighborhoods in Kansas City and Independence, Mo.

“We thought the companies would be beating on our doors, saying, ‘Please, please, we want to build this or build that,’” Mr. Cleaver said. “But it just hasn’t happened.”

Mr. Clyburn said that when a real estate project did come to his district, it was to serve college students, not poor residents.

“The program needs to be tweaked — or it needs to experience its funeral,” said Mr. Clyburn, the third-ranking House Democrat.

Representative Ron Kind, Democrat of Wisconsin, one of the original sponsors of opportunity-zone legislation, said he wanted to at least make sure that the measures forcing greater transparency were passed into law.

“There seems to be unanimity and bipartisan agreement that would be nice to move the reporting requirement bill forward,” he said in an interview.

But Mr. Kind said he was troubled by the heavy investment that appeared to be taking place so far in “shovel ready” real estate projects that would most likely have been built even without the tax break.

Lawmakers asked the Government Accountability Office, the investigative arm of Congress, to evaluate the tax break, including how various census tracts were designated as opportunity zones. And at least two House committees are planning to hold oversight hearings into the tax incentive.

On Monday, the top Democrats on the two congressional tax-writing committees, Mr. Wyden and Representative Richard E. Neal of Massachusetts, chairman of the Ways and Means Committee, wrote a letter to Mr. Mnuchin asking questions about The Times article on Mr. Milken and Mr. Mnuchin. The congressmen said it was “deeply troubling” that Mr. Milken appeared to receive special treatment.

Mr. Milken, in a five-page letter posted on his website after the article was published, said he had played no role in recommending to any government official that a county in Nevada where he had invested be designated an opportunity zone. He said he had never discussed his investment with Mr. Mnuchin.

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