Theres Still Time To Invest In Qualified Opportunity Zones – Business Facilities Magazine

By the BF StaffFrom the July/August 2020 Issue

When first introduced, federal Qualified Opportunity Zones (QOZ) provided a new hope for economically distressed neighborhoods in the U.S. The federal program was created under the 2017 Tax Cuts and Jobs Act (TCJA) to stimulate the economic development and job creation in low-income neighborhoods through the use of long-term private investments.

There are now designated QOZs in each of the 50 states, the District of Columbia and the five U.S. territories based on blocks of low-income areas by census tract that were submitted by each state or territory and certified by the Secretary of the U.S. Treasury.

The goal of the program is two-fold: (1) investment in a QOZ will revitalize the impoverished areas economy and, (2) if a taxpayer invests eligible gain into a Qualified Opportunity Fund (QOF), and meets several other requirements regarding the type of assets held by such QOF in the Opportunity Zone, then the taxpayer will be eligible for preferential tax treatment. The preferential tax treatment for taxpayers who invest in QOZs can include deferral on the initial gain invested in the QOF, partial reduction in deferred gain and exclusion of gain from investment in the QOF.

While the QOF program got off to a fast start, several issues had started to appear before the COVID-19 pandemic became wide-spread in the U.S. The Internal Revenue Service (IRS) released several revenue rulings and final regulations in December; however, many questions remained causing some investors to remain cautious about investing in QOFs.

When the COVID-19 pandemic caused major shutdowns in March, many investors turned their focus away from QOFs and back to making sure that their primary businesses and assets would survive in a volatile economy. Since March, there has been a sharp drop in the equity market, a freeze of commercial real estate investment and also a decline in asset values and capital gains which could have otherwise been invested in QOZs. Novogradac has reported that QOZ vehicles have raised about $10 billion; initial estimates had projected that QOZs would tap into nearly $6 trillion of capital gains.

While COVID-19 effectively slowed down the momentum of QOZs, the IRS is providing relief for investors and renewing hope through Notice 2020-39, which was issued on June 4. Part III of the notice extends deadlines for QOZ investors. Heres an overview of the requirements that have been relaxed, and how this may impact the QOZ program:

While COVID-19 is having a substantial impact on the economy and most businesses, it has also provided some unique opportunities with respect to QOFs. During the pandemic, many investors chose to sell assets to maintain their business operations or their personal lifestyle. Such sales are likely to have caused the realization of long-and short-term capital gains.

If a client has sold assets to provide liquidity, they may be able to invest the built-in gains into a QOF to alleviate some of the tax impact of the sale. In addition to reducing the built-in gain realized from the sale of capital assets, a properly vetted QOF may provide a better return for investors given the current economic environment. If invested properly and left in the QOF for a certain period of time, investors could see as much as a 15 percent increase in basis and tax-free growth within the QOF. Even if the growth never materializes, a 15-percent ROI through the increase in basis is not an insignificant return.

The sale of assets in order to survive the impact of COVID-19 will likely present unique opportunities in the real estate marketespecially those in and surrounding QOZs. With many businesses forced to shut down and real estate markets on the edge of a pullback, properties available for redevelopment within QOZs may start to become more accessible. If properties within the QOZs are bought and redeveloped by a QOF as required by the program, the goal of the programto revitalize certain economically distressed areasmay become a reality even faster. QOFs may ultimately be a great way for investors to help rebuild the areas hard hit from COVID-19 related issues. [By Christopher Steele and Jasmin Severino Hernandez, Chamberlain Hrdlickas Trust and Estates Practice.]

Gilbert celebrates its 100th birthday this year and has grown from a small farming community to the 5th largest city in Arizona. With a population over 265,000, Gilbert is larger than Salt Lake City, UT; Boise, ID; Tacoma, WA; and Richmond, VA. Located near the original Town site, Gilberts Opportunity Zone is one square mile and encompasses the communitys Northwest Growth Area and the downtown Heritage District. Two key community growth areas with focused revitalization efforts underway, both have a unified vision of making strategic infrastructure improvements, encouraging reinvestment, attracting new development, increasing property values and improving the quality of life.

On a typical night in Gilberts vibrant downtown Heritage District, music can be heard from the street, restaurant patios are filled with the laughter of family and friends, theater patrons are scurrying to take their seats and colorful art benches line the sidewalks. Over the past 10 years, Gilberts Heritage District has undergone a renaissance, transforming it into a premier entertainment and employment destination within metro Phoenix. Now home to over 140 businesses, ranging from restaurants to retailers to higher education institutions, the Heritage District has received over $60 million in public investment and attracted over $80 million in private investment since 2012. The district has also seen a 110 percent increase in sales tax revenue in the last five years.

This growth can partially be attributed to it being designated as a redevelopment area in 1989. Through revitalization efforts, this area continues to attract investment from industry leaders like ETix and is now home to Park University and the University of Arizona. Several other exciting projects are currently in the planning phase and will combine transit-oriented development with a mix of office, retail, restaurant, multifamily and hospitality amenities.

The Northwest Growth Area is Gilberts densest employment area, with 20.7 percent of the Towns job base concentrated here, and is home to 2.3 percent, or more than 7,500 of Gilberts residents. In Fiscal Year 2019, Gilbert kicked off a focused revitalization effort within the Northwest Growth Area, which includes a designation of a redevelopment area. The beneficiary of over $20 million in public investment, and over $130 million in private investment since 2012, this area continues to attract a portfolio of industrial, office, housing and retail uses with industry-leading anchor institutions and companies. These companies are primarily associated with Science, Technology, Engineering and Math (STEM) related occupations in aerospace, manufacturing and professional services industries. Notable employers in the Northwest Growth Area include GoDaddy, Lockheed Martin, Northrop Grumman, MOOG Broad Reach and Curry Supply Company. Ideal investment projects for the Northwest Growth Area could include manufacturing, distribution, research and development, office, hotel, breweries/tap houses and live/work residential.

Both the Northwest Growth Area and the Heritage District present unique and different opportunities for investors. A few of the current developments in Gilberts Opportunity Zone include:

North Anchor. In 2019, the Gilbert Town Council unanimously approved the development of this 9.1-acre site. This development will consist of a minimum of 500,000 gross square feet and is planned to include Class A office, retail, hotel, multifamily housing, an urban park, a pedestrian paseo and two parking structures.

South Anchor. Serving as a gateway entrance to the Heritage District, the South Anchor development will strengthen adjacent commercial uses and spur development of nearby vacant parcels. Gilbert is currently in negotiations with developers for the 2.18-acre site.

The Paseo. This north-south, car-free pedestrian and bicycle route will link existing Heritage District neighborhoods with key redevelopment areas. A common thread of distinctive landscape, paving, furniture and signing elements will create a joyful and memorable setting.

Vaughn Ventilator. A new alternative route that will provide new vehicular access through the Heritage District from the west. The slow-speed, human-scaled road will be designed to provide a setting for strolling and window-shopping in the District Core.

The Collab. The Collab is a four-story, mixed-use project that recently finished construction and is now available for lease. The 40,500-square-foot building brings new office, shopping and dining opportunities to the Heritage District.

University Building. Gilberts University Building is home to two higher education institutionsPark University and the University of Arizona.

Park University began offering classes in the fall of 2018 and grew to over 300 students in just one year. The University of Arizona College of Nursing began offering a Bachelor of Science in Nursing (BSN-IH) at the University Building in Fall 2019. This is the first program in the nation to incorporate integrative health knowledge and interventions into a BSN program.

The Town of Hamden is a diverse community of over 60,000 residents located in south central Connecticut, just north of New Haven. It is close to rail, public transportation, major highways and Tweed New Haven Airport.

Hamdens Economic and Neighborhood Development Dept. offers a comprehensive Business Incentive Program, provides hands-on services to small businesses and values the importance of workforce development. Hamden offers property tax abatements and waivers of building permit fees in its expansive QOZ, which includes BOROUGH496, a business center in the historic Highwood neighborhood.

The Economic Development Commission has developed a long-range Economic Development Plan which promotes programs for business retention and expansion. These initiatives include neighborhood revitalization projects, streetscape improvements, Town-wide energy strategy, a Business Assistance Center, workforce readiness initiatives and assistance to its nine local industry clusters, including retail, health care, financial services, insurance and manufacturing. Redevelopment and brownfield initiatives are managed through the Hamden Economic Development Corp.

The total increase over the last several years in tax base resulting directly from construction, expansions and relocations included more than $75 million in investment and over $2.5 million annually in net tax revenue attributed to the Business Incentive Program as well as larger project development investment.

Hamdens public school system offers great opportunities to prepare young people for good paying jobs and satisfying careers. The high school offers a new Hamden Engineering Careers Academy (HECA). Hamden High School also offers among the most Advanced Placement (AP) courses in the State of Connecticut. Hamden has numerous affordable housing options to meet the needs of all households.

The local economy remains diverse with a mix of manufacturing, retail and growing health care sector. The Town has a strong partnership between the business community, Town government and the Hamden Economic Development Corporation. The Towns Economic and Neighborhood Development Director has been the Director since 1999, facilitating the consistency needed for long-term projects and initiatives.

Some important recent economic development projects include the following:

An investment in one of Manchesters two opportunity zones is an investment in a vibrant, financially stable, diverse and growing community. Manchester is a dynamic municipality of nearly 60,000, ten miles east of Hartford. The commerce hub of the east-of-the-river region, Manchester boasts a wide variety of development opportunities. Our two OZs, surrounded by stable neighborhoods and a multitude of natural, cultural and recreational resources, provide safe investment opportunities with impressive upside.

Manchesters historic Downtown has seen a renaissance over the past five years as both the Town and the private sector have actively strengthened the districts status as a regional destination. The zone, including Downtown and the Spruce Street neighborhood, includes hundreds of local businesses and a population of 4,356 immediately adjacent to the commercial core. Since 2016, the Downtown area has seen millions of dollars worth of new investment and the rehabilitation of over a dozen existing buildings. These projects include several new or expanded restaurants; long-anticipated local business staples like a coffee shop, ice cream shop and local brewery; and an art studio/caf. Other major recent initiatives include the reconstruction of the primary municipal parking lot and the launch of WORK_SPACE, the Town-owned co-working and meeting center, which serves as a business development and entrepreneurship driver for both Manchester and the wider region. As a home to various small businesses, remote workers and creatives, WORK_SPACEs location within this opportunity zone presents a unique location opportunity for startups and entrepreneurs. Projects within this zone may also be eligible for other incentives, including: Manchesters Downtown 2020 Loan program for transformative projects, historic tax credits, tax agreements and tipping fee rebates.

The Broad Street area, in the geographic center of town and once its commercial center, is on the cusp of tremendous growth with continued public and private attention and investment. The Broad Street Redevelopment Area, a 148 acre mixed-use district, has been a primary focus over the past decade and is currently the Towns top economic development priority.

In 2009, Manchester voters approved an $8 million bond referendum to fund revitalization efforts in the district. Since that time, the Town has moved intentionally to implement the plan, purchasing and clearing key sites for development, reconstructing Broad Street and related infrastructure, remediating environmental contamination, connecting the district to the towns park and trail system, and adopting a flexible form-based zoning code, which allows significant development density and a range of allowed uses. The private sector has responded. The Town recently reached an agreement with a private Connecticut developer to construct a $100+ million mixed-use project on 24 acres in the district, including housing, office and entertainment uses. There are many other development opportunities available within Broad Street and this QOZ.

The Town of Mansfield is the home of the University of Connecticut (UConn), the states flagship university. Mansfield offers a skilled work force, excellent public school system and a unique mix of urban and rural amenities. The Opportunity Zone is located in the northern section of Mansfield, adjacent to the UConn campus. It encompasses the major northern and western gateways to UConn and the Town of Mansfield.

Building upon the success of the collaborative efforts to redevelop Downtown Storrs, Mansfield and UConn have turned their focus to four specific areas within the Opportunity Zone that have been identified as not only prime for development but also consistent with, and supportive of, the Towns Plan of Conservation and Development and the Universitys Master Plan:

The City of Meriden is in the midst of an economic rebirth following impressive public and private infrastructure investments. Catering to more than 129 major employers, Meridens economy is robust and is home to the expanding Hartford Healthcare MidState Medical Center.

With wide-open spaces and some of the best hiking in Connecticut, the City also boasts 3,200 acres of park space. Business properties in the citys Opportunity Zone are positioned in our historic Transit-Oriented Development District (TOD) area that hosts an award-winning 14-acre green with walking trails, pedestrian bridge and amphitheater.

The TOD District encourages mixed-use commercial and residential development and is poised for continued economic growth. Properties in the district are conveniently located near rapid rail connections to Hartford, New Haven, Boston and New York via our new train station and offer convenient highway access to I-691, I-91 and Rte. 15. Available properties in Meridens QOZ include: 132 West Main Street, an 8,454-square-foot corner lot in a building with expansive windows that allow for natural lighting, including office/retail space with a built-in kitchen; 61 Colony Street, a three-story building within walking distance of the Amtrak station; and 75 Cook Avenue, a 12,990-square-foot corner lot on over 1.2 acres with more than 360 feet of frontage. The Cook Avenue property is located close to downtown Meriden and the proposed Bridgewater Village project, and all three of its buildings have overhead doors.

Located in Connecticut in the heart of Fairfield County, the City of Norwalk is the states sixth-largest city and a diverse community rich in culture and personality. Uniquely situated on Long Island Sound, Norwalk features a vibrant Urban Core that overlaps Opportunity Zones, remarkable schools and beautiful beaches and parks, making it a wonderful place to live, work, play and invest.

Investors have called Norwalk the hottest city on the East Coast due to our proximity to New York City without break-the-bank real estate prices. Unique neighborhoods sprawling across half-an-acre prove to be a wonderful place to raise a family, and downtown apartments are completely booked with those starting their careers, looking to downsize, or who wish to be within walking distance of award-winning restaurants and shops.

Tech companies, entrepreneurs, artists, large-scale office ventures and traditional retail are all flocking to Norwalk. In fact, while shopping malls are struggling across the country, Brookfield Properties decided Norwalk was the ideal place to invest $600 million into the recently opened SoNo Collection. The SoNo Collection has contributed millions of dollars in annual tax revenue to Norwalk, created thousands of good-paying jobs and has become a regional go-to destination.

Norwalk is a thriving place to be. Developers believe in Norwalk. Forgotten parcels of land and old factories have been transformed into state-of-the-art apartments and mixed-use developments. The Pearl has elevated Washington StreetSoNofrom strictly a restaurant scene to a thriving downtown block. Nearby, The Waypoint is bringing high-end living at affordable prices. Below stylish apartments are restaurants and bars that bring people in from up the stairs and across the state.

COVID-19 has certainly made everyone rethink how businesses operate. Norwalk continues to prove its business-friendly attitude to help support local businesses. With Norwalks plethora of economic development tools, such as the Enterprise Zone and Opportunity Zone, it is well positioned to attract businesses, developers and new residents alike. This year alone Norwalk saw a significant spike in startup tech industries and boutique manufacturers. Since COVID-19 we have not seen the trend slowwith new companies like Scholastic moving in, and steadfast startups like Datto continuing to be on top.

Additionally, Norwalks QOZs overlap with other special investment areas and the Urban Core neighborhoods. These geographies have seen substantial growth since 2010 and continue to see attraction focused around Metro North Train stations. This trend is on track to continue, with over 1,000 new apartments planned in Norwalks Opportunity Zones for construction within the next year. This development attraction has leveraged millions of local, state and federal investment dollars which has supported streetscape improvements that include fiber optic infrastructure, lighting, sidewalks improvements and flood mitigation programs.

Ansonias QOZ runs the entire length of Main Street from Bridge Street to Division Street. Everything on Main Street is considered to be located in the QOZ.

Ansonia is seeing a revitalization of its downtown, a campaign known as Ansonia Recharged. The city is renovating a 65,000-square-foot building at 65 Main Street to include a new police station, community center and senior center. Ansonia recently transferred ownership of three city-owned buildings on Main Street to Shaw Growth Ventures, who just received approval for the first phase of what will be upwards of 300 apartments in the downtown, along with retail and commercial space.

The City of Ansonia has taken measurable steps to incentivize development in its QOZ; the QOZ is also a designated Enterprise Zone and is within the City Center Zone and TOD Zoning district. The TOD zone is made possible by the proximity (one block) to the Metro North Waterbury Branch line Commuter Rail station, and the tract is served by frequent fixed-route commuter bus service connecting to New Haven and Bridgeport.

These regulations have increased the permissible residential density; relaxed, and in some cases eliminated, the standard parking requirements; and maintain business opportunities on the first floor for retail and commercial development. The QOZ is concurrently in the low-to-moderate income tracts, according to the U.S. Housing and Urban Development guidelines for eligible Community Development Block Grants.

Available parcels that offer dynamic opportunities to become a part of Ansonias Recharged efforts include two commercial/residential buildings located at 158 Main Street and 200 Main Street, with pre-approved site plans to create 40 units of residential development with retail/commercial space; 218 Main Street, an approved commercial/residential lot available for sale; 403-495 Main Street, with 65,000 square feet of space (the former home of BigY supermarkets); and 420 Main Street, which shares an entrance with a Target store.

The Ansonia Shopping Centerhome to Marshalls, Home Goods, Bobs and Rite Aidhas more than 177,000 square feet available. The site is more than 15 acres, and it provides ample parking and the opportunity to develop an additional pad of approximately 3,500 square feet.

Windsor is strategically located between Hartford, CT and Springfield, MA on Interstate I-91 and adjoining Bradley International Airport. Major employers include The Hartford, VOYA, Amazon, SCA Pharmaceuticals and SS&C Technologies.

With a large, growing employment base, stable taxes, an AAA bond rating and an expeditious development review process, Windsor is a great place for investment.

The Tract 4738 QOZ (Wilson neighborhood) is located in the southeastern portion of Windsor. This neighborhood has easy access to I-91 and I-291. Additionally, the area is served by four different CT Transit bus routes. Commercial values in this tract exceed $28 million; nearly 25 percent of the area is zoned for commercial or industrial use. Residential development takes the form of compact, affordable single-family homes, duplexes and triplexes. Also featured in this neighborhood is a public library, a community center and three large public parks.

Recent construction activity in Windsor has totaled over $1.9 million, including relocation of a DSS office and demolition/remediation of a former gas station.

Current listings for lease include 3,200 square feet of office/retail space. Current listings for sale include multiple parcels ranging from 1.8 acres to 14 acres in size. Available sites for investment include the Town-owned redevelopment parcel (5.68 acres), the former Wolcott school and the privately owned, 14-acre former Flamingo Inn site.

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Theres Still Time To Invest In Qualified Opportunity Zones - Business Facilities Magazine