This is part two of our 2019 news review to remind us of some of the bigger stories that have an impact on real estate investors, developers, landlords, and other people in the business.
Spotlight on Opportunity Zones
One that’s grabbed a lot of headlines during the last year is the Opportunity Zone program, and various updates to the rules issued by the federal government. It was authorized as part of the Tax Cuts and Jobs Act of 2017, and allows investors who use capital gains from a previous investment to pay for projects in qualified neighborhoods. The program rewards investors with a tax break on the gains, but it’s also been a complicated program to participate in due to fuzzy guidelines about Opportunity Zone requirements, and other issues. The goal of the program is to inject capital into economically distressed areas across the nation. There are close to 9,000 approved Opportunity Zones.
Single-Family Zoning Shake-Up
Oregon scored another first in the nation with a rule that eliminates single-family zoning. State lawmakers passed the legislation to help increase the housing supply. It allows duplexes in small cities and buildings with up to four units in larger cities. The challenge to single-family zoning is something that’s gaining momentum in other parts of the nation as well. The city of Minneapolis was actually the first to ban single-family zoning. And the idea is getting attention in other areas, like California, although legislation that would do that has met with a lot of opposition.
California Welcomes the Backyard ADU
But… California did effectively end single-family zoning by approving laws that make it easier to build Accessory Dwelling Units or ADUs on single-family properties. ADUs can take many forms including granny flats, in-law units, bungalows, and cottages. One that took effect on January 1st of 2019 was the ability to legalize ADUs that had been built without permits in the past. There’s also a new law that makes it easier to convert a garage into a rentable space. In fact, some housing advocates have said it’s a homeowner’s civic duty to do so to help solve the state housing crisis, especially if your garage is only being used to store a lot of junk.
The Rise and Fall of WeWork
In the last year, we’ve seen the stunning rise and fall of WeWork. The co-living company was expanding at a break-neck speed with new shared offices around the world, the rebranding of the parent company as WeCompany, and the creation of dozens of We businesses like WeLive and WeGrow. The eccentric founder, Adam Neumann helped fuel that growth with lofty talk about changing the world, but the WeWork story was more about fantasy than reality. It had privately valued itself at $47 billion dollars and announced that it would go public. But that’s when the cards started to fall because potential investors were not happy with the fundamentals. The company had never turned a profit, its valuation was slashed some 80%, and the WeWork IPO was cancelled. Thousands of employees have been laid off, Neumann has stepped down and financial backer Softbank is still working on a bailout package. WeWork is a good example of the importance of fundamentals.
Economic Expansion Milestone
The U.S. officially marked its longest economic expansion this last July. According to the National Bureau of Economic Research, it started in June of 2009, and gave us a total GDP of 25% through June of last year. That’s actually less than we’ve seen during other boom times. That old saying about being slow but sure may help us avoid recession, but the big question is always — how long will this continue? The previous 120-month record was set from March of 1991 to March of 2001.
Accredited Investor Redefined?
The SEC proposed some changes to the definition of an accredited investor that would make it easier for more people to invest in real estate deals. The proposal includes new qualification categories that go beyond the current requirements for income or wealth. Among those new categories are “knowledgeable employees” involved with management of the deal, “registered investment advisors,” “limited liability companies” that meet certain conditions, and “Indian tribes.” The proposal would also add the phrase “spousal equivalent” to the definition for the purpose of including co-habitating partners who are not married. The announcement was made on December 18th followed by a 60-day public comment period, now underway.
These are just some of the big stories we have covered in 2019. We’re looking forward to 2020 and keeping you informed about news that has an impact on the real estate world.