Get complete detail on developing a high return, zero capital gain tax with a real estate portfolio in this exclusive 3,654 word interview with Derek Uldricks, President of Virtua Capital Management, in the Wall Street Transcript.
According to Derek Uldricks: “Virtua Partners is a private equity real estate firm with offices located in Phoenix, Arizona; Newport Beach, California; and San Diego, California as well as Hong Kong. We currently manage nine investments funds. We have several other separate accounts that we manage including about 50 projects total.”
The current Virtua Partners business is thriving: “We have about 16 million square feet of assets under management, or about $500 million in total assets right now, and we are actually in the process of completing a transaction that will bring our AUM to about $2.5 billion in total. We are an emerging manager with collective assignments of about $5 billion during this cycle. We have grown and have some assets that are being sold off. There are about 35 total investment professionals at Virtua Partners currently.”
The new tax law has created some real opportunities for investors: “…Part of our strategy on the aggressive growth side is to invest in some of these horizontal development deals. These can be outsized returns if you can get it right. We actually have examples of achieving in excess of 200% rates of return on some of these horizontal deals, which are phenomenal returns. We implement part of that into our aggressive growth fund and include some of the vertical development.”
Working with local government zoning boards can add real value to Virtua Partners investments: “In real estate development deals a lot of the value that is added is done during the entitlement stage, and that is where we have our expertise. The typical value-add in a horizontal development deal or an entitlement play is, for example, is rezoning of land. Typically, this property is in an infill development location surrounded by retail or a multifamily or whatever the asset class is. We will buy it with the current entitlements, and then we will go into the city and say, OK city, here is what we want to do and here is our plan moving forward with some different uses. We may want to do single-family residential on the site or do retail or commercial. We will go into the city and work with them to secure new entitlements and new zoning. That requires a huge amount of expertise.”
The President of Virtua Capital explains how the new tax law from the Trump Administration has created a method for paying no capital gains taxes:
“TWST: What does it mean that you have opportunity zones? What exactly is that, and how does that relate to the other investments you have?
Mr. Uldricks: The opportunity zones are a new phenomenon. They were created out of the recent Tax Reform Act. What the legislation provides for is the designation of opportunity zones in every state. The governors of each state have the ability to nominate these zones. They have all been approved by the Treasury, which was one of the requirements of the program.
So what is the big deal? Why are these so important? These are important because opportunity zones offer a huge tax benefit to investors. What the legislation allows for is for investors to take capital gains from any investment — so you can sell stock, you can sell your dog, you can sell a piece of artwork, make $1 million in capital gains — and invest in an opportunity zone. The benefit to the investor is that you get a 10-year tax deferral on the amount of gain that you deferred, so for 10 years you can kick the can down the road. You get a free loan from the government for the capital gains tax that you would have otherwise paid.
The benefits don’t stop there though. If you make an investment into an opportunity zone for at least five years, you get a 10% step-up in basis on the original gain that you deferred. Basically, you pay 10% less in taxes on the original amount that you deferred. If you hold on to it for seven years, it steps up to 15%, so you get a 15% break on your taxes that you deferred.
The big kicker here, and probably the biggest and most interesting part of this legislation, is that as long as you hold on to your investment in the opportunity fund for 10 years, any gains you make on this investment are tax-free. You pay zero taxes on any gains you make by investing in an opportunity zone as long as you hold on to it for 10 years. So if you have $1 million in capital gains and you say, instead of paying the $240,000 or whatever your capital gains tax would be, I’m going to take that $1 million and invest it into an opportunity fund or an opportunity zone investment. You don’t pay the $240,000 in capital gains tax, you get a step-up in that tax you deferred after five years, a bigger step-up at seven, and say your investment appreciates by $1 million Well, that $1 million of fresh gain that you have made, you pay zero capital gains tax on the appreciated amount assuming you hold on to it for 10 years.
This to us is an amazing place to go, especially if you have a lot of capital gains or if you were concentrated in a few different names. If you can diversify by investing in an opportunity zone fund, which we sponsor, it can be invested in a lot of different properties in opportunity zones. You get that amazing tax deferral and tax benefit on the gains. This is the opposite of what happened in the 1986 tax reform when many of the tax benefits for real estate investors went away.
We have already launched a $200 million fund, targeting investments in these different opportunity zones. The feedback we have gotten from investors has been phenomenal. People are finding out about this, and we have all kinds of investors from mom-and-pop retail investors that want to invest $25,000, $50,000, up to large institutional money managers who have hundreds of millions of dollars in gains. They are looking at investing into some of these opportunity zones because the tax benefits are so great.”
Get the complete detail on these new developments by reading the entire 3,654 word interview with Derek Uldricks, President of Virtua Capital Management, in the Wall Street Transcript.
Opportunity Zone Investing with Liquidity: Don Harmer Explains How
June 21, 2021
WisdomTree Investments (WETF) Gains Market Share and Generates Significant Organic Growth
April 04, 2013
Charles Lemonides Likes His Investors to Pay 50 Cents on the Dollar for His Value Stock Portfolio
January 04, 2019
Real Estate Stock Picks for Those Investors Looking to Bet on the Return of the US Economy
May 11, 2020
