The Office of General Counsel issued the following informal opinion on August 28, 2001, representing the position of the New York State Insurance Department.

Re: Proposed CAPCO Investment

Question Presented:

Would the proposed investment constitute a proper investment for a Certified Capital Company ("CAPCO")?


The proposed investment could constitute a "qualified investment" under the CAPCO statute, but the Department would need more specific information before a definitive conclusion could be reached.


The inquirer’s organization is currently considering an investment in a hospitality company with significant experience in the lodging and dining business. The inquirer stated that it is considering expanding in New York State by constructing a new 54,000 square foot facility. It appears that the proposed investment will largely involve financing the construction of the facility.


Under the CAPCO statute, N.Y. Tax Law §11 (McKinney Supp. 2001), CAPCOs are required to make "qualified investments", which are defined in the statute as follows:

"Qualified investment" – the investment of cash by a certified capital company in a qualified business for the purchase of any debt, equity or hybrid security, of any nature and description whatever, including a debt instrument or security which has the characteristics of debt but which provides for conversion into equity or equity participation instruments such as options or warrants.

N.Y. Tax Law §11(a)(9) (McKinney Supp. 2001).

The term "qualified business" is in turn defined, in pertinent part, as follows:

"Qualified business" – an independently owned and operated business that meets all of the following conditions as of the time of the first investment in the business:

* * *

( C ) It is involved in commerce for the purpose of developing and manufacturing products and systems, including but not limited to high technology products and systems such as computers, computer software, medical equipment, biotechnology, telecommunications equipment and products, processing or assembling all types of products, conducting research and development of all types of products or providing services, but excluding real estate, real estate development, insurance and businesses predominantly engaged in professional services provided by accountants, lawyers or physicians.

N.Y. Tax Law §11(a)(6) (McKinney Supp. 2001).

As indicated by the above-quoted statute, "real estate" and "real estate development" investments are expressly excluded.

As investment in the type of business described in the inquirer’s letter, namely, the operation of a restaurant or another enterprise engaged in the "hospitality" industry could constitute a "qualified investment" in that such businesses are engaged in "providing services" as allowed in the statute. In the instant case, however, the proceeds of the investment in question will largely or entirely be used to purchase land and/or construct an improvement upon real property. Without examining the proposed investment and the business itself in further detail, the Department cannot state whether the proposed investment is permissible.

For further information, you may contact Supervising Attorney Michael Campanelli at the New York City office.