MAY 31, 2019|LOU HIRSH
Opportunity Zones Link Officials in Small Towns With Wall Street Bankers to Build Stores
Projects Must Still Be Otherwise Financially Viable, Executives Say
Opportunity zones could encourage retail development in U.S. communities where it's otherwise tough to get projects built. Photo: Pixabay, via Pexels Small towns are joining forces with the biggest players on Wall Street to try to take advantage of the federal Opportunity Zone tax incentive program.
Cities across the nation are getting some help as they pitch sites in opportunity zones, which provide tax breaks for developers willing to build projects in these areas deemed to be economically distressed, as potential locations for retail centers. They are working with high-powered firms such as Goldman Sachs, for decades one of the most profitable securities firm.
The federal government has projected that more than $100 billion could eventually be invested in 8,700 U.S. zones deemed eligible for project-related tax deferments under new tax laws. Opportunity zones allow developers and their investors to defer a percentage of capital gains on the sale of a property, with the percentage rising proportionally to the length of time the asset is held.
The zones generally are meant to spur creation of jobs and services that otherwise aren't available in a designated area since the program was established in December 2017. The potential cash flow has since caught the eye of Wall Street banks, giving small municipalities a stronger partner in setting up a development.
"Opportunity zones are not going to be a solution for a project that’s (otherwise) not going to pencil out," said Scott Maxfield, vice president with the Urban Investment Group at financial services firm Goldman Sachs, during a panel on the topic at a recent real estate retail trade show in Las Vegas. Executives and town officials say the program should be one of many local, state and federal programs already in place to spur economic development including new commercial real estate projects. Maxfield said Goldman’s urban investment fund in recent years has invested around $8 billion into urban developments, and about $6 billion of that has been in urban areas now deemed eligible under the opportunity zone program. Its most recent investments under the program include a retail center anchored by a Shop Rite grocery store in Orange, New Jersey, and it is scouting for similar projects nationwide.
Arturo Sneider, co-founder and chief executive of Primestor Development Inc. in Los Angeles, said his company has done numerous projects in other tax-incentive programs, and the new opportunity zone incentives should serve "as another quiver" in the array of options to get more of those done.
Some Concerns
There are caveats. For instance, Sneider noted there could be complexities in planning certain projects, getting them completed and ultimately taking advantage of the tax incentives in a timely manner. Retail projects catering to the shifting tastes of younger consumers, for example, could be more difficult to design and take longer to gather community support and garner local government approvals.
"You don’t know what that (project is) going to look like 10 years from now," Sneider said.
Other city representatives say they are optimistic about opportunity zones bringing much-needed new retail to their communities.
Catherine O’Connor, president of the Alliance for Economic Development in Oklahoma City, Oklahoma, said her city and about 30 others – including Kansas City, Missouri, Louisville, Kentucky, Birmingham, Alabama and Erie, Pennsylvania – are well along in setting up designated opportunity zone websites and drafting formal prospectuses of projects ready for potential investment by developers.
"We’ve begun outreach in the community to try to match up potential projects with prospective developers," O’Connor said.
Santa Ana, California’s biggest current retail project in the works is an approximate $300 million overhaul of the aging MainPlace Mall, being planned by Dallas-based developer Centennial Real Estate. Steven Mendoza, the city’s executive director of community development, said that project has no connection with opportunity zones or other incentive programs – it actually got started after Santa Ana officials met Centennial Chief Executive Steven Levin at a trade show last year.
However, Mendoza said leaders of California’s 11th-largest city are optimistic that the work being done by Centennial could spur other developers to build retail and other types of projects there, and many could make use of opportunity zones to do so.
Santa Ana has a total of 3,800 acres in various locations designated as opportunity zones. Among those is the former Willowick golf course, where planning is in early stages for a master planned community that could include multiple types of commercial space, such as retail.
"We should be able to get some new activity in some of these places as a result of opportunity zones," Mendoza said. He added that his Southern California city will be working with others in Orange County, such as Anaheim and Garden Grove, to bring more retail to the region through that and similar programs
Opportunity Zones Link Officials in Small Towns With Wall Street Bankers to Build Stores
Projects Must Still Be Otherwise Financially Viable, Executives Say
Opportunity zones could encourage retail development in U.S. communities where it's otherwise tough to get projects built. Photo: Pixabay, via Pexels Small towns are joining forces with the biggest players on Wall Street to try to take advantage of the federal Opportunity Zone tax incentive program.
Cities across the nation are getting some help as they pitch sites in opportunity zones, which provide tax breaks for developers willing to build projects in these areas deemed to be economically distressed, as potential locations for retail centers. They are working with high-powered firms such as Goldman Sachs, for decades one of the most profitable securities firm.
The federal government has projected that more than $100 billion could eventually be invested in 8,700 U.S. zones deemed eligible for project-related tax deferments under new tax laws. Opportunity zones allow developers and their investors to defer a percentage of capital gains on the sale of a property, with the percentage rising proportionally to the length of time the asset is held.
The zones generally are meant to spur creation of jobs and services that otherwise aren't available in a designated area since the program was established in December 2017. The potential cash flow has since caught the eye of Wall Street banks, giving small municipalities a stronger partner in setting up a development.
"Opportunity zones are not going to be a solution for a project that’s (otherwise) not going to pencil out," said Scott Maxfield, vice president with the Urban Investment Group at financial services firm Goldman Sachs, during a panel on the topic at a recent real estate retail trade show in Las Vegas. Executives and town officials say the program should be one of many local, state and federal programs already in place to spur economic development including new commercial real estate projects. Maxfield said Goldman’s urban investment fund in recent years has invested around $8 billion into urban developments, and about $6 billion of that has been in urban areas now deemed eligible under the opportunity zone program. Its most recent investments under the program include a retail center anchored by a Shop Rite grocery store in Orange, New Jersey, and it is scouting for similar projects nationwide.
Arturo Sneider, co-founder and chief executive of Primestor Development Inc. in Los Angeles, said his company has done numerous projects in other tax-incentive programs, and the new opportunity zone incentives should serve "as another quiver" in the array of options to get more of those done.
Some Concerns
There are caveats. For instance, Sneider noted there could be complexities in planning certain projects, getting them completed and ultimately taking advantage of the tax incentives in a timely manner. Retail projects catering to the shifting tastes of younger consumers, for example, could be more difficult to design and take longer to gather community support and garner local government approvals.
"You don’t know what that (project is) going to look like 10 years from now," Sneider said.
Other city representatives say they are optimistic about opportunity zones bringing much-needed new retail to their communities.
Catherine O’Connor, president of the Alliance for Economic Development in Oklahoma City, Oklahoma, said her city and about 30 others – including Kansas City, Missouri, Louisville, Kentucky, Birmingham, Alabama and Erie, Pennsylvania – are well along in setting up designated opportunity zone websites and drafting formal prospectuses of projects ready for potential investment by developers.
"We’ve begun outreach in the community to try to match up potential projects with prospective developers," O’Connor said.
Santa Ana, California’s biggest current retail project in the works is an approximate $300 million overhaul of the aging MainPlace Mall, being planned by Dallas-based developer Centennial Real Estate. Steven Mendoza, the city’s executive director of community development, said that project has no connection with opportunity zones or other incentive programs – it actually got started after Santa Ana officials met Centennial Chief Executive Steven Levin at a trade show last year.
However, Mendoza said leaders of California’s 11th-largest city are optimistic that the work being done by Centennial could spur other developers to build retail and other types of projects there, and many could make use of opportunity zones to do so.
Santa Ana has a total of 3,800 acres in various locations designated as opportunity zones. Among those is the former Willowick golf course, where planning is in early stages for a master planned community that could include multiple types of commercial space, such as retail.
"We should be able to get some new activity in some of these places as a result of opportunity zones," Mendoza said. He added that his Southern California city will be working with others in Orange County, such as Anaheim and Garden Grove, to bring more retail to the region through that and similar programs