Investors and developers are racing to get a piece of the pie in opportunity zones.
According to the Wall Street Journal, from developers to nonprofits, everyone is grabbing for the tax breaks offered for investments in low-income neighborhoods, or “opportunity zones.”
These zones were created as part of the tax overhaul and allowed governors to designate up to 25% of their state’s low-income Census tracts as tax-favored opportunity zones where investors can defer taxes by taking capital gains from other investments and reinvesting them in these areas.
“This is the biggest initiative of this type by the federal government with the least debate, the least staff support, the least research and still the least clarity,” Los Angeles Mayor Eric Garcetti told WSJ.
“It hasn’t really been fleshed out and that’s exciting for me,” he added.
The hope is to generate economic energy in these areas, and with as little oversight as there is, investors are excitedly gearing up to deploy capital in opportunity zones.
Many of the interested parties are raising funds to construct affordable housing projects in these areas where previously projects did not make financial sense.
According to Ross Baird, president of Village Capital Group, a venture capital firm in Washington D.C., these tax breaks are geared toward real estate investment, but his firm is exploring other ways to use the program.
This program is expected to cost the government $7.7 billion between 2018 and 2022, and $1.6 billion over 10 years as deferred taxes are paid, according to the Joint Committee on Taxation.
There are some concerns that the investments may be lopsided, skewing toward the lowest risk developments when the communities need higher risk developments to thrive, but generally, optimism is high as cities anticipate new economic vigor and investors see new opportunities in hitherto unaccessible areas.