The Promise of Opportunity Zones for Franchise Businesses

[...]a thriving commercial area might be eligible if all or most of the sparse residential property in the census tract is lower-income. Investors may have emergency expenses or important life-cycle events to fund in their personal lives, or other investment opportunities to pursue. [...]because many investment firms typically structure funds around three to five year investment strategies,25 many investors will need to rethink their portfolio structure in order to accommodate the long-term investment horizon of opportunity fund investments. Low household earnings, high unemployment, low educational attainment, and other location-specific realities may discourage institutional parties but might not be an obstacle to long-term community members who are more familiar with the opportunities and challenges of the area. Because of the challenges of structuring opportunity fund investments in a way that meets the governance, cash flow, and simplicity needs of smaller franchisees, many of them will miss out on this opportunity, even those in growth-mode with capital gains available. Because QOZ investments must be made at arm's length (see I.R.C. 1400Z-2(d)(2)(D)), those investors who already own businesses in QOZs will not receive the tax benefits for investing in those properties and will not have any special incentive to upgrade their businesses (i.e., they may not sell their business to their own opportunity fund in order to attempt to obtain the tax benefits).