In the zoneGetty
Calls for momentum in Opportunity Zones will intensify when political campaigning heats up this next election cycle.
After legislation for Opportunity Zones passed in the Tax Cuts and Jobs Act in December 2017, news reporting centered on private sector capital formation in Qualified Opportunity Funds. The Wall Street Journal reports Treasury Secretary Steven Mnuchin anticipates designated Opportunity Zones will entice more than $100 billion in private capital for revitalization efforts. The latest guidelines from the IRS and Treasury in October re-emphasized the intent of the law is to drive economic growth.
In a title insurance context, Opportunity Zones are no different than elsewhere for risks associated with land title. Not all new trades and businesses in the zones will hold fee simple title to the real estate. Instead, many occupiers will lease space. Title coverage is available for commercial tenants with what’s referred to as a leasehold-owner’s policy.
Businesses may hear reasons, merited and unmerited, for why their leasehold estate won’t need title insurance. Just as title problems affect owners and mortgage lenders, title issues can adversely impact a lessee’s rights and interest in real property. Lessees are not immune to monetary loss, damage or unexpected eviction all stemming from title defects and title failure.
Without title insurance, if commercial tenants experience loss or eviction resulting from title issues, the consequence may halt their operations, causing a prolonged road to recovery, if any. Such results would be negating the intended social benefits of fostering on-the-ground, entrepreneurial risk through Opportunity Fund investments in designated O-zones.
The title insurance industry can use this opportune era of concentrated business formation as an entrée to educate on the protections and value of leasehold title insurance. Business advisors could add leasehold title insurance to checklists for occupiers who lease commercial real estate.
For disadvantaged areas that may be currently underserved, underbanked or otherwise constrained economically, seeds for microbusinesses and small businesses–like tenant improvement “build-out” programs and omnichannel marketing assistance–can sprout stability and growth. Insurance of any kind may not come to mind as one of the business-centric supports in a comprehensive community development toolbox. Although protections afforded through insurance are far less glamorous, they are among equitable considerations in a market-based economy.
For a tax-incentive program structurally designed for patient capital to lay the groundwork for startups and other businesses to create jobs and grow the American economy, it will be interesting to learn over time who shoulders the risks.