An opportunity zone tax credit is not one benefit — it’s three separate mechanics on three separate clocks, and only one of them pays you cash in year one. Ethan Temianka is running a six-acre mixed-use redevelopment in Grove City, Ohio, entirely inside a designated zone, and the number he cares about most is the 10% state credit: put $1 million into the qualified opportunity fund, receive a $100,000 state tax credit, sell it for roughly 85 cents on the dollar.
That produces about 8.5% of liquidity in the first year — enough to largely cover an investor preferred return if you can go vertical inside twelve months. The federal deferral and the 10-year step-up are real, but they pay much later, and one of them can hand you a tax bill in the middle of the project if your counsel never mentioned it.
Below: how each benefit actually pays out, the credit-monetization math, the deferral cliff Temianka walked into, and what the capital stack looks like on a $15–20M development when construction rates are high.
Key takeaways
- A 10% state credit on capital placed in a qualified opportunity fund can be sold for roughly 85 cents on the dollar — about 8.5% of liquidity in year one, which can largely cover an investor preferred return.
- The same 10% credit applies to construction loan funds run through the QOF, so a $30–40M construction draw is also credit-generating capital.
- Federal gain deferral does not automatically run the full 10 years. Temianka thought it did, and now faces a large capital gains bill next year that he is planning to cover by selling an entitled apartment parcel.
- On a $15–20M project at current construction rates, the capital stack needs to be near 50% of project cost — land value, soft costs and cash on hand — before a construction loan pencils.
- Temianka’s first parcel closed August 2021; the main project targets groundbreaking end of 2027 or early 2028. Budget six to eight years from first acquisition to open doors.
From the Real Estate Pros Show
This article draws on an interview with Ethan Temianka of Patriarch Enterprises / Axiom Ventures on the Real Estate Pros Show, hosted by Quentin Edmonds.
What an Opportunity Zone Fund Actually Pays You, and When
There are three distinct benefits, and treating them as one blended “tax break” is how developers get surprised. Temianka’s Grove City project sits entirely inside a zone, and he has been routing sale proceeds from his residential portfolio into the qualified opportunity fund for several years.
- The state credit — pays now. Ohio grants a 10% state tax credit on capital placed in the fund. That credit is transferable, which is what makes it a cash event rather than a paper benefit.
- Federal gain deferral — pays for about five years. Gains rolled into the fund are deferred, not erased. Temianka describes a five-year window, after which the deferred gain comes due once.
- The 10-year step-up — pays at exit. Hold the investment long enough and appreciation inside the fund escapes capital gains entirely. As he puts it, if and when they sell the finished project, “we would be able to have zero capital gains.”
Three benefits, three clocks. The state credit is earned when capital goes in. The deferral expires on a statutory date that has nothing to do with your construction schedule. The step-up depends on holding period, not on whether the project is stabilized.
One important caveat: Temianka is describing his own Ohio project, and the rules have moved. He notes that recent federal legislation “changed some of the regulations” — in his words, it “screwed us over a little bit” on timing. His read is that the program stabilizes going into next year. Treat every number here as his experience in one state on one deal, and confirm the current mechanics with your own tax counsel before you structure anything.
Monetizing the State Credit to Cover a Preferred Return
This is the most immediately usable number in the whole structure. Put $1 million into the qualified opportunity fund, receive a $100,000 state tax credit, and sell that credit for around 85 cents on the dollar. Net: roughly $85,000 of cash back on $1 million deployed, in year one.
Run that against a preferred return and the picture changes. Temianka frames it as about 8.5% of liquidity in the first year — which, at current pref levels, can largely cover what you owe your equity in year one, provided you go vertical fast enough that the pref clock and the credit sale roughly line up.
That 10% state tax credit works out to about 8.5% of liquidity in the first year, which can largely cover that preferred return, especially if you’re able to go vertical within one year.
The second part is easy to miss. The credit is earned on capital placed in the fund — not just equity. Construction loan proceeds run through the same QOF also generate the 10% credit. On the $30–40 million of construction funds Temianka expects to put into the buildings, that is a materially larger credit than anything the equity generates on its own.
Two practical consequences for how you structure a deal:
- The credit is a real line in your year-one sources, so model it explicitly rather than treating it as upside.
- How construction draws flow — through the fund or around it — determines whether you earn the credit on them. That is a structuring decision made at formation, not something you fix later.
For an incoming partner, the credit travels with the position. Temianka’s pitch to developers looking at his pad-ready apartment parcel includes their ability to claim the state credit on their own capital.
Our initial Opportunity Zone attorney kind of fluffed up some of the positives and didn’t mention some of the negatives. We were thinking it was all the ten years. I’m getting hit with a big cap gains liability next year.
— Ethan Temianka, Axiom Ventures / Patriarch Enterprises
The Deferral Cliff Your Attorney May Not Explain
Temianka’s first Opportunity Zone attorney sold him the upside and skipped the downside. His words: they “kind of fluffed up some of the positives and didn’t mention some of the negatives.” The practical result is that he believed his gain deferral ran the full ten years. It does not.
He is now facing a large capital gains liability next year on gains he rolled in years ago, and the plan for paying it is to sell the 1.8-acre entitled apartment parcel. That works — he owns it free and clear, it’s pad-ready, and there are half a dozen local developers already in conversation. But note what happened: a tax event forced the timing of an asset sale inside a project that has years of construction left. That is a weaker negotiating position than choosing your own moment.
Two things to do differently:
- Put the interim tax bill in the model as a dated line item. Not a footnote. A specific year, with a specific source of funds identified — refinance proceeds, a parcel sale, reserves — that you would be comfortable executing on that date regardless of market conditions.
- Vet OZ counsel on downside scenarios specifically. Ask them to write out, in a memo, when you owe money, how much, what happens if the project slips two years, and what happens if you need to sell a parcel before the ten years are up. An attorney who only talks about the step-up has told you half the deal.
The rules have also been in motion, which raises the cost of vague advice. Temianka’s takeaway is that this is something “you have to kind of watch and understand as it’s changing” — meaning the memo you got in 2021 is not the memo you need now.
Building the Capital Stack on a $15-20M Development
Asked what single fix would change everything, Temianka’s answer was blunt: “if my signature was worth more for a bank.” That is the whole constraint. On a $15–20 million project with construction rates where they are, he says the capital stack needs to be close to 50% of project cost — land value, soft costs, and cash on hand — before the construction loan pencils.
Getting to 50% without outside equity means manufacturing it from the project itself. His sequence, in order:
- Sell the 1.8-acre apartment parcel. Graded, pad-ready, entitlements roughly 80% complete for 150 Class A units. He is willing to sell outright or retain a slice of equity, and is marketing it inside his network rather than through a broker, because the buyer has to walk the final development plan and PUD alongside him anyway.
- Get reimbursed for the infrastructure work. The site sits at the center of Grove City’s town center plan, with the First Street Promenade and pedestrian connections funneling into it.
- Sell the completed parking lot back to the city. He builds it; the city buys it back under the development agreement.
Only after that capital is recouped and placed does the construction loan for the hospitality portion become financeable. He is the sole capital partner — no outside investors in the development entity — which means every dollar of stack comes from his own liquidity or from monetizing pieces of the site.
The generalizable lesson: on a development of this size, entitlement work is not just permitting. Each entitled component becomes a sellable asset that funds the next stage. Sequence your entitlements around which piece you need to sell first.
Timelines: Five Years In, Three or Four to Go
Temianka bought the first parcel — an old funeral home, since demolished — in August 2021. More parcels closed in 2022, and two additional parcels in 2024. The development agreement with the city was signed roughly six months ago. Engineering is underway, as is FEMA flood work on the site.
Groundbreaking on the infrastructure and parking lot is targeted for early next year. Groundbreaking on the main mixed-use project is aimed at the end of 2027 or early 2028. His own summary: five years in already, and “another probably three, four years until we’re open for business.”
Against that, the projected stabilized revenue is roughly $3 million a year from four bars, eight food-hall vendors, six or seven retailers, and a restaurant pad. He will also operate the hospitality company himself — managing the bars, controlling the liquor licenses — while the eight food operators run their own kitchens. That keeps him out of back-of-house and captures the alcohol margin most developers hand off to a tenant.
The operational point worth stealing is about the rhythm of development work. It is spiky, not steady. “A lot of times we’re just sitting around and waiting,” he says — then when the architecture and engineering team needs him, it’s collaborate hard and get it done. He is candid that the waiting is the hard part, because you feel like you should be doing more.
Plan your other income accordingly. A six-to-eight-year development with no revenue until the end is only survivable if something else is paying the bills the entire time.
Where the Equity Came From: Lessons From Cheap Rentals
The capital funding the Grove City play came out of a Columbus single-family portfolio, and the way that portfolio was fixed is more instructive than the way it was built.
Temianka scaled to roughly 270 houses under management, bought at $20,000 to $40,000 apiece — cheap enough that California money went a long way. Then the math broke. On a $20–30K house, doing the rehab properly rather than slumlording it meant rehab costs often exceeded the acquisition price. Ten move-outs in a stretch, and you have spent a quarter of what the whole portfolio cost to acquire. Cash flow disappears.
The fix was consolidation, not more acquisition. He sold down to about 180 houses, concentrated on the South Side near Nationwide Children’s Hospital, and eventually to about 100 — clearing roughly $100,000 per property sold. He also moved to Columbus in 2017 to build his own management and renovation companies, after contractors lied and an employee embezzled. Three field guys and one property manager now run it near-autopilot.
Two financing details worth noting. Portfolio loans barely existed when he started — single-family debt was one-off personal or private loans. They opened up around 2017–2018, which let him show the stabilized rents, term out tranches of properties, and convert short-term debt into long-term debt at low rates.
The counterexample: a Flint, Michigan hundred-property portfolio bought at $8,000 a door on the theory that prices could not fall further. They fell to $4,000. His own capital, fortunately — he would “rather lose my own money than an investor’s.” And earlier, a margin call on a line of credit backed by stock hit him for $30,000 a day. Cheap doors are not a floor, and collateral you do not control is not collateral.
Frequently asked questions
How does the 10% state Opportunity Zone tax credit turn into usable cash?
In Ohio, the credit is transferable, so you sell it. Temianka’s numbers: $1 million placed in the qualified opportunity fund generates a $100,000 state tax credit, which he can sell for around 85 cents on the dollar — roughly $85,000 in cash without waiting for a project exit.
Transferability varies by state and the rules have been changing, so confirm the mechanics in your jurisdiction before you model the credit as a source of funds.
Can Opportunity Zone benefits cover an investor’s preferred return?
Largely, in year one, if the timing lines up. Selling the 10% state credit at about 85 cents produces roughly 8.5% of liquidity on capital placed — close to a typical preferred return. Temianka’s condition is that you go vertical within about a year, so the credit sale and the first pref payment fall in the same window.
The credit also applies to construction loan funds routed through the same fund, which on a $30–40M construction budget is a far larger credit than the equity alone generates.
When do you actually owe capital gains inside an Opportunity Zone deal?
Deferred gains come due on a statutory date, not when your project finishes. Temianka describes roughly a five-year deferral, after which he pays the deferred gain once — and he is facing that bill next year, mid-construction, on a project that will not open until 2028 at the earliest.
Model that payment as a dated line item with an identified source of funds. He plans to cover his by selling the entitled apartment parcel. Verify current timing with your own tax counsel, since recent federal legislation altered some of these rules.
How much equity does a $15-20M mixed-use development need in the capital stack?
Temianka puts it at close to 50% of project cost at current construction rates — counting land value, some soft costs, and cash on hand. That is what a lender wants to see before the construction loan works.
He is getting there by monetizing pieces of the site rather than raising outside equity: sell the pad-ready apartment parcel, collect infrastructure reimbursement, and sell the completed parking lot back to the city.
Why did cash flow disappear on a portfolio of $20-40K rental houses?
Because on houses that cheap, rehab often costs more than acquisition. Temianka refused to run substandard units, so a turn on a $25,000 house could exceed $25,000. Ten move-outs in a stretch consumed roughly a quarter of what the entire portfolio cost to buy.
His fix was to sell down from 270 to about 180 houses, then to roughly 100, clearing about $100,000 per sale, and to concentrate what remained in one appreciating submarket with in-house management and renovation crews.
The bottom line
Before you place a dollar in a qualified opportunity fund, get your counsel to write down the exact year and approximate size of your deferred gain payment, and name the asset or refinance that will fund it — because that date will arrive in the middle of construction, not after it.
