ULI Baltimore Bulletin

Advisory Board Meeting Recap: Opportunity Zones

In recognition of the all they do behind the scenes, committee members and sponsors of ULI Baltimore were honored at the 2018 Fall Advisory Board Dinner. Kim Clark, District Council Chair of the Urban Land Institute, began the program by highlighting the collective strength of each committee in unison with every platinum, gold, and silver sponsor. Distinguished speakers presented on Opportunity Zones while guests enjoyed a candle-lit dinner under the glistening chandeliers of Ruth’s Chris at the Pier 5 Hotel.

An Opportunity Zone is a low-income area with the potential to foster start-ups, local businesses, creative spaces, and innovative hubs. Currently depleted of resources, these neighborhoods could benefit from investment injections, and investors could receive advantageous tax benefits to do so. Bill Cole, President and CEO of the Baltimore Development Corporation (BDC), set the stage with background on the current Opportunity Zone map. Bill explained that after Congress introduced funds for the development of Opportunity Zones, census tracts were submitted to the Governor for consideration. The City of Baltimore was strategic in these zones with the vision centered around neighborhoods that have projects in the pipeline and institutions that anchor more projects, such as Johns Hopkins or Morgan State University. Of the proposed Opportunity Zones, 39 were accepted, 2 were rejected and 3 added, including Port Covington.

To delve deeper, Bill introduced Ben Seigel, the Opportunity Zone Coordinator working with the BDC. An expert on economic growth policy, Ben presented his strategic seven-point plan for development and noted that they are still in pencil given the evolving tax laws. Each point is of equal importance starting with a retrospective look at the regulations and intricacies of Opportunity Zones and tax code. Ben represents the city of Baltimore at the table for national conversations and coalitions and aims to connect with expert groups across the nation in order to tap into this knowledge. Ben’s efforts will be in sync with the state, as Baltimore has about 25% of the state’s Opportunity Zones. Marketing and promotional materials, like investment prospectuses, will be designed for developers, investors, and businesses. Ben considers it his role to facilitate an information exchange between all interested parties and build a database to highlight, track, and analyze this interest in businesses and real estate, matching those with synergy. A set of indicators will be developed to monitor, track, and evaluate progress once projects are up and running.

To complement this perspective at the city scale, the state’s investor-driven incentives were discussed by Frank Dickson, Director of Strategic Business Initiatives in the Maryland Department of Housing & Community Development. Under the pretense that unrealized capital gains can stimulate the local economy, this concept is both profit and social impact driven. As the creation of small businesses has declined over recent years, investing in Opportunity Zones can build businesses and the surrounding infrastructure. Investors benefit in the present through deferred taxes. Simultaneously, future capital gains taxes are discounted if investments are held for 5 years and entirely exempt if held for 10 years.

To qualify for these benefits, Opportunity Zone developments must satisfy the Substantial Improvement Clause by investing 100% of costs (minus land) into property revitalization. The second caveat is that there can be no more than 5% cash on books for the businesses in the Opportunity Zones and there must be a written plan to deploy this cash into working capital. By the same token, investors must also deploy 90% of assets in Opportunity Zone Funds annually. The state is developing an exchange application to match businesses seeking funds with investments for equity or debt.

Followed the presentations, the Q&A session ranged from the implementation phases and potential pros and cons to city residents to the selection process for those competing for resources and incentives. Once again, ULI Baltimore delivered an informative and engaging evening.

Given the complexity Opportunity Zones, and federal and state tax code, please consult professional counsel.

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