Opportunity Zone Magazine Volume 1, Issue 3 | Page 49

EB-5 AND OPPORTUNITY ZONE OFFERINGS -- A SYNERGISTIC APPROACH
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and business plan to support the project feasibility
as well as the job creation component of the EB-5
project. Accordingly, there are far more professionals
involved in the EB-5 program compared to the OZ
program. The OZ program does not require any thirdparty
independent reports to support the offering.
Rather, the OZ program involves the designation of
the specific project within an OZ and the general
economics supporting the program. There are specific
complexities that are unique to an OZ project,
such as a prior use limitations whereby substantial
improvements must be made to a specific project that
contains buildings that have a pre-existing use, as
well as pre-ownership limitations to the extent that
the project was acquired prior to 2018 by a developer
who then wants to participate in the ongoing project.
These limitations do not apply to the EB-5 program.
5. There are significant procedural differences between
the two programs. The EB-5 program involves the
filing of documents with the applicable agency
of the federal government, USCIS, for approval,
whereby the OZ program has no requirement of filing
documents with any federal agency but only the filing
of the specific tax elections both on an individual
tax return for investors as well as the filing of the tax
return for the OZ Fund on an annual basis.
Tim Wachter, lead developer of the
Flagship Opportunity Zone and head
of Knox Law Public Strategies, is a
nationally recognized Opportunity
Zone thought leader.
Tim and others at Knox Law represent businesses,
developers and investors across the country to help
determine the best structure for Opportunity Zone
investments, and advise community leaders on
effective development of Zones to attract investors.
Knox McLaughlin Gornall & Sennett, P.C.
Erie | North East | Pittsburgh | Jamestown, NY
814-459-2800 | www.kmgslaw.com
There are significant procedural
differences between the two
programs.
6. There are different economic incentives with respect
to both of the programs. The OZ program involves
tax benefits to those investors that want to shelter
capital gains treatment. The incentive for investors in
the EB-5 program is gaining access to U.S. residency
and citizenship and less of a concern about the actual
economics. One exception that EB-5 investors do
expect is to receive some return on their investment
as well as a return of capital when the regulatory
requirements have been satisfied.
7. The nature of the investor is quite different. EB-5
investors tend to be represented by agents and/
or representatives who receive commissions and
additional compensation in order to place investors
in the appropriate project. OZ investors tend to be
more economically and financially sophisticated
and have advisers such as accountants, lawyers,
wealth managers or investment advisors who provide
guidance on the appropriate project to select.
8. There are significant differences in the marketing
approach with respect to each of the programs. EB-5
investors are generally marketed through offshore
agents who receive commissions and placing investors
in a particular project. Securities law regulations
impose severe limitations on the payment of
commissions for any offering that is conducted in
the U.S. With respect to OZ offerings, many of the
offerings are directed to the investors themselves
or their wealth planners pursuant to a Regulation
D exemption under the Act. Domestic agents can
receive an investment advisory fee providing they are
properly licensed, as well since these activities broker
dealer commissions if they are likewise licensed are
primarily conducted in the U.S. and not abroad.
TAKING ADVANTAGE OF BOTH PROGRAMS
EB-5 capital can either be mezzanine debt, senior debt or
preferred equity or common equity. OZ investment can only
include equity, either preferred or common. By combining
both programs, a developer sponsor can take advantage of the
different capital investments made by each of the different
investors. It is noteworthy that domestic investors in an OZ
program do not need any job allocation, and the tax benefits
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