Opportunity Zone Magazine Volume 1, Issue 3 - Page 27

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look to larger, planned areas as projects that couple multiple
single asset projects centered around public investments that
reduce private capital risk and enhance return.
Cities also need to develop a strategy to encourage investments
at the other end of the scale spectrum - neighborhood and
community scale investments. Given the current bias towards
real estate deals, it is easy to understand why most cities may
have overlooked community scale projects. But there are some
key advantages to promoting investments at this scale. Firstly,
community scale investments do not require professional
or accredited investors and therefore encourage broader
participation. Secondly, this scale of investment can have a
more immediate and direct impact on the economic growth
and social equity of a neighborhood.
One of the open secrets of OZs is that the nature of OZ
transactions is private and only requires nominal involvement,
if at all, of local government rending municipalities blind to
much of the ongoing activity. As such, local governments
must make their involvement a necessary ingredient in order
to both collect data on transactions and to ensure that projects
address critical city concerns of increased resilience and social
equity. Cities must provide some added value to the process
for private investors and/or help to reduce risk or enhance
return to successfully nudge themselves in the middle of these
transactions.
EARLY STAGE OZ INVESTMENTS: BUILDING A PROSPECTUS
TO SUPPORT PRIVATE TRANSACTIONS
In an attempt to be relevant, the most aggressive cites are
currently preparing a marketing prospectus designed to
highlight local OZ transactions and their capital requirements
for completion. Those cities and regions that have developed
a prospectus or that are in the process of doing so are in the
top quartile of performers, but this status will be temporary as
the industry moves beyond the early stage of investment ready
projects.
Cities are focused on single asset projects because these are
the projects that are “investment ready” at this time. A
prospectus helps secure gap funding for what are mostly private
transactions. There was some urgency to close transactions
before the end of 2019 to take advantage of the 7-year tax
reduction benefit, but most investors only calculate a 1-2%
gain between the 7-year and 5-year tax reduction benefit.
Early Stage OZ Investments – Investment Ready Projects
(2018-2020)
Capture 7 year tax
reduction benefit
Swap one form of
capital for OZ
investment money
Projects likely to be
located in
“gentrified” areas
Intermediate Stage 2 OZ Investments – Concept Ready Projects
(2020-2022)
Capture 5 year tax
reduction benefit
Investment will likely
follow demonstrated
public investment
Municipalities will
drive location and
sharing of social
benefit
Municipalities will
drive location and
sharing of social
benefit
Late Stage OZ Investments – Combined Operating & Real Estate Projects
(2021-2026)
Capture 10 year tax
free appreciation
benefit
Investment will likely
follow demonstrated
public investment
May be one of projects or
part of large concepts with
multiple investments
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