Opportunity Zones are low income census tracts designated to give investors certain relief from capital gains tax on profits that are invested in those communities, whether it’s in a business or real estate development. The program has the potential to revitalize places traditionally overlooked for development.
There 8,762 designated Opportunity Zones across the country selected by each state’s governor.
Unfortunately, there is no clear answer as to what investment is going to look like in these communities going forward. The Treasury Department has issued some regulations and certain businesses like liquor stores or casinos are not eligible enterprises, but there are no real stipulations as far as addressing the needs of a community in the current regulations.
In order to get the most out of their Opportunity Zones, local elected officials, business owners, developers, and other stakeholders should work together using the facts on the ground to determine the kind of development that both fits the needs of the community and represents a value to investors.
For example, in an Opportunity Zone in Newark, New Jersey, policy-makers and investors will want to know:
- What’s the zoning?
- What’s already there?
- What are the unmet needs?
- What does property cost?
- And what is it going to cost to meet the threshold for the tax break?
Having this kind of information at your fingertips will make decision-making a lot easier and help prevent developments that don’t fit or meet a community’s needs.
Finally, policy-makers, investors, and stakeholders should consider “natural hazard risk.” Natural hazard risk is not unique to Opportunity Zones, but many designated Opportunity Zones face natural hazard risks that are not addressed in the legislation.
For example, an investor has a certain amount of time to rehabilitate or construct a development in an Opportunity Zone to qualify for the incentives, but there are no allowances if a natural disaster slows or stops construction.
It is vitally important to understand the unique hazard profiles each of these communities face. Knowing these risks can give local elected officials the chance to offer incentives for mitigation, zone appropriately, and require appropriate building codes.
For developers and businesses, knowing the risks can allow them to accurately assess their insurance needs. It may not be something at the front of people’s minds, but it’s a big deal when disaster strikes.
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