By the BF Staff
From the September/October 2019 Issue
The new Opportunity Zone federal tax incentive, created by the 2017 Tax Cuts and Jobs Act, is designed to spur economic development and job creation by encouraging long-term investments in economically distressed communities nationwide.
The U.S. Treasury Department has designated 8,764 opportunity zones (known as Qualified Opportunity Zones, or QOZs) in all 50 states, the District of Columbia and five U.S. territories. Nearly 35 million Americans live in areas designated as Opportunity Zones. These communities present both the need for investment and significant investment opportunities. (A state-by-state breakdown of QOZs can be found here.)
Based on data from the 2011-2015 American Community Survey, the designated regions had an average poverty rate of over 32 percent, compared with the 17 percent national average. Additionally, the median family income of the designated tracts were on average 37 percent below the area or state median, and had an unemployment rate of nearly 1.6 times higher than the national average.
“We anticipate that $100 billion in private capital will be dedicated towards creating jobs and economic development in Opportunity Zones,” said U.S. Treasury Secretary Steven T. Mnuchin. “This incentive will foster economic revitalization and promote sustainable economic growth, which was a major goal of the Tax Cuts and Jobs Act.”
The Treasury Dept. issued its first set of IRS regulations last October, clarifying which gains qualify for deferral, which taxpayers and investments are eligible, the parameters for Opportunity Funds and other guidance; a second traunch of IRS rules for QOZs was issued in April. (For an in-depth look at the new regs, see our sidebar, Understanding Opportunity Zone Guidelines.)
The Opportunity Zone incentive offers capital gains tax relief to investors for new investment in designated areas. Investment benefits include deferral of tax on prior gains as late as 2026 if the amount of the gain is invested in an Opportunity Fund (QOF). The benefits also include tax forgiveness on gains on that investment if the investor holds the investment for at least 10 years. Opportunity Zones retain their designation for 10 years, but under the proposed regulations, investors can hold onto their investments in Qualified Opportunity Funds through 2047 without losing tax benefits.
Treasury’s QOZ designations were based on nominations of eligible census tracts by the state governors. Each state nominated the maximum number of eligible tracts, per statute, and these designations are final. The statute and legislative history of the Opportunity Zone designations, under IRC § 1400Z, do not contemplate an opportunity for additional or revised designations after the maximum number of zones allowable have been designated in a state or territory.
Based on IRC 1400Z-1, designations are based upon the boundaries of the tract at the time of the designation in 2018, and do not change over the period of the designation, even if the boundaries of an individual census tract are redefined in future Census releases.
According to a report from Real Capital Analytics, there is more than $6 trillion in unrealized capital gains eligible to be deployed into QOZs.
Several states have enacted enhanced tax credits to amplify the impact of the federal QOZ program. For example, legislation recently introduced in the Michigan State Senate would create a tax credit for qualified research and development expenses related to the automotive industry in QOZs. S.B. 378 would allow a credit for a percentage of the difference between the taxpayer’s R&D expenses in a QOZ and expenses in a QOZ during the three-year base period, with a formula to determine the credit if the taxpayer didn’t incur qualified R&D expenses in the base period.
[Editor’s Note: After the Treasury Dept. released its list of designated QOZs, critics of the program have noted that many of the census tracts classified as opportunity zones had already attracted a significant amount of investment prior to the launch of the federal QOZ program. The New York Times published a front-page article in August suggesting that some QOZ tax breaks will be going to luxury projects backed by some of the wealthiest investors in America.]
TOPEKA, KS HAS THREE OPPORTUNITY ZONES
The wonder of OZ can be found in Kansas when stepping into Topeka. With growing vibrancy and a palpable energy toward progress, a trip to Topeka is a trip to an emerald world of endless investment possibilities, thanks, in part, to the three new opportunity zones established here.
While other rural counties and particularly blighted city areas were also granted opportunity zones, Topeka’s are situated in a dynamic core of resurgence. From the residential-commercial downtown to the riverfront green space to the growing NOTO arts district and the well-established industrial district, Topeka’s dynamic core is steadily becoming a huge asset to Topeka. This variety and rejuvenation isn’t seen in other opportunity zones.
Topeka’s downtown is a mixed-use development of commercial, retail and residential. Over the last few years, it has seen tremendous growth with the additions of new restaurants, breweries, shops and a boutique hotel. There will also be a plaza opening in the spring that gives new space for concerts and events, while also adding to the beauty and livability of the area. These advances have helped the downtown hit a stride as one of the best spots in Topeka not only to live, but also to invest. Similar growth is happening in NOTO and the riverfront. Local boutiques, restaurants and arts centers are reshaping the area and turning NOTO into a hub for artistic-minded individuals. In addition, parks and green spaces are beginning to pop up throughout the area, helping bring even more people to NOTO.
These areas may be going through a resurgence, but that doesn’t mean they aren’t still capable of massive growth. According to a recent study by Development Strategies, just within its dynamic core, Topeka can support 690,000 more square feet of retail, 300,000 more square feet of new or rehabbed office space, 900 new or rehabbed housing units and 200 new hotel rooms. The city has a market and a need for business and Topeka is invested in bringing it here.
There is a reason why corporations, including Frito-Lay, Mars Chocolate, Goodyear Tire & Rubber, Home Depot, Target and many more have chosen Topeka as their home. The city is situated in the middle of the U.S. with an infrastructure built for business. Moreover, Topeka’s three opportunity zones are all situated within a few minutes of interstate highways and class I rail systems. Within one day, goods shipped by truck reach 25 percent of the U.S. population and 90 percent by day two. The cost of living in Topeka is 7.4 percent lower than the U.S. average and the cost of business is 15 percent less than the average as of 2018.
Topeka has the workforce to support growing companies. Within 60 miles of Topeka, there are three universities—the University of Kansas, Kansas State University and Washburn University, along with a technical school, Washburn Institute of Technology—producing over 13,500 highly educated students graduating annually. Washburn Tech also works closely with businesses and industries in Topeka and Shawnee County to ensure that students are learning practical skills that lead to great jobs available in the community. If having the culture, people, business assets and infrastructure isn’t enough, stack on the aggressive local incentives. Topeka offers cash grants for jobs, investments and training.
Topeka is special because its opportunity zones are just that: opportunities. The city has a dynamic core that is growing, but ready to take on further investment. There is a need for business and a market to support it. While other OZs may be risky, Topeka’s continued revitalization, market capability, aggressive incentives and growing workforce makes it easy to call the land of OZ “home.”
A QOZ IN HISTORIC MIDDLETOWN, CT
The City of Middletown makes it easy for investors who want to build quality developments. It understands time is your money and therefore made its land use processes swift, certain and smart. City staff works with investors from conception to completion and beyond to ensure your project meets all of the City’s requirements, making it easy for you to complete your projects on your time and within your budget.
Middletown has a dedicated partner located downtown, the Middlesex County Chamber of Commerce and its 2,500+ members. It is by far the largest Chamber in Connecticut and the 2nd largest in New England. The City and Chamber are partners on all things economic development. They work together to ensure your project is successful by helping you through the approval process, promoting it once it is done and helping you recruit tenants.
Middletown invites you to look into its Opportunity Zone, which is strategically placed in the center of its historic downtown. The City owns a ready-to-develop site which overlooks the scenic Connecticut River. It comprises two City-owned lots which, taken together, total approximately 2.3 acres. In addition, there is an adjacent private one-acre lot. It is easily walkable to more than 60 restaurants and dozens of retailers and entertainment venues.
The City site currently is a parking lot for both City employees and the public. It is a short walk (500 feet) to the heart of Main Street. An automobile business, which is constrained by its site, owns the private property.
The three lots total approximately 3.3 acres. City staff will arrange all meetings with City leaders and the private property owner to discuss your Opportunity Zone project.
This site is in the City’s B1 Downtown Zone which allows, by right, the traditional downtown uses, including retail, residential, entertainment and office. The regulation allows mixed use. The B1 Zone is its most broadly-based zone.
There are fabulous views, in both directions, of the scenic Connecticut River from this site. Plus, the Connecticut Department of Transportation has a plan to connect this site to the City’s Harbor Park via a walking bridge over Connecticut Route 9. It will connect to an existing City walkway to Main Street. So the site will be connected to both Main Street and Harbor Park.
The City has completed the environmental studies and, as public documents, will share them with prospective developers. They show minimal contamination. They also have numerous studies, including one for expanding Harbor Park along the river for a mile, a downtown residential study and a market analysis.
There are three major downtown employers which could provide any investor an ample source of residential tenants. Wesleyan University with its 2,950 students and 650 staff; Middlesex Health with 3,000 staff; and the Community Health Center and its 300+ plus staff are all less than a half-mile, a ten-minute walk, from the site. Staff will arrange meetings with these and other businesses to assist you in marketing your Opportunity Zone project.
Middletown and its economic development partners will help you all the way through the process from conception, to approval and beyond construction.
These Opportunity Zone sites, taken together, are ready for the right developer who understands a small, vibrant City like Middletown.
The City is home to four major industry clusters. Pratt & Whitney (PW) anchors the aerospace cluster. It assembles jet engines for both commercial and military purposes in its 400,000+square-foot plant. PW is supported by more than 20 sub-contractors in town. Together PW and its contractors support more than 3,000 aerospace jobs.
Both Middlesex Health and the Community Health Center anchor the City’s health sector along with other health services providers.
Middletown’s distribution and logistics cluster features newcomer FedEx (535,000 square feet), Electrical Wholesalers, Thames River Paper and Winsupply, among others. The City’s strategic location on I-91 and one-day drive to Ohio, Virginia and Canada makes the region attractive to logistics companies.
The City’s central location also has attracted more than a dozen engineering firms. These firms, along with PW and its contractors, have made Middletown a mecca for engineers.
Entrepreneurs, start-ups and early-stage businesses now have a home in the Chamber’s Middletown Entrepreneurs Work Space (MEWS+). It is a place for them to co-work, learn from each other and take advantage of the Chamber’s wrap-around services. The MEWS+’s “Lunch and Learn” programs and monthly pitch contest, “Collision”, continue to bring entrepreneurs from around the region to Middletown. The City is home to more than 300 businesses being operated out of the homes.
Middletown, its economic development partners and business community welcome new investors and businesses.
PARSONS, KS OPPORTUNITY ZONE COVERS MAJOR MARKETS
Located in the four states region of Kansas, Missouri, Oklahoma and Arkansas, the Parsons Kansas Federal Opportunity Zone, officially registered as zone #20099950400, is a short distance from major markets such as Joplin, MO (60 miles); Tulsa, OK (90 miles); Springfield, MO (120 miles); Wichita, KS (130 miles); and Kansas City, MO (150 miles). It also is 90 miles from Tulsa’s Port of Catoosa and 130 miles from the intermodal facility at Kansas City’s Logistics Park.
The central location creates easy solutions to logistical challenges and is second to only the commitment of the local economic development department to be a true partner with any project that is located in the zone. Tax incentives through neighborhood revitalization programs that offer 100 percent for ten years to qualified commercial development also are a part of the attractiveness of this Southeast Kansas location.
An active industrial park currently sits within City limits and within the Zone offering pre-designated commercial and industry opportunities, available buildings and full utilities, including high speed data. The Zone also sits Adjacent to the Great Plains Industrial Park, a former Army ammunition plant recently decommissioned that now provides more than 6,000 acres ready for development along with a 24/7 secured perimeter and specialized storage and warehousing space.
Situated in Labette County, just outside of the city limits of Parsons in Southeast Kansas, Great Plains offers globally competitive opportunities for your business. Its central location in the U.S. and on-site assets at the park allow for ease of access to all major markets.
The acreage that comprises the industrial park was originally amassed to form the Kansas Army Ammunition Plant (KSAAP) during WWII. Today, the park encompasses 13,951 total acres. Of this total acreage, approximately 6,800 acres are owned by Great Plains Development Authority and are ripe for redevelopment. With the availability to break the property into various tract sizes, Great Plains can accommodate the needs of your business. The industrial park’s existing infrastructure includes:
- 106 miles of roadways
- 30 miles of rail directly connected to the Union Pacific (including an in-place switch off of the main line)
- Water and wastewater plants owned and operated by Great Plains
- Kansas’ lowest electric rates through Westar Energy
- On-site AT&T fiber optics
Industries such as industrial hemp and alternative energy generation already are being researched for potential location within the Zone while workforce needs are being directly addressed by Labette Community College, located in Parsons, through their new workforce training and education program. The program features a brand-new facility, with course and certificate curriculum created through direct input from local industry. The city also serves as the area’s medical center with the 600 employee Labette Health located within the zone as well, offering additional commercial development opportunities.
CITY OF SANFORD: ECONOMIC DRIVER IN CENTRAL FLORIDA
The City of Sanford, FL has become an economic driver for the Central Florida region. The last four years have been one of the biggest growth cycles in Sanford history. New development is being proposed in Sanford that will create hundreds of new jobs, additional housing and a variety of new restaurants.
New life continues to be breathed into the City of Sanford, especially in the downtown area. From West First Street down to Mellonville Avenue and from South Sanford Avenue to the Marina Isle, there is new development taking place. The area surrounding Seminole Town Center is still seeing economic activity. From Seminole Boulevard down to Seminole State College one can see plenty of new infill development. Hundreds of new jobs are being created.
Heritage Park, Sanford’s planned mixed-use development for downtown is still being planned. The City currently is planning all the infrastructure for the project. Construction should begin very soon. This time next year, we should see new vertical construction for new residential units downtown. Many construction jobs will be created over the next several years during the construction of this major catalyst project.
The rehabilitation of the old Mayfair Hotel is still on track to open by the fall of 2020. Final plans currently are being designed. Over a hundred new full time jobs will be created to operate the new Five Star facility, not to mention the additional construction jobs being created over the next two years.
Sanford currently is experiencing major economic growth in the hospitality sector. Several new craft breweries have opened this past year and are doing very well. There are a couple more currently being planned, plus a distillery on Second Street. Two new mixed-use developments currently are being planned for Sanford Avenue, with another major mixed-use development sited for the block on Second Avenue between Oak St. and Myrtle St.
The third phase of the Riverwalk will soon be designed and construction will begin for the completion of the trail from the 415 bridge to the I-4 bridge over the St. Johns River by the fall of 2020. A full marathon is being planned in partnership with Deltona/Volusia County around Lake Monroe upon the completion of the 25+ mile trail.
As part of Sanford’s economic development strategic plan, the City has identified four major targeted industries: aviation/aerospace, medical technology, transportation/logistics and manufacturing. The City works hard in recruiting new companies and in the retention and expansion of its existing companies. The City has assisted in the creation of over 300 new high wage, high value jobs over the last year. Several of these companies include: Hernon Manufacturing, Constant Aviation, Quantum Flo, Benada Aluminum, Allegiant Airlines and Avocet. The City will continue to work in partnership with Enterprise Florida, the Orlando Economic Development Partnership and Seminole County to provide incentives to assist in the creation of new employment opportunities.
Along with great community and regional partnerships, the City of Sanford really is becoming a more economically vibrant community. Perceptions are becoming a reality.