Local organizations are setting up infrastructure to manage Opportunity Zone investment. Opportunity Zone legislation was designed to not be an economic development program, like for example the ManufacturingExtension Partnership. Rather, it is a tax incentive that doesn’t require locale
Many local nonprofit agencies are hiring Opportunity Zone coordinators. Bruce Katz explores some of the principles and roles required to manage Opportunity Zones in his document, “Transactions to Transformation: How Cities can Maximize Opportunity Zones.”
The role has several potential duties that are listed here:
- Connect projects with investors. Market local Opportunity Zone eligible projects.
- Help investors understand risk.
- Raise money for a local fund that shares risks within local Opportunity Zone projects.
- Channel investment to projects with high levels of social impact. Provide a set of measurements to ensure social impact projects receive funding. Alternatively, a coordinator might inform the region on Opportunity Zone projects that are not aligned with sustainable local development.
- Analyze and communicate what sectors of the economy can support large amounts of capital investment, and help channel other incentives toward Opportunity Zone projects.
- Design and market an investment prospectus.
The Baltimore Development Corporation announced the hiring of a coordinator on October 30th, 2019. Coordination is key in what is shaping up to be the Wild West of private equity.
For Opportunity Zones to be an effective incentive, projects that receive funding must contribute to increasing wealth within communities. Itis important to increase risk capital in small to mid-size metros or distressed communities across the world. But a one time shot of capital is not enough as most of these distressed economies face broken markets across key sectors.
A coordinator at the local level must focus on assisting organizations craft projects that keep wealth within regions such as affordable and workforce housing initiatives and capital access for underserved neighborhoods and entrepreneurs.
Increasing Deal Flow
One of the challenges facing local economies upon the announce of the OZ tax incentive is deal flow. Small to mid-size regions suffer from a lack of investable projects. In a lot of cases, markets are too far gone. Quite honestly, the 1%-3% additional annual return that the OZ incentive can bring to the table is not enough to make many deals investable without significant upside appreciation over medium term.
Regions also don’t have a ready supply of experienced and resource ready developers willing to seek investors for real estate development initiatives. OZ coordinators can assist established entities such as nonprofits or community leaders to understand how an entity with core programming outside of real estate development might think like a developer for social good.