Reviewing Opportunity Zones With Steve Glickman and Ira Weinstein

The Opportunity Zones program has been around for more than three years now. Throughout this period a lot has happened, including last year’s health crisis and culminating with the 2020 presidential elections, which appeared to mark the passage to a new economic cycle. Multi-Housing News asked two Opportunity Zone experts to share their thoughts on the program’s performance so far and how it will function in the future, considering the current state of affairs on a global scale.

Ira Weinstein is a managing principal at CohnReznick and an Opportunity Zone practice leader, while Steve Glickman is the CEO of Develop LLC, an advisory firm dedicated to building and supporting Opportunity Zone funds. Glickman, an adviser to former President Barack Obama, was one of the co-founders of the Economic Innovation Group that built the Qualified Opportunity Zones program. Recently, the two co-authored a book—“The Guide to Making Opportunity Zones Work”—aiming to help investors benefit from this federal program’s incentives.

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How has the Opportunity Zone program evolved since its launch?

Steve Glickman, CEO, Develop LLC. Image courtesy of Develop LLC

Glickman: Opportunity Zone regulations were finalized in late 2019, providing much-needed clarity on the program. But even before the regulations were finalized, we witnessed a steady climb in ambitious Opportunity Zone investments, with more and more investors expressing interest in becoming involved. This is now a program with tens of billions of dollars in play, which only scratches the surface of its potential.

What is the reported amount of capital gains nationwide?

Glickman: The pace of activity, although difficult to measure precisely, is now in the range of $15 billion to $20 billion per year and is likely on the upswing. There is a massive amount of funds that are part of the potential pool to invest in Opportunity Zones and ultimate capital gains depend on deal flow demand, along with investor priorities and interests. In theory, capital gains could be tens to hundreds of billions of dollars per year before the pool is exhausted, depending on the demand for viable projects.

Which regions/metros proved to be the most attractive to investors interested in OZs and what do you think made them so?

Glickman: Some of the nonmajor metro centers, such as Birmingham, Ala., Baltimore and Cleveland to name a few, have the most potential impact from the Opportunity Zones program and have garnered the greatest interest from investors. While these secondary and tertiary markets offer a low cost of entry, many investors are motivated to make a difference in these cities where capital is not as easy to come by. Some grew up in the region and are personally invested in giving back.
Have OZ boundaries affected surrounding areas? Has there been an increase or a steady flow of new investment capital that might have been triggered by the proximity to Opportunity Zones? 

Weinstein: Yes. Many Opportunity Zones were selected by governors, with input from city officials who could identify momentum on the local level, along with proximity to areas with increasing activity. One criticism of the program is that some Opportunity Zones do not appear to be low income, but they technically are and are ripe with the potential for growth. Although the development itself may not happen in the lowest-income areas, the hope is that Opportunity Zone investment in the region ultimately frees up more public resources to concentrate on the neighborhoods that need it most, resulting in indirect benefits.

At its launch, the initiative had left many investors uncertain about investing in an OZ. Have these uncertainties been resolved or are there still ambiguities related to the regulatory language of Opportunity Zones?

Ira Weinstein, Managing Principal, CohnReznick. Image courtesy of CohnReznick

Weinstein: For some, there are still ambiguities and legislative language that is open to interpretation from the market, but with the latest regulations, many challenges and uncertainties have been resolved. We have seen real estate as the predominant user of the Opportunity Zones program to date because some of the ambiguities have been more readily received by that industry than they have been by operating businesses, venture capitalists or entrepreneurs.

Since the Opportunity Zones program is place-based, it is more difficult for other industries to sort through the ambiguities and there is a bit of a lagging effect. It will take time for industries outside of real estate to realize the opportunity and flexibility offered by Opportunity Zones, but we are slowly starting to see an uptick in activity.

Is there a need for additional oversight of the OZ initiative?

Glickman: There is a big push for increased reporting requirements, as one form of oversight, both from Congress and from the market. A criticism of the program is the lack of transparency, which increased reporting would alleviate. There is also the possibility for increased oversight at the state and local level to closely monitor and encourage maximum economic development.
How has the pandemic impacted your company’s operations? 

Weinstein: Last year, the effects of income inequality and public health disparities became clearer than ever before as we witness the outcomes of COVID-19. Investors have become more socially conscious and focused on long-term solutions to make a difference. Opportunity Zones are an outlet for them to channel their investments into a low-income community, so we are undoubtedly seeing increased interest.

In what ways has the health crisis offered more opportunities for investing in OZ projects?

Weinstein: Investors are looking for alternative options in order to make a difference with their money. Opportunity Zones are a win-win: Investors reap the tax benefits of the deal but are also able to stimulate economic growth and do good for a community, making for an attractive combination.

Why are investments in OZs a good idea today and what are the main ingredients for a successful Opportunity Zone project?

Weinstein: Opportunity Zones are a good idea today more than ever because they allow investors to “do well by doing good,” or in other words, make an impact while seeing a return. There is a misperception that geography drives outcomes and certain locations are “bad places” to invest money. Opportunity Zones show that good projects can be viable investment opportunities regardless of the location.

Successful projects must be carefully planned and well thought-out, like any venture. In order to sustain the project, it must be backed by skillful management and ample capital. Opportunity Zone projects must have the same underpinnings as any project.

How do you expect the recent elections to impact the future of the OZ Program?

Glickman: The incoming administration has discussed Opportunity Zones throughout the campaign cycle, so the program will likely be a significant part of their domestic policy agenda. This will come with stricter reporting requirements for increased transparency and a focus on diverse projects that can show a proven impact. With that being said, the OZ program is one of the few with true bipartisan support, which bodes well for the future development of the program.