Sen. Tim Scott, who co-sponsored the bill that created the federal opportunity zone program, wants to issue a warning to developers and investors targeting opportunity zones.
Bisnow/Matthew Rothstein
Develop founder and CEO Steve Glickman and Sen. Tim Scott, who worked together in forming the legislation that became opportunity zones, discuss the program at Bisnow's Opportunity Zones Summit in Washington, D.C., on June 26, 2019.
As his aides signaled for him to wrap up his on-stage interview with Develop CEO Steve Glickman at Bisnow's Opportunity Zone Summit in D.C. Wednesday, Glickman — one of the architects of the opportunity zone program — prodded Scott to end on a positive note. Scott stood and smiled.
“I’m positive that if the opportunity zone programisn’t benefiting the communities it’s meant for, I’ll kill the program,” he said before walking off the stage.
Though Scott was the only person at the event with the power to potentially carry out such a threat, he was far from alone in imploring the assembled investors, developers, attorneys and other professionals to use opportunity zone investing for its intended purpose of revitalizing underserved and low-income census tracts.
The other government officials to speak, including Secretary of Housing and Urban Development Ben Carson, Counselor to the Secretary of the Treasury Daniel Kowalski and Washington, D.C. Office of Public-Private Partnerships Deputy Director Sharon Carney, took a more encouraging tone, but the message was similar: The government at every level will use what influence it has to keep affected residents in the center of the conversation.
“Before we talk about strategies, we need to talk about objectives,” Carney said. “When we think about our role in this space, it’s not so much about attracting and maximizing investments as it isaligning investments with community priorities.”
Perhaps the biggest focus that economic development officials, community advocates and social impact or “mission-driven” investment vehicles have within attracting capital is convincing the investors of that capital that they can make money in disadvantaged areas.
The census tracts that coveralready healthy areas essentially amount to loopholes, according to Glickman, who spoke of his strenuous efforts to make California reconsider its designation of Palo Alto, Stanford’s hometown, as an opportunity zone.
Bisnow/Matthew Rothstein
Secretary of Housing and Urban Development Ben Carson at Bisnow's 2019 Opportunity Zone Summit.
“Universities fell into some zones in certain states where the income levels are technically lower, but that’s because they are [filled with] students,” Scott said. “[Palo Alto] is a glaring example of what ought not happen.”
A day before Scott's admonishments, President Donald Trump signed anexecutive order to form a panel dedicated to removing regulations surrounding affordable housing construction. As with the panel he formed toorganize federal support of opportunity zones in December, Trump named Carson as chair.
Scott publicly expressed his support for the executive order on Wednesday, though the panel's directive would place more responsibility on the private market to police itself. As a countermeasure, Goldman Sachs Urban Investment Group head Margaret Anadu suggested that municipalities take concrete steps to involve community residents in development decisions in more than a token capacity.
“It’s not so much about whether a community has a voice; it’s about whether that voice matters and if there are structures where community input is valued," Anadu said. "We should be building structures where the voice and input of the communities has a moment in the process, because it’s unfair to assume that local organizations are going to go to a national database of opportunity funds and tell them what they need.”
Many potential investors have balked at opportunity zones that are in true need of investment because they are associated with riskier investments. Without a track record of delivering return, obtaining financing is more difficult.
That has left some concerned that the pool of investors willing to work in such census tracts will be the same as for older tax programs that have more red tape attached.
Several panelists stressed a need to change the conversation about risk and return to language that non-impact investors understand better.
Bisnow/Matthew Rothstein
Arctaris Impact Fund founder Jonathan Tower, Goldman Sachs Urban Investment Group head Margaret Anadu and Washington, D.C. Office of Public-Private Partnership Deputy Director Sharon Carney
“I would love to snap my figures and see purely return-driven private equity funds develop bleeding hearts, but that’s not going to happen," Anadu said. “We don’t want people to think of the requirement for tax credits, but to listen to what communities want. Because if you deliver what residents want, your project will be successful, and that’s how impact can be a way to reduce risk on investments.”
Requiring a long-term investment to realize the capital gains tax benefits was always meant to force those investors to concern themselves with the health of a neighborhood over that time frame.
"You’re not going to put money down [in an opportunity zone] and go to the Bahamas," Carson said. "You’re going to be invested and make sure projects go well to protect your return.”
Several panelists reiterated their belief that opportunity zones can permanently transform the way private equity invests capital and participates in communities, but none were as passionate as EJF Capital CEO Manny Friedman, whose firm is raisinghundreds of millions of dollars to invest in opportunity zones.
“This could change the face of America," Friedman said, his voice rising. "It could be the biggest change I’ve ever seen in my life; the most disturbing part when you go around the country is that no one seems to realize it."
Whether from private investors like Friedman or public servants like Scott, the sense that the stakes are especially high for opportunity zones emanated from speaker after speaker. The need to work together seemed to remind Carson of an existential struggle of blockbuster proportions.
“You may remember the Will Smith movie 'Independence Day,'" Carson said. "When the space aliens came down, everybody across the world became friends. Because when the aliens came, everyone realized that we’re not enemies.”
