Opportunity zone legislation is just too attractive for investors to sit and wait for the government to issue more guidelines around the practice, Urban Catalyst founder Erik Hayden said. Since the legislation, which provides tax incentives to investors who invest in selected distressed or low-income areas, passed at the end of 2017, investors have come off the sidelines.
To stimulate greater multifamily residential and commercial development in Opportunity Zones, U.S. Housing and Urban Development (HUD) Secretary Ben Carson today announced the Federal Housing Administration (FHA) will insure mortgages on mixed-use development under the agency’s Section 220 Program in thousands of lower income communities across the country.
These communities were chosen by governors from the wider universe of qualifying low income census tracts. Governors selected tracts that on the whole demonstrated far more distress across nearly every available social and economic measure than the eligible tracts they bypassed. The result is a map of both need and opportunity across which one of the most exciting economic and community development experiments in at least a generation will play out.
The economic divide in large cities continues to expand. Despite a financial resurgence following the 2007-2009 recession, the system wasn’t fixing itself. Enter Qualified Opportunity Zones (QOZ), a program included in the Tax Cuts and Jobs Act of 2017 designed to boost development in economically distressed communities.
A recent report by Cushman & Wakefield found that the 138 Opportunity Zone funds it tracks are targeting an aggregate total of more than $44 billion in equity. When some 200 smaller funds are factored in, overall capital inflows are expected to be anywhere from $100 billion to more than $6 trillion. Cushman & Wakefield also cited an MIT study that observed a 20 percent price premium for redevelopment of properties in the Opportunity Zones vs. outside the zones and a 14 percent premium on vacant development sites.
Qualified Opportunity Zones (QOZs) provide a unique opportunity for taxpayers to invest in low-income communities while also offering significant tax benefits. QOZs were included in the 2017 Federal Tax Cuts and Jobs Act (TCJA) and are designed to encourage investment and economic growth in designated low-income communities. While QOZs offer taxpayers significant tax benefits, the provisions are complicated and require careful consideration.
By using the Opportunity Zones designation, Secretary DeVos is focusing investment in projects that serve children in some of the neediest areas of the country. Establishing competitive priorities is a practice every Administration has used to encourage certain activities, assist specific groups, or focus government support in targeted areas.
Opportunity zone investors are struggling with a requirement many say is bordering on outlandish—that they more than double the value of the building in which they invest in two and a half years. One solution that plenty are considering, and suggesting to their advisers, is to find ways to lower that starting value on paper.
There’s been a lot of chatter about The Opportunity Zone program and its effectiveness (or not). Though the program is still in its infancy, and a third round of guidance from the U.S. Department of the Treasury is anticipated, analysts have already started to release some metrics about the plan.
In 2017, Congress created the Opportunity Zone program to encourage investment in economically distressed parts of the United States. While the Opportunity Zone program is primarily focused on providing tax breaks for investors, emerging companies may be able to capitalize on the program as well.