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Takeaways from the CommercialForum Opportunity Zones Summit

“Opportunity Zones are a hot topic for good reason,” Business Forum Vice Chair Tony Hardy, Marcus and Millichap, stated. “This program will allow us to bring dollars and traffic into the communities that need it most.”

Last week, our CommercialForum hosted the Opportunity Zones Summit. A hearth chat with Scott Glickman, who has been instrumental in the creation of the Opportunity Zones program, was followed by two panel discussions: Reinventing Disinvested Communities via Real Estate Improvement in Opportunity Zones and Blending Most ROI & Most Group Influence with Opportunity Zones.

Here’s what we discovered:

What Are Opportunity Zones?

Steve Glickman, Develop LLC, described Opportunity Zones as, “The only new form of place-based investment that has been created by Congress since the New Market Tax Credit in 2000.” He added, “It’s a geographically-constrained way to raise equity investment in low-income communities around the country.” Designated by the government, Opportunity Zones are properties present in communities the place there’s at the very least a 20 % poverty price – though on average, most are in communities with a 40 % poverty price. An incentive for investing in these Opportunity Zones is that so long as the funding is held for 10 years or extra, the investment becomes tax-free, no matter how much the investor has gained.

“What’s the catch?” moderator Rebecca Thomson, Thomson Real Estate Group, asked.

There isn’t one – besides that it may be a troublesome program to know, Glickman stated. Additionally, there are time constraints. As of right now, new investments may be made until 2027 and investment properties may be held till 2047.

Glickman suspects $100 billion go into Opportunity Zones round the country annually and believes Chicago will take a considerable chunk of that, notably on the south and west sides.

How Opportunity Zones Got here to Be

Originally often known as the Funding in Opportunity Act based by U.S. Senators Cory Booker, Tim Scott and Maggie Hassan, the Opportunity Zone program gained even higher bipartisan help following the 2017 protests in Charlottesville, Virginia. The Trump Administration sought solutions for cities with pressure and divide. Opportunity Zones, amongst different concepts, have been introduced in the Investment in Opportunity Act as part of the Tax Cuts and Jobs Act. Shortly thereafter, the Administration endorsed the bill and it was passed by Congress.

Words of Advice for Investing

“This is not just a real estate program,” Glickman reminded the viewers. “It’s also an investment for businesses, tech companies, charter schools [and] healthcare companies.” No matter who you’re, there are three issues Glickman needs buyers to remember:

  1. You must spend money on a geographically-constrained method. Once you spend money on one in every of these communities, the enterprise should keep working in the communities.
  2. You need to make investments for an extended time period to get the greatest part of the incentives – at the least ten years.
  3. You need to make an economically productive investment. In other words, you must create something new and/or considerably improve whatever it is you’re investing in. “From a real estate context, that means you have to invest 100 percent of the acquisition value of that asset, minus the cost of land,” Glickman defined. “If you have a $1 million [property], where $700,000 is for the building and $300,000 is for land, you have to invest $700,000 into the business within two and a half years of buying the property.”

Noah Birk, Kiser Group, who conducts a lot of his enterprise on the south sides where there are designated Opportunity Zones, had further phrases of advice. The first is to be sure to find a good property manager. Plenty of low-income communities have a scarcity of excellent property managers. “It’s often hard to find that talent.”

Birk additionally advised adding finishes. “A common misconception is that putting in nice finishes will not pay off. That’s not really the case. A lot of times when we hear about a lack of affordable housing in the city, the real problem is the lack of safe, nice and clean housing. Putting in those finishes does pay off – you get better quality tenants and a safer building.”

Breaking Into the Opportunity Zones Recreation

As a REALTOR®, you could be closer to getting involved in Opportunity Zones than you assume you’re.

“If you are already dealing with clients with 1031 investable gains, then you have clients who have successfully invested and are ready to invest in something else. Focus on those clients,” Leon Walker, DL3 Realty stated. “The OZ legislation is just a pivot from that. The pivot is this: for 1031, there needs to be like-kind exchange for real property under the Tax Cut and Jobs Act. For OZ legislation, it’s wide-open. You can sell a car or stock and put it toward an OZ. If your clients already have a 1031, you can start to move them toward something else to grow their portfolio.”

David Howat, Inland Nationwide Improvement Company, reminded buyers to be robust. When approaching municipalities about your challenge, “Don’t take ‘no’ for an answer. If the mayor’s not at the meeting or if the alderman’s not there [to help move the project forward], the answer to that question should be, ‘why not?’ Also, know a lot of Opportunity Zones have environmental challenges, so consider working with a developer to help cover those costs to get the project out of phase one.”

Opportunity Zones and Chicago

Terri Nietzel, CohnReznick, acknowledged political uncertainty and how it might trigger hesitancy from buyers. Local politics, taxes, elevated property values and the assessors’ new guidelines on reporting, transparency and larger assessments “have to be taken into account.” Nonetheless, Nietzel’s native and out-of-state shoppers have proven pleasure about investing in Chicago’s communities.

Scott Goodman, Decennial and Farpoint Improvement, stated his business and Opportunity Zones investments are targeted on Chicago because there’s a higher want right here. “In the south side of Chicago, there is a scarcity of investment, but there’s demand,” he stated. “When I see 100 acres of lakefront property, next to the largest conference center in the western hemisphere, without displacing anyone and now it gets designated an Opportunity Zone, it checks all the boxes for us.” Goodman’s Farpoint Improvement is the lead developer in the Burnham Lakefront venture.

It’s All About Group

When moderator Sarah Ware, Ware Realty Group, requested the panelists how we will ensure Opportunity Zones benefit the communities they’re meant to serve and don’t lead to gentrification and displacement, Walker shortly responded: “Be intentional.”

Bo Kemp, Faegre Baker Daniels Consulting, stated we need to shift the conversation “from gentrification to empowerment. ” “The issue isn’t change – change is going to come to every community whether we like it or not,” he stated. “The question is, are you putting people in positions where they’re being forced to change without having any input whatsoever?”

In an Opportunity Zones challenge Kemp is engaged on in Louisana, they’ve created a tax differential and education schemes for legacy residents. This manner, their tax will increase are slower than increases for newer residents as prices go up, they usually can determine to promote on their very own volition as an alternative of being pressured out.

Howat expressed the want to ensure the jobs being created are for locals. From engineers to architects to builders, there are gifted individuals proper in these communities and Opportunity Zones must be used as means to staff these staff.

Reverend Dr. Richard Tolliver, St. Edmund’s Redevelopment Corporation (SERC), emphasised the significance of native groups, nonprofits and faith-based organizations getting involved in the Opportunity Zones program. His church, which developed SERC, has been at the forefront of Opportunity Zones tasks in Chicago. They’re the sole investor in a $1,950,000 Opportunity Fund, which was created from the sale of an asset. He says SERC will continue to be involved in the program to spur improvement inside the communities they’re meant to serve.

And, before jumping in and making an attempt to assist, make sure you have conversations with group members and maintain them concerned throughout the whole challenge, Glickman stated. Buyers “cannot be successful without taking stock in the needs and wants of the community,” he stated.

Aldermanic Help

REALTORS® weren’t the only ones in attendance. Right here’s what a number of aldermen in attendance had to say about the Opportunity Zones Summit:

  • “It’s great to see the interest in Opportunity Zones, since a lot of my area falls into these zones. I’m optimistic these players will do some development within the ward,” Alderman Greg Mitchell, seventh Ward, stated. He’d wish to see the Opportunity Zones program deliver new facilities to the ward, like a full-service grocery store and extra retail and housing. “I look forward to more events like this. It educates me and those who I want [the ward] to do business with.”
  • “My number one takeaway I heard here is that it doesn’t just have to be individuals who invest in these properties,” Alderman David Moore, 17th Ward, stated. “The City has to get together with private partnerships, and they can set up their own fund…and they can direct the funds into the communities they need to go to.” Moore is happy to maintain creating relationships with REALTORS® and buyers who are excited about the Opportunity Zones packages to convey more improvement to his ward.
  • Alderman Jason C. Ervin, 28th Ward, felt the summit was useful in “getting ideas to jump-start and kick-start investment in the west sides of Chicago.” Certainly one of Ervin’s details of focus is to develop housing and anchor establishments on the west aspect, so he was notably excited to listen to about organizations like SERC who’ve developed their own Opportunity Funds for comparable causes. “If a not-for-profit can put a fund together, maybe it’s something the City of Chicago can get more involved in to attract funding.”

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