Opportunity Zones: Whose opportunity is it?

The 2017 Tax Cuts and Jobs Act established a new community development program designating funding to areas called Opportunity Zones. Investors have their eyes on these profitable areas and forming new capital funds. Now, community leaders are asking if a reduction for taxpayers with high capital gains will actually benefit lower-income communities? Learn about the current status of Opportunity Zones and how to steer that capital towards worthwhile projects.

Irvin Henderson, Trustee, National Trust for Historic Preservation, Henderson, NC; Member, NCRC Board

Michael Novogradac, Managing Partner, Novogradac & Company, Walnut Creek, CA
Kevin Rogers, Lending and Investing Manager, PNC Bank Community Development Banking, Scranton, PA
Matthew Heckles, Assistant Secretary, Dept. of Housing & Community Development State of MD, Lanham, MD

By Zoe Paige 

One of the critical hot topics at the conference was Opportunity Zones, a relatively new concept passed in 2017 under the Tax Cuts and Jobs Act that encourages investors to look into low- to moderate-income areas. On the federal level, the U.S. Treasury Department has tasked governors with picking which census tracts are qualified to be opportunity zones. Although it is government regulated, requirements for how to pick a “low income” census tract is still developing. Having elected officers passing this law brought some concern to the communities where they had direct influence. Before it would go into full effect, the IRS gave 145 comments on the new concept and public receiving resources they need is still to be evaluated.

The biggest question governors have: where is the ideal space to have an opportunity zone. There had to be at least a 20 percent poverty rate with no more than 80 percent of the median family income. Five percent of the census tracts have to be contiguous. In total, there are over 8,500 Opportunity Zones as of June 2018, which makes up 12 percent of the census tracts. The structure is about having a stabilized Fair Market Value (FMV) with a Managing Member taking 10 percent, OP Zone Investor having 70 percent, Silent Investor has no risk and Debt obtaining 20 percent for the project. IRS has been loose about the guidelines, and there is no guarantee the zones fit within the direction of the law or are sufficient for the communities who live within.

Matthew Heckles, who worked for the Department of Housing & Community Development in Maryland, stated out of 580 census tracts, 149 were required to include public input. Opportunity Zones are unique due to the high return on investment with capital gains being deferred up to 10 years. Roughly two-thirds of investors who benefit from capital gains are corporate. Requirements are lengthy and require plenty of capital to put skin into the investment. According to Local Initiatives Support Corporation, “the opportunity funds must be organized as a corporation or at least of a partnership solely for investing in Qualified Opportunity Zone Property.” Opportunity Zones brought a vast increase in private investment and pushed taxpayers money into capital for building in these low-income neighborhoods. Taxpayers dollars contributed over $6 trillion in individual gains. Opportunity Zones have fewer limits, centralized and costly creating more supply to expand beyond basic, affordable housing. It has one of the quickest and best ways to invest, and although it is new, it has created substantial profit for the investors and corporations.

Matthew Heckles
Jasmine Brewer – Heckles_ Opportunity Zones_Conference.pptx_FINAL.pptx

Michael Novogradac
Jasmine Brewer – OZ_Novogradac_NCRC Conference.pptx

Kevin Rogers
Jasmine Brewer – OZ_Rogers_Just Economy 2019 PNC deck.pptx

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