Understanding OZ Investments

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Loreen Byrd
5 years ago
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1 Understanding OZ Investments

1 An Arts & Historic District in Trinidad Old mining town in SE Colorado City is working to build a downtown arts and historic district with mixed use development City owns/manages 5 pieces of

2 1 An Arts & Historic District in Trinidad Old mining town in SE Colorado City is working to build a downtown arts and historic district with mixed use development City owns/manages 5 pieces of property it is looking to redevelop and catalyze downtown revitalization Area is currently zoned as a historical growth zone Most of downtown is within an Opportunity Zone Figure 1: Trinidad CO downtown with three types of land use plans specified: established (yellow), reinvestment (orange), and growth (green). The city seeks investment in the orange, reinvestment, areas.

3 Standard Financing Typically, redevelopment would be financed through private funds attracted by public loans and tax incentives Trinidad has attracted $35m in investment in even without Opportunity Zones Figure 1: Trinidad CO downtown with three types of land use plans specified: established (yellow), reinvestment (orange), and growth (green). The city seeks investment in the orange, reinvestment, areas.

Example: Crosstown Commerce in Memphis Recently completed project in Memphis, Tennessee Successful case of investment (without Opportunity-Fund financing) Community nonprofit formed in 2010 to

4 Example: Crosstown Commerce in Memphis Recently completed project in Memphis, Tennessee Successful case of investment (without Opportunity-Fund financing) Community nonprofit formed in 2010 to redevelop vacant building $200m project funded from over 30 sources New Market Tax Credit, Community Development Agency, Historical Tax Credit equity, City and County funding Project largely successful revitalized the local economy, created temporary construction jobs and permanent jobs

Financing with the OZ program Institutional investors can designate Opportunity Funds to invest in

Zones like Trinidad However, city must make itself more attractive to investment than other Opportunity

$287,000 in state and federal capital gains until 2026 2026: Investor pays capital gains on 85% of the

5 Financing with the OZ program Institutional investors can designate Opportunity Funds to invest in Trinidad and accrue minimal to no capital gains tax Investors are incentivized to invest in Opportunity Zones like Trinidad However, city must make itself more attractive to investment than other Opportunity Zones 2018: Investor puts $1m in 8-year Opportunity Fund : Investor defers paying combined $287,000 in state and federal capital gains until : Investor pays capital gains on 85% of the original investment 2028: Investor can sell investment in Trinidad and pay no capital gains tax on appreciation of investment

Ways to attract investment Develop a specific partnership plan Current planning document can be expanded to include dedicated community partnerships (with community groups, regional CDEs, equity

6 Ways to attract investment Develop a specific partnership plan Current planning document can be expanded to include dedicated community partnerships (with community groups, regional CDEs, equity investors) Must include plans for engagement with major stakeholders Support complementary anchor projects For example: La Puerta Project currently underway in Trinidad will bring more tourism and money into the region and increase the value of all local projects Other options include: Elm Street Station, Hugh s Lumber, Troller, Franch, Aiello buildings Making information publicly searchable makes it easier to attract investment Utilize federal tax credits Market Tax Credit, Historic Preservation Tax Credit Utilize state programs Enterprise Zones, Vacant Commercial Building Rehabilitation Credit Preservation Tax Credit Use municipal tools TIF funding, city bonds, streamlined review process

7 2 Affordable Housing in Sun Valley Western edge of Metro Denver One of Denver s lowest income neighborhoods 71% of residents below the poverty line Most residents live in Denver Housing Authority (DHA) units DHA is kicking off first phase of $240m investment in Sun Valley in September 2018 Will demolish existing housing and build 750 mixedincome homes (80% affordable housing) $ m predicted public and private investment over the next 10 years Sun Valley is an designated Opportunity Zone

lots are expensive for developers Attracting initial private investment is difficult with city s plan to

8 Standard Financing Partnership between developer, City of Denver and community leaders Sun Valley Eco District Trust (SVED), HUD, Sun Valley Community Coalition Stumbling points: Sun Valley warehouses/vacant lots are expensive for developers Attracting initial private investment is difficult with city s plan to maintain the neighborhood for lowincome residents (i.e., child care facilities, community centers instead of high-rent condos)

9 Financing with the OZ program Investors can buy up vacant lots without worrying about the amount they will appreciate, creating an incentive to purchase otherwise above-market rate properties and build community amenities If development is successful and rate appreciates, investors can keep their money in for 10 years and sell without accruing capital gains tax This aligns with the city s 10-year plan for the neighborhood

Ways to attract investment Develop narrative for equity investors Publicize available projects Increase private capital investment in reconstructions Use other funding mechanisms DHA and

10 Ways to attract investment Develop narrative for equity investors Publicize available projects Increase private capital investment in reconstructions Use other funding mechanisms DHA and HUD funds have already been utilized, but New Markets Tax Credits are an additional option Develop additional areas Ex: Robinson Dairy industrial plant, Sun Valley Homes replacement project

Financing Strategies to Encourage Transit Oriented Development Rail~Volution 2009

Financing Strategies to Encourage Transit Oriented Development Rail~Volution 2009 October 31, 2009 1 Six considerations for successful funding of transit oriented development. 1.Transit alone cannot create