Opportunity Zone Magazine Volume 1, Issue 3 - Page 27

27 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 OPPORTUNITYZONE.COM