Opportunity zones attract developers to hard-hit communities
Let’s say you just made a tidy haul in real estate, stock trades or hedge funds or from selling your business — with capital-gains taxes as high as 23%. Now, you can invest those returns in a low-income neighborhood, and IRS will thank you with a tax deferral for years.
Welcome to “opportunity zones,” an economic-development initiative that South Carolina Republican Sen. Tim Scott and New Jersey Democratic Sen. Cory Booker tucked into the congressional 2017 Tax Cuts and Jobs Act. In Greenville, the incentive is attracting developers to hard-hit communities.
“For the first time in my career have I seen legislation that’s targeted for doing good and, at the same time, providing very unique and very substantive tax advantages for the investor,” says Michael Miller, a CPA for 40 years and chief financial officer and partner at CitiSculpt.
The Charlotte, North Carolina-based real estate development company’s eponymous project will include a 262-unit apartment complex, a 60,000-square-foot office building and a 130-room hotel. At 10 S. Academy St., the property lies in one of Greenville County’s nine qualified opportunity zones, which the state designates and the U.S. Treasury certifies.
Nationwide, nearly 8,000 of them are drawing attention — and scrutiny.
Last August, The New York Times reported the multibillion-dollar tax break aimed at revitalizing these low-income tracts has “fueled a wave of developments financed by and built for the wealthiest Americans.”
While IRS rules continue to evolve, the city has no data on how many of these private deals are underway.
Mark Cooter, managing partner at the Greenville office of Cherry Bekaert, one of the nation’s largest accounting firms, says he’s working with five clients on projects from Laurens Road to the West End.
“Rather than having money invested in the stock market, investment capital can go into one of these geographic areas we’re trying to grow,” he says. “They really would like the next Facebook to start in opportunity zones.”
One potential side effect: Gentrification.
“I think these opportunity zones are great and can be used for good,” says Jil Littlejohn, District 3 city councilwoman. “But I think that they need to have stricter rules around what happens to those families, neighborhoods, businesses that currently exist in those opportunity zones.”
Near the proposed Unity Park, The Furman Co. plans to sweeten a qualified opportunity zone with a $10 million project in the former Greenville Ice Cream Co. plant, constructed in 1923. Later expanded to 40,000 square feet, the facility — then a Borden factory — closed in 1989.
“The plan is to clean up the industrial property and preserve and renovate the historic structure as much as possible,” says Robert Poppleton, development manager at the real estate company whose portfolio includes the Claussen Bakery, Poe West and Keys Court.
“Those are all projects that are meaningful,” he says. “They’re community-building projects, in our opinion, that check a lot of boxes for us in sustainability and diversity, but also something that will pull the surrounding area into it.”
The project’s in predevelopment, with groundbreaking expected in 2021.
“Sure, an OZ can make a marginal deal good,” Poppleton says. “But that’s not The Furman Co. philosophy. Borden is already a good deal, but OZ will make it even better. Key point: This is what allows us to pass along benefits to our end-users — the tenants — and, thus, the neighborhood.”
Likewise, Miller says 22 percent of CitiSculpt’s units, which he calls “workforce housing,” will be priced at 60 percent and 80 percent of the area median income — translating roughly to $700 a month base rent for those who can prove their income.
This is what Scott intended with the legislation. In May 2018, he told a congressional panel that 52 million Americans live in distressed communities, “where it seems like the lights grow dimmer and the future does, too.” He grew up in one of them.
Of Southernside, Poppleton says, “It’s an existing neighborhood needing, or benefiting from, investment, and I think that’s what can make a properly executed OZ deal a win-win.”
By: John Jeter
Source: Upstate Business Journal
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