Imagine an investor in downtown Trenton receiving a lower tax bill or even a deferred one for simply advocating and implementing urban renewal initiatives for 10 years. That’s exactly what is happening under an integral part of the 2017 Tax Cuts and Jobs Act. Among the bill’s provisions is are tax incentives for savvy investors to re-invest unrealized capital gains into disadvantaged communities — including parts of the Route 1 corridor.
Opportunity zones are low to marginally low income areas the U.S. Treasury classifies as “qualified opportunity zones.” The goal of the designation is to spark much needed investment into housing, small businesses, and infrastructure in depressed and mostly urban areas. Critics, however, contend that opportunity zones will inevitably become vehicles for graft and gentrification.
NJBIZ, a weekly state business publication, will host a seminar that will highlight the opportunities available to investors at a breakfast and panel discussion on Tuesday, June 11, at 8 a.m. at the Palace at Somerset Park in Somerset. Cost: $25. For more information or to register visit www.njbiz.com. Panelists will discuss the potentially lucrative investment strategy of funneling cash into Opportunity Zone-based enterprises.
Panelists include: Mark A. Nicastro, an accountant at Friedman LLP.
Stephen Jones of the International Code Council, an organization that creates model building codes.
Steven R. Kamen, a lawyer and head of the corporate practice group for the Sills Cummis & Gross.
Eduardo Rodriguez, director of planning and community development for the city of Elizabeth.
The event is moderated by Tai Cooper, managing director of policy and advocacy for the New Jersey Economic Development Authority.
One of the key players in New Jersey’s opportunity zone implementation is Leslie Anderson, CEO of the New Jersey Redevelopment Authority (NJRA) in Trenton. Anderson has a long history of public service work. The Plainfield, New Jersey, native studied political science at Penn State University before returning to her hometown to work in the city’s office of economic development. Prior to joining the NJRA she also worked as a policy advisor to former Governor Christine Todd Whitman.
The NJRA, an independent financing authority, was established in 1996 and is one of state’s biggest proponents of urban revitalization alongside the state Economic Development Authority and the state Department of Community Affairs (DCA). The NJRA was created by state officials to transform urban communities through direct investment and technical assistance and support.
There are 169 opportunity zones under the jointly managed program in 75 municipalities across the 21 counties in New Jersey. Anderson says the City of Trenton — specifically the downtown area, including the train station, and stretching into Hamilton — is an opportunity zone. She adds that many of zones are in predominately minority-populated communities that have suffered from systemic inequality.
“Opportunity zones offer investors an incentive to invest in projects that can help to redevelop and transform these neighborhoods,” she says. The program allows investors to defer paying federal taxes on capital gains and offers a lower rate when those taxes come due. If investors stay in the opportunity zone for 10 years, they can avoid paying capital gains taxes all together.
If the program works as intended, residents in the designated areas will have increased employment opportunities, access to affordable housing, and could see a spike in property values.
Historically, investors were reluctant to fund revitalization initiatives in urban areas because they sometimes had high crime rates and were seen as too high risk and an unstable investment option. However, under provisions included in the 2017 Tax Cuts and Jobs Act, Anderson says needed development projects in the targeted areas are slowly coming to fruition.
The opportunity zone law is not the only tool at Anderson’s disposal in her efforts to boost urban economies. During her tenure, Anderson has channeled more than $3.8 billion in new investments to redevelop and refurbish dozens of financially strapped and mostly urban communities and neighborhoods.
And in 2014 NJRA received more than $20 million in New Market Tax Credits from the federal government. Among other things, the organization leveraged the subsidies to promote and advance various economic development initiatives across the state including ongoing projects in Trenton, Camden, and Newark.
Officials, however, welcome the addition of one more method to encourage investment in these areas. Lieutenant Governor Sheila Oliver, who also serves as the Department of Community Affairs commissioner, is an opportunity zone booster. “Opportunity zones are designed to attract investments to some of our most under served communities to spur economic growth in all counties,” she said.
However, detractors of the legislation contend the program will spark the often-dreaded G-word — gentrification — and force urban neighborhoods with large minority populations to leave those areas for cheaper pastures. Others contend banks and other financial institutions will establish qualified opportunity funds to market to upscale and wealthy clients as a safe and secure place to stash their money — tax deferred for up to a decade. Add to the mix that investors may choose to focus on infusing their cash into larger cities and dismiss smaller urban neighborhoods.
Furthermore, in the shady world of New Jersey real estate, concerns have arisen that the zones present an opportunity for unscrupulous investors. The family of Trump advisor Jared Kushner, who supported the opportunity zone law, has already bought four properties in New Jersey in zones where developers can reap huge tax breaks from the zone incentives. An Associated Press investigation showed Kushner owns stakes in 13 properties located in opportunity zones.
Anderson says those are legitimate concerns, but she says her office, along with Gov. Phil Murphy, has implemented an inclusive process that actively engages the communities that have been designated as opportunity zones. For example, in March Murphy announced the NJ Opportunity Zone Marketplace portal. The real estate and business equity project sharing portal, scheduled to launch in July, will allow qualified investors from across the country to access eligible opportunity zone projects in the state.
Anderson says her organization has trained or advised more than 2,000 attorneys, developers, and elected officials in the fundamentals and complexities of redevelopment and community redevelopment. “We are making a strategic push to help investors understand the value and importance at looking at all of the designated zones in the state,” she said.
Here are three basic tips on how to become an Opportunity Zone investor:
An investor must create a Qualified Opportunity Fund: The fund is an investment vehicle organized as a corporation or partnership with the specific and sole purpose of investing in opportunity zone assets.
DIY: Any taxpaying individual or entity can create an Opportunity Fund through a self-certification process, which is an IRS form submitted with the taxpayer’s federal income tax return for the taxable year.
Team effort: Investors can pool their resources and form a Qualified Opportunity Fund.
For more information, visit the New Jersey Redevelopment Agency at www.njra.us