When approaching Opportunity Zones, the conventional view on the opportunities presented by the legislation appears that the tax benefits are overwhelming the underlying project analytics, but read on to learn some new suggestions.
As a real estate professional, it seems like you can’t go a day without hearing about Opportunity Zones, and for good reason — the legislation offers immensely appealing tax advantages, and the industry is scrambling to figure out how to take advantage; it has the feel of a veritable gold rush. However, many investors are only seeing dollar signs and losing sight of the core intent of the legislation: to make a real and lasting impact on challenged communities. At Cedar, we often talk about doing good for the communities we serve while doing well by our investors. Opportunity Zone investments certainly can allow us to achieve both of these objectives.
As developers and everyday investors approach Opportunity Zones, the conventional view on the opportunities presented by the legislation strike me as myopic, since it appears that the tax benefits are overwhelming the underlying project analytics. Instead, I would suggest that those already involved in Opportunity Zone investments (or others clamoring to get in) must think constructively about the specific community involved and ensure that, particularly for development initiatives, the project aligns with the needs of the people in those neighborhoods.
Some important questions that developers and their investors should be asking very early on when exploring an Opportunity Zone development project: What are the needs of this community? What type of development will work in harmony with the local socioeconomic and demographic characteristics? How will the development fit in with the aesthetics and culture of the community at large? Becoming well-versed in the tax-related complexities of Opportunity Zone legislation is one thing, but a qualitative analysis of the local market to truly understand the character and sensitivities of a historically disadvantaged community is another entirely. It is this latter analysis that will determine the long-term success of the project and thereby allow the investor to truly realize the economic benefits the Opportunity Zone legislation contemplates.
One prime example of how Opportunity Zones, if approached in this sort of thoughtful manner, have the potential to address very real and prevailing economic issues is our project in Northeast Washington, DC’s Ward 7. In the Ward 7 neighborhood, an Opportunity Zone where Cedar Realty Trust is initiating a large-scale redevelopment, access to fresh and healthy food has remained a challenge. Such an area is often described as a “food desert”. Identifying and addressing this need is not solely the function of the developer — it also requires close collaboration with community stakeholders and public officials not to mention potential tenants. In fact, in the early stages of our Ward 7 project, we began a process of community and local government outreach that has allowed for close engagement with the community, Ward 7 Councilman Vincent Gray as well, as key officials in Mayor Muriel Bowser’s administration. In general, we have found supportive community and government partners in Washington, DC. In addition, we have had the opportunity to already begin enhancing the community through enriching art events, including Cultural DC’s Mobile Art Gallery and bringing the well-known Art All Night to Ward 7 for the first time.
Our Ward 7 project does not exist in a vacuum. Rather, on a national level, access to fresh and healthy food still remains a major problem that impacts 17.6 million people, highly concentrated in low-income urban communities. By identifying similar access gaps — be it to food, housing, transportation, or employment — developers can ensure that their Opportunity Zone projects are positioned for long-term, sustainable support from those that will be most affected by the development itself, such as what we have thus far experienced in DC’s Ward 7.
In conclusion, when approaching Opportunity Zones, the analysis needs to be far more holistic than simply a calculation of tax benefits. A greater emphasis on the human component of Opportunity Zone investments isn’t just about being charitable, rather it allows us, as corporate citizens, the opportunity to do good for the communities we serve while doing well for ourselves and our investors.
By: Bruce Schanzer (Globe St)
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