From the desk:Opportunity Zone Investing

Asked to bid a zone project where the 30 month clock is now my problem

A developer I've worked with wants a bid on a 6,000 square foot two story commercial building he's converting to apartments, and he's told me the improvement spend has to clear a threshold inside 30 months or the whole tax structure on his end falls apart. He put the number at just over $700k of qualifying work.

My budget for the scope he described lands around $640k of hard cost. Add my general conditions and fee and I'm at $712k, which is over his number by less than 2%, and that makes me nervous because I don't know what counts on his side of the ledger. Do my general conditions count. Does the architect. Does the sitework and the parking lot. Does the permit fee.

I've never had a job where the client's tax outcome depended on my invoice total hitting a floor, and I don't want to be the guy who came in under budget and blew up his deal. He's checking with his accountant but I want to understand the mechanism well enough to schedule around it. The 30 months is the other half, because the electrical service upgrade in this town has been running four to five months from application.

Answer

4aliyah_bAU2APRO6

The part I'd get in writing from him is when his 30 months starts, because it isn't the day you break ground. If his clock already started and he's been in design for eight months, your schedule has less room than either of you thinks. What counts toward the spend is his accountant's call and it varies with how the work gets classified, so ask him to send you the accountant's written answer on general conditions and soft costs before you sign anything.

2 replies

1luis_carrera Get yours

Coming in 2% over a floor is the same as coming in exactly at it. One value engineering conversation and you're under. I'd say that to him now rather than after he asks you to cut $40k in month four.