Opportunity Zone activity ramps up
When news about Opportunity Zones and Opportunity Funds first popped up last year, developers and investors were interested, but a lack of definite federal rules and guidelines led them to adopt a wait-and-see approach.
With proposed regulations finally released, those who have created Opportunity Funds as vehicles to provide investment in projects in Oregon's 86 Opportunity Zones are now unleashing campaigns to attract investors looking to do something with capital gains other than pay full taxes on them.
Developers, meanwhile, are courting those funds in the hopes of finding money to move projects in Opportunity Zones forward.
Opportunity Funds were created as part of the Tax Cuts and Jobs Act of 2017 to offer incentives to people willing to invest in Opportunity Zones, tracts of land designated by state and federal government as ripe for economic development.
By using Opportunity Funds to invest capital gains in projects in areas designated as Opportunity Zones, investors can defer paying taxes on those capital gains until Dec. 31, 2026. In addition, investors who keep their money in an Opportunity Zone project for five years, can reduce the amount of those taxes by 10 percent, with another 5 percent reduction if they stay committed to the project for a total of seven years. As an added bonus, an investor can pay as little as nothing in taxes on gains from an investment in an Opportunity Zone project if they wait at least 10 years to sell their share in the project.
In return, the investments are supposed to give areas in need of economic development a boost by supporting projects that bring in affordable housing and businesses that offer living-wage jobs.
One project in the Gresham area may be on its way to achieving that goal. Oregon Community Capital Inc., formed to manage a limited real estate partnership to financially support in projects in Opportunity Zones throughout the state, is getting ready to close on an affordable multifamily development in Rockwood.
"We've had a lot of developers ... throw numbers at us," said Brad Ketch, president of Rockwood Community Development Corp., which formed OCCI. "It's been really interesting to see the projections ... there's a very high degree of agreement that about 11 to 12 percent [return on investment] is possible."
Sturgeon Development Partners (SDP) also recently released information about its launch of a $330 million Opportunity Fund to support two projects located in Opportunity Zones in Portland and Salem.
The Salem project is a hotel that would replace a run-down parking structure at 195 Commercial St. SE. The fund size for the project is $43 million.
The Portland project is less defined, according to Vanessa Sturgeon, who will lead the redevelopment projects along with two other SDP members, Nick Fritel and Robert Pile. The project will consist of one or two mixed-use towers, and will feature both affordable and market-rate residential units, Sturgeon said. However, the exact location for the project is undecided, with the company still looking into possible eastside and westside sites.
The fund sizes for the Salem and Portland projects are $43 million and approximately $285 million, respectively. Investments for both projects must be committed by March. 31.
Back in Rockwood, OCCI is being considered as a funding source for a second possible project. An unnamed group is "quietly" assembling a lot of land in an east county Opportunity Zone area to build a multifamily project that would create as many as 1,600 affordable units, according to Ketch.
"They're looking at OCCI's [Opportunity Fund]," he said
Both Ketch and Sturgeon expect affordable housing projects will increase as investors become aware of more funds supporting Opportunity Zone projects.
"This is the initiative that can carry us through the next market softening," Sturgeon said.