The Tax Cuts and Jobs Act of 2017 included a new federal incentive called Opportunity Zones (OZ). OZ’s are defined as “economically-distressed communities where new investments, under certain conditions, may be eligible for preferential tax treatment. Taxpayers may defer tax on eligible capital gains by making an appropriate investment in a Qualified Opportunity Fund and meeting other requirements.
Each state designated blocks of low-income areas by census tract, which were then certified by the U.S. Treasury Secretary. According to the Tax Policy Center, there are 8,762 tracts, making up 12% of U.S. census tracts classified as opportunity zones. Some of the factors particular to these tracts are low income, high poverty, and high unemployment rates.
In theory, opportunity zones make perfect sense. Give taxpayers an incentive to invest in lower economic areas. However, there has been a lot of controversy around how the program was structured, with many critics believing that there is not enough oversight and too many loopholes. For example, one big concern is that many investors are entirely removed from the areas where they are investing. They don’t have a clear understanding of what would benefit the community residents. Another criticism is that there is no mandate for developers to prioritize benefits for residents. For example, a Ritz Carlton is being built in a Portland Opportunity Zone. While there is nothing wrong with developing a hotel, other projects such as grocery stores or affordable housing would have benefitted the residents far more than a luxury property.
However, this is where not all OZ’s are created equal. Some OZ’s are structured to produce the most significant social impact possible for the people that need it the most. For example, The Renaissance HBCU Opportunity Fund has committed to focusing on real estate-oriented community economic development projects on or near the campuses of Historically Black Colleges and Universities (HBCUs). The Fund was organized by Renaissance Equity Partners, with support from the nonprofit HBCU Community Development Action Coalition, upon the principle that investors can do well by doing good. And they were recently recognized by the first annual Forbes OZ 20 list of opportunity zone catalysts, which was created to honor leaders who are sparking the equitable revitalization of distressed communities. The Fund organizers also received organizational support from the Kresge Foundation, Rockefeller Foundation, and Calvert Impact Capital.
But what makes this Fund stand apart is that because they only invest in projects that enhance the economic vitality of HBCUs and their surrounding neighborhoods, they are helping to improve the lives of HBCU students, faculty and staff, and neighborhood residents. In addition, each partner HBCU will share in the net income generated by the project and have the opportunity to acquire the Fund’s interest upon the conclusion of the 10-year Opportunity Fund compliance period.
So, while there are certainly OZ’s that are not focused on serving the greater good as much as they make the developer and the investors rich, the Renaissance HBCU Opportunity Fund is focused on increasing opportunity for some of the most disadvantaged citizens. As Robert K. Jenkins Jr. – Senior Managing Director & CEO said, “We are unequivocally committed to investing in quality real estate projects that improve HBCU communities and the lives of the households living in them while providing market-rate or near market-rate returns to investors.”
It sounds like a win-win situation and a great example of how investors can do well by doing good. Find out more information, contact Ron Butler at HBCUCoalition@gmail.com or contact Robert Jenkins at rkjenkins@renequity.com