Last night, Karp Strategies attended an insightful panel hosted by CoreNet Global that delved into the potential impacts of Opportunity Zones in New York. The panel, comprised of Brian Schwagerl, Brandon Lacoff, Michael Lohr, and Steve Polivy discussed the strategies they are pursuing to capitalize on this new tax incentive while recognizing the challenge of pursuing equitable development in Opportunity Zones. The panel surfaced a number of questions around Opportunity Zones in practice and in theory. We were especially interested in exploring:
How can we prevent displacement in Opportunity Zones and ensure there are measures in place for affordable housing, local hiring, and small business sustainability?
What steps are being taken to provide residents within and adjacent to Opportunity Zone investments with jobs and long-term workforce opportunities?
Since qualified investments into Opportunity Zones must come from capital gains, how can local residents and stakeholders who lack large-scale capital participate in the upside of opportunity zones?
What do successful community partnerships look like in Opportunity Zone investments?
The second tranche of regulations, which the IRS released on April 17, permits investing in businesses located in Qualified Opportunity Zones. What might successful commercial Opportunity Zone investments look like?
Panelists and audience members alike explored these important questions, noting that there is still a degree of uncertainty around Opportunity Zones in practice. They were quick to note the initiative’s potential as it relates to other tax credits. Opportunity Zones, unlike New Markets Tax Credits or Low Income Tax Credits, are unlimited in the amount of capital available . The estimated $6.1 trillion of unrealized capital gains helps us understand the sheer size of investments that could take place across 8,700 census tracts. That said, the federal government has not released any oversight or reporting requirements meaning that a strong accountability mechanism is still lacking.
Though Opportunity Zones are a place-based investment, Qualified Opportunity Funds should consider structuring their portfolios into people-based investments. New York and other gateway cities are facing a dearth of affordable housing and middle-income job prospects. We look forward to further clarification surrounding Opportunity Zones and working with developers, local governments, and communities to pair this new tax incentive with opportunities for legacy residents.
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