Kushners’ Beachfront Strip Eligible for Trump’s Poor-Area Tax Perks

(Bloomberg Businessweek) -- Pier Village promotes itself as a “jewel on the New Jersey coast.” It features Victorian-inspired oceanfront apartments, a pool club, and expensive restaurants. At a shoreline property built by Extell Development Co. in partnership with Kushner Cos., 786-square-foot one-bedroom apartments are being marketed for as much as $2,765 a month. At an adjacent development site, Kushner Cos. is constructing a 72-room luxury hotel.

The area is also, officially, distressed. That’s because this section of Long Branch, N.J., has been deemed an “opportunity zone,” a classification created in President Trump’s 2017 tax law, meant to spur investment in poor communities. Real estate developers are eligible for generous perks that include deferring some taxes and avoiding them altogether on future capital gains from projects in these areas if they own them for more than a decade. Kushner Cos. is one of many developers buying into about 9,000 opportunity zones across the country.

Only property purchased since the law was enacted is eligible, meaning the apartment building and the planned hotel can’t directly benefit. But since the area received the designation in April, Kushner Cos., owned by the family of Trump’s son-in-law, Jared Kushner, has spent more than $13 million buying additional properties in the zone, putting the company in position to take advantage of the tax breaks on future projects in the expanding beachfront complex. Jared Kushner hasn’t had any role in Kushner Cos. since becoming a senior adviser to the president in January 2017, his representatives have repeatedly said. A spokeswoman for the company didn’t comment.

Some opportunity zones are far less distressed than others. Designated areas in Queens, N.Y., have drawn investment from Amazon.com Inc. and Goldman Sachs Group Inc. Some have criticized the program for making tax breaks available to projects that would have happened anyway in neighborhoods that are already gentrifying.

Pier Village isn’t the sort of area that opportunity zones were designed to help. The law used 2010 census data to identify potential tracts, mostly disregarding economic changes in the past eight years. And because the census only counts “usual residents,” it doesn’t track the incomes of the seasonal residents who flock to the beach town in the summer, doubling the population. The census tract that includes Pier Village and other parts of Long Branch had a 22.6 percent poverty rate in 2010, just above the provision’s 20 percent threshold. New Jersey has more than 200 census tracts with higher poverty rates, but only about one-third of them were among the 169 to receive the designation.

Under the tax provision, governors can nominate 25 percent of a state’s low-income census tracts as opportunity zones. New Jersey Governor Phil Murphy, a Democrat who took office in January, submitted his recommendations to the U.S. Department of the Treasury in March after working with staff of Democratic Senator Cory Booker, who received financial support for his 2013 campaign from the Kushner and Trump families. A spokesman for the senator says his staff helped explain the program to local officials but didn’t weigh in on the selection of Long Branch or anywhere else.

“No outside entity had any involvement in the selection of the zones, which was done through an objective process,” Christine Lee, a spokeswoman for Murphy, wrote in an email. Murphy distributed zones among counties based on the population in poverty and used a formula that weighed income, unemployment, property values, proximity to transit hubs, and existing investment, she said. Poverty has increased in the tract since the 2010 census, she said, and the presence of high-end seasonal housing “did not disqualify them from receiving an opportunity zone designation,” even though Monmouth County, where Long Branch is located, is among the nation’s wealthiest.

The Kushner family has deep roots in Long Branch. Charles Kushner, Jared’s father, built his real estate fortune in New Jersey before pivoting to New York a decade ago, and his family has summered in the community for decades. At a January groundbreaking for the hotel, Jared’s sister Nicole Meyer recalled walking the town’s boardwalk with their grandmother Rae Kushner, who owned a condominium there. In 2007 the family upgraded, spending $4 million on a beachfront home with a pool and tennis court outside what would become the opportunity zone.

After the designation, the Kushners purchased the 24-room Bungalow Hotel for $9 million in May and spent $4.15 million in August on two single-family homes, all in the zone. The homes are in “one of the most desirable beachfront destinations along the Jersey Shore,” the Kislak Organization, which brokered the transactions, said in a statement when the deals closed.

To get the benefits, opportunity zone investors need to spend funds equal to the purchase price on improvements to the property. They must also invest through so-called qualified opportunity funds. So far, most lawyers have been structuring deals so that those funds own stakes in limited liability companies, which in turn own the property. There are no public disclosure requirements for qualified opportunity funds, and selling interests in the LLCs doesn’t require disclosure either. Treasury hasn’t published any rules that would allow the IRS to vet these structures, and industry groups have argued against creating any, saying that doing so would be “overly stringent.”

Structuring purchases in opportunity zones to be compliant with the program is “a no-brainer,” says Terri Adler, managing partner at Duval & Stachenfeld LLP, a New York law firm that specializes in complex real estate transactions. The only major exceptions, she says, would be for developers who plan to sell within a short time or for investors who don’t pay U.S. taxes.

Jared Kushner, who transferred many assets to family members when he became a White House adviser, was still a beneficiary of the company that bought the houses as of January, according to his most recent financial disclosure.

Kushner Cos. would not say whether it plans to take advantage of the tax breaks. Even if it doesn’t, the opportunity zone designation could prove lucrative. Investors expect to see prices spike for the best development sites in places that are already gentrifying. And a surge of development by others could make the entire area, including the Kushner properties, more valuable.

To contact the editor responsible for this story: Robert Friedman at rfriedman5@bloomberg.net, Pat Regnier

©2018 Bloomberg L.P.