Former Goldman Sachs partner Peter Scaturro and real estate developer Lightstone Group are joining the rush into “opportunity zones” – designated areas that allow investors to claim tax breaks for putting money to work in low-income neighborhoods.
Scaturro’s wealth management firm, the PKS Group, is working with the New York developer to invest client money in individual real estate projects that benefit from the tax break. Their first project is a 203-room Moxy hotel in the Williamsburg neighborhood of Brooklyn that will cost about $125 million to build. The partners also are weighing plans to develop apartments in the Bronx, and could make more than $500 million in equity investments in opportunity zones this year, Lightstone Group President Mitchell Hochberg said in an interview.
Opportunity zones were created as part of the Trump administration’s 2017 federal tax law as a way to draw development and jobs to low-income neighborhoods. Investors who fund projects in the zones and meet certain requirements can defer capital-gains taxes on profits earned elsewhere and eliminate them on the new investments within the more than 8,700 designated census tracts.
As real estate investors began to understand the benefits of opportunity zones, firms including CIM Group and Starwood Capital Group have sought to raise funds dedicated to investing in the areas. Lightstone and PKS Group plan to approach projects on a one-off basis, giving investors a chance to put money into projects where Lightstone already controls the land.
“A lot of high net worth clients are more comfortable knowing exactly what they’re investing in rather than going into a blind pool,” said Hochberg.
The arrangement lets Lightstone focus on real estate while PKS handles fundraising, Hochberg said. The developer has already opened two hotels under Marriott International Inc.’s Moxy brand, and has several others in the works.
Critics of opportunity zones question whether the money will really go to areas of need, or if it would simply accelerate gentrification in some communities, potentially displacing existing residents. In at least some of the neighborhoods, developers probably would have gone ahead with the projects anyway.
–With assistance from Max Abelson.
©2019 Bloomberg L.P.