Opportunity Zones Opportunities + Risks for Municipalities and - - PowerPoint PPT Presentation
Opportunity Zones Opportunities + Risks for Municipalities and Elected Officials OVERVIEW OPPORTUNITY ZONE OVERVIEW 01 CURRENT AND FUTURE 02 DEVELOPMENTS PLAYERS AND PARTICIPANTS 03 BEST PRACTICES FOR MUNICIPALITIES 04 QUESTIONS AND
Opportunities + Risks for Municipalities and Elected Officials
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OPPORTUNITY ZONE OVERVIEW
02 03 04 05
CURRENT AND FUTURE DEVELOPMENTS PLAYERS AND PARTICIPANTS BEST PRACTICES FOR MUNICIPALITIES QUESTIONS AND ANSWERS
Low income census tracts nominated by governors (& DC's Mayor) and certified by the U.S. Department of the Treasury into which investors can now put capital to work financing new projects and enterprises in exchange for certain federal capital gains tax advantages. The country now has over 8,700 Opportunity Zones in every state and territory.
Venture Capitalist
SEAN PARKER Who came up with this?
Deferral of Taxation
Tax rate on gain from sale of Qualified Opportunity Fund (QOF) held for 10 years
Step-up in basis on
7 years. 10% if held for 5 years
How Big is this?
DESIGNATED OPPORTUNITY ZONES C E N S U S T R A C T S
LIVE IN OPPORTUNITY ZONES*
P E O P L E
OF THE COUNTRY'S LAND MASS L A N D
*56% are minorities
February 2019)
be finalized by late Q2/early Q3 2019)
to begin planning and identifying projects
business investments
Revitalization Council directing additional federal resources to Opportunity Zones should push local governments to develop coordinated economic development and Opportunity Zone strategies that align with their federal appropriations agendas
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ATTRACT CAPITAL AND INVESTMENT INTO UNDERSERVED NEIGHBORHOODS
2 3 4
PROVIDE COMPETITIVE ADVANTAGE IN APPLYING FOR FEDERAL FUNDING INCREASE PRODUCTION OF HOUSING, BUSINESS PROPERTY, AND INFRASTRUCTURE INCREASE JOBS & TAX BASE WHILE DECREASING POVERTY
B A L T I M O R E , M D Investor: Prudential Financial Office: 100,000 Sf Retail: 80,000 SF $77 Million Phase 1
Yards 56
H E F L I N , A L Investor: Lathan & Coleman Renovation of a historic high school into an assisted living and memory care center $12 Million
Heflin High School
A R L I N G T O N , W A Investor: SmartCap 12.5 acre industrial project for logistics ad warehousing $10.5 Million
Seattle Industrial
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WE RECOMMEND THAT CITIES DEVELOP STRATEGIES AROUND DISPLACEMENT IN OPPORTUNITY ZONES THAT ARE AT A HEIGHTENED RISK OF GENTRIFICATION
2 3 4
BOTH THE DISPLACEMENT AND THE POLITICAL RISKS OF THE PROGRAM STRONGLY SUGGEST TO US THAT EVERY MAJOR CITY PLAY AN AFFIRMATIVE ROLE IN DEVELOPING AND EXECUTING SOME FORM OF AN OPPORTUNITY ZONE STRATEGY AND AN ANTI-DISPLACEMENT STRATEGY INCREASE PRODUCTION OF HOUSING, BUSINESS PROPERTY, AND INFRASTRUCTURE LACK OF AN OPPORTUNITY ZONE STRATEGY LEAVES ANY CITY AT A COMPETITIVE DISADVANTAGE WHEN COMPETING FOR FEDERAL RESOURCES AS THE ADMINISTRATION IS ACTIVELY SEEKING TO DIRECT ADDITIONAL FEDERAL RESOURCES INTO OPPORTUNITY ZONES
transfer wealth from landowners IN COMMUNITIES to OUTSIDE investors?
WHAT IF OPPORTUNITY ZONES IN YOUR CITY...
O C T O B E R 1 6 , 2 0 1 8 W A S H I N G T O N D C
B I S N O W O P P O R T U N I T Y Z O N E F O R U M
"YIELD ENHANCEMENT" "OUTSIZE RETURNS" "COMMUNITY BENEFIT"
The current state of play leaves every local government with five key considerations that they have to resolve:
How can governmental entities align existing development incentives with a local OZ strategy? How can the City leverage other federal programs like the New Markets Tax Credit Program and the Low Income Housing Tax Credit in tandem with the Investing in Opportunity Act to make key investments in priority Opportunity Zones Has the City already identified projects that could provide the deal flow necessary to make an Opportunity Fund worth its time? And, is there a process in place to identify future priority projects that could be marketed to Opportunity Funds What’s the best structure to accomplish the Mayor’s affordable housing, community development and economic development goals that also reflects local political realities? How does the City intend to align its OZ strategy with its federal appropriations and federal competitive grant strategies to maximize the impact on the City’s Opportunity Zones?
HOW CAN CITIES LEVERAGE THEIR OPPORTUNITY ZONES?
“BIRMINGHAM MODEL”: A MUNICIPALLY-INSPIRED OPPORTUNITY FUND
T h i s i s p r i v a t e e n t i t y t h a t i s f u n c t i o n a l l y a p u b l i c - p r i v a t e p a r t n e r s h i p b e t w e e n a p u b l i c e n t i t y ( e . g . t h e C i t y o f B i r m i n g h a m ’ s D e p a r t m e n t o f I n n o v a t i o n a n d E c o n o m i c O p p o r t u n i t y ) a n d t h e F u n d i t s e l f ( w h i c h i n c l u d e s t h e F u n d ’ s i n v e s t m e n t c o m m i t t e e a n d a c o m m u n i t y a d v i s o r y b o a r d ) .
C i t y a n d / o r C i t y - a f f i l i a t e d e n t i t y i s s u e s a c o m p e t i t i v e R F P f o r a m a n a g e r t h a t m a n a g e s t h e F u n d i n c o n s u l t a t i o n w i t h t h e C i t y t o i d e n t i f y p r i o r i t y p r o j e c t s . P r o j e c t m a n a g e r h a n d l e s a l l o t h e r a d m i n i s t r a t i o n o f t h e F u n d .
M A N A G E R M O D E L
C i t y a n d / o r C i t y - a f f i l i a t e d e n t i t y m a r k e t s O p p o r t u n i t y Z o n e p r o p e r t i e s t o O p p o r t u n i t y F u n d s .
L O U I S V I L L E / E R I E M O D E L
City leaves Opportunity Zone strategy to private funds that constitute a de facto City Opportunity Zone strategy.
D O N O T H I N G M O D E L
RESOURCES
E c o n o m i c I n n o v a t i o n G r o u p : h t t p s : / / e i g . o r g F o r b e s : T h r e e b i g t a k e a w a y s f r o m O Z H e a r i n g : h t t p s : / / w w w . f o r b e s . c o m / s i t e s / j o s h u a p o l l a r d / 2 0 1 9 / 0 2 / 2 2 / 3 - b i g - t a k e a w a y s - f r o m - t h e - s t a n d i n g - r o o m - o n l y - h e a r i n g - o n -
K i n d e r R i c e : O p p o r t u n i t y Z o n e s : G e n t r i f i c a t i o n o n S t e r o i d s ? h t t p s : / / k i n d e r . r i c e . e d u / u r b a n e d g e / 2 0 1 9 / 0 2 / 2 0 / o p p o r t u n i t y - z o n e s - g e n t r i f i c a t i o n - s t e r o i d s P e n n s y l v a n i a D C E D : K e y s t o n e O p p o r t u n i t y Z o n e s h t t p s : / / d c e d . p a . g o v / b u s i n e s s - a s s i s t a n c e / k e y s t o n e - o p p o r t u n i t y - z o n e s /
SouthBanc faraji@southbancventures.com | 202.487.9565 Washington D.C.
Faraji Whalen Robinson
Pine Street Strategies jarrod@pinestreetdc.com | 404.275.3099 Atlanta, GA
Jarrod Loadholt
Civitas Commercial Real Estate Services cperkins@civitasre.com| 202.817.2800 Washington D.C.
Carmen Perkins
Additional Resources
Low income census tracts nominated by governors (& DC's Mayor) and certified by the U.S. Department of the Treasury into which investors can now put capital to work financing new projects and enterprises in exchange for certain federal capital gains tax advantages. The country now has over 8,700 Opportunity Zones in every state and territory.
Overview
Opportunity Funds are investment vehicles that invest at least 90% of their capital in Qualified Opportunity Zones. The fund model enables investors to pool their resources in Opportunity Zones, increasing the scale of capital going to investments selected by the manager. To capture the potential tax benefits offered by an Opportunity Fund, an investor must invest the gains from a sale of a prior investment (e.g., stock, bonds, real estate, a company) into an Opportunity Fund within 180 days of the sale of that investment. The investor only has to roll in the gain or profits from the sale of the investment, not the
Opportunity Fund are eligible to receive the tax incentives.
Deferral of Taxation
Tax rate on gain from sale of Qualified Opportunity Fund (QOF) held for 10 years
Step-up in basis on
7 years. 10% if held for 5 years
Potentially, quite a lot. Especially if you hold the investment for the long term,
*Example investment assuming a 7% annual return for both traditional and OZ investments from EIG