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Opportunity zones webinar

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In this webinar we cover basic principles to address diversity equity and inclusion, developing community wealth, strategies to build collaboration, and building local businesses and economies.

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Opportunity zones webinar

  1. 1. Opportunity Zones for Social Impact and Community Benefit Webinar June 28, 2019
  2. 2.  Represent over 250,000 businesses in 40 states.  Over 130 direct member businesses.  Over 80 association members.  Wide range of sustainability issues  Advocate at federal level and in state capitals.  Place Op-eds and Policy Statements in media.  Have Biz leaders be spokes to media on issues.  Bring Biz leaders to DC to testify & lobby Congress & Administration. ASBC’s Reach & Capabilities asbcouncil.org/webinars
  3. 3.  States select OZs from their underdeveloped census tracts. Treasury must approve.  OZs are designed to drive development and job creation in these poor communities.  To encourage development, the TCJA cuts capital gains taxes on OZ investments  TCJA creates Qualified Opportunity Funds (QOFs) to manage all OZ investments.  Problem: OZs favor investments in real estate, not jobs and sustainable development.  Communities must require QOFs to assess, identify, and commit to meeting their needs. Opportunity Zones: Created by the 2017 Tax Cuts & Jobs Act (TCJA) asbcouncil.org/webinars
  4. 4.  Ensure Community Engagement, from governments, NGOs, developers, etc.  Ensure Equitable Benefits. OZs must meet community needs for jobs, housing, etc.  Sustainable Practices. Manage an OZ’s broad impacts―livable wages to green spaces.  Ensure Transparency. QOFs must set metrics for their goals, report progress publicly.  Measure Outcomes. Know what you want. Define wealth. Develop scorecards. For OZs to Succeed, Communities Must Act On Five Core Principles. asbcouncil.org/webinars
  5. 5. ECONOMIC INNOVATION GROUP / Washington, DC Empowering Entrepreneurs and Investors to Forge a More Dynamic U.S. Economy Rachel Reilly Director of Impact Strategy email: rachel@eig.org twitter: @Rachel__Reilly
  6. 6. ● Second Round of Proposed Regulations ○ Comments due July 1, Hearing scheduled for July 9 ○ EIG synopsis for more information here ● RFI on Data Collection ● RFI from US Dept of Housing & Urban Development ● White House Opportunity and Revitalization Council Implementation Plan ○ Scott Turner named Executive Director, kicks off listening tour ○ White House Opportunity Conference ○ 100 actions taken thus far to align federal resources with Opportunity Zones ● Legislation introduced to reinstate reporting requirements and expand transparency ● Discussion of additional legislative fixes Effective Implementation, Alignment, and Transparency
  7. 7. ● Second Round of Proposed Regulations ○ Comments due July 1, Hearing scheduled for July 9 ○ EIG synopsis for more information here ● RFI on Data Collection ● RFI from US Dept of Housing & Urban Development ● White House Opportunity and Revitalization Council Implementation Plan ○ Scott Turner named Executive Director, kicks off listening tour ○ White House Opportunity Conference ○ 100 actions taken thus far to align federal resources with Opportunity Zones ● Legislation introduced to reinstate reporting requirements and expand transparency ● Discussion of additional legislative fixes Effective Implementation, Alignment, and Transparency
  8. 8. ● Second Round of Proposed Regulations ○ Comments due July 1, Hearing scheduled for July 9 ○ EIG synopsis for more information here ● RFI on Data Collection ● RFI from US Dept of Housing & Urban Development ● White House Opportunity and Revitalization Council Implementation Plan ○ Scott Turner named Executive Director, kicks off listening tour ○ White House Opportunity Conference ○ 100 actions taken thus far to align federal resources with Opportunity Zones ● Legislation introduced to reinstate reporting requirements and expand transparency ● Discussion of additional legislative fixes Effective Implementation, Alignment, and Transparency
  9. 9. The success of this policy starts with a regulatory framework that facilitates investment into new and growing operating businesses and improves the built environment in Opportunity Zones. The second round of proposed rules addresses many key gating issues and provides clarity needed for investors and fund managers to deploy capital. Most notably the second round of proposed regulations: ● Provides clarity to investors on the timing requirements for capital deployment, reinvestment, and exits ● Issues guidance on the applications of tests outlined in the statute for leased property ● Defines key terms such as original use, substantially all, and substantial improvement ● Provides additional flexibility for the working capital safe harbor and 50% gross income test Takeaways: Second Round of Proposed Rules
  10. 10. The success of this policy starts with a regulatory framework that facilitates investment into new and growing operating businesses and improves the built environment in Opportunity Zones. The second round of proposed rules addresses many key gating issues and provides clarity needed for investors and fund managers to deploy capital. Most notably the second round of proposed regulations: ● Provides clarity to investors on the timing requirements for capital deployment, reinvestment, and exits ● Issues guidance on the applications of tests outlined in the statute for leased property ● Defines key terms such as original use, substantially all, and substantial improvement ● Provides additional flexibility for the working capital safe harbor and 50% gross income test Takeaways: Second Round of Proposed Rules
  11. 11. 130+ Opportunity Funds raising $29 billion Novogradac’s OZ Fund Listing and National Council of State Housing Agencies’ OZ Directory • 130+ funds seeking over $29 billion Raises range from $800,000 - $3 billion Specialized funds are forming: • Rural CO Opportunity Fund • Emergent Communities Fund • HBCU Opportunity Fund • Teacher’s Village Fund States are creating platforms -“investor exchanges” - to share information about investment opportunities. Cities are creating Opportunity Zone investment prospectus documents.
  12. 12. Select Policies, Initiatives, and Impact Investments
  13. 13. Select Policies, Initiatives, and Impact Investments
  14. 14. Presented by Valerie Red-Horse Mohl June 28, 2019 Opportunity Zones with an Impact Investing Lens: Impact Led, Businesses, and Financial Structuring
  15. 15. WHO WE ARE: Investors’ Circle & Social Venture Network 2018 Merger Social Venture Circle (SVC) is a membership network that equips entrepreneurs, impact investors, and capacity-builders with connections, money and expertise in order to build businesses that drive the NEXT economy: one that is regenerative, equitable and prosperous for all. Now in our fourth decade, Social Venture Circle was founded by the originators and luminaries of socially conscious businesses. The network continues to attract and empower the leaders, enterprises and institutions of a new economy that galvanize the business world to create social, economic, and environmental change.
  16. 16. SVC- Impact Businesses and Opportunity Zones ● IRS Guidance light on impact guidelines (assumed all would be impactful) ● US Impact Investing Alliance and SVC believe businesses are more essential (than straight real estate) for local economic development and social impact ● Restrictions from IRS (if within OZs borders) - basically no toxic waste, no massage parlors ● SVC urges investors to utilize best practices around these investments
  17. 17. SVC- Impact Businesses and Opportunity Zones We believe must implement long term outcome metrics using 5 core principles: 1. Community Engagement (actual partners) 2. Equitable benefit (leverage other local programs, responsible exits) 3. Transparency 4. Measurement (against key impact objectives) 5. Outcomes (track for real change)
  18. 18. OZs - Financial Structuring Considerations ● Opportunity Zone investments all equity ● Carefully consider and source remainder of capital ● 10 year time horizon needs to be discussed (exits) ● Owner purchase as a possible exit strategy
  19. 19. OZs - Financial Structuring Considerations Val’s background-One Case Study INTEGRATED CAPITAL! Five Sources of Capital: 1) Traditional Equity 2) Tax Exempt Loan via Special Allocation from IRS 3) Tax Exempt Bonds 4) USDA Guaranteed Loan 5) New Market Tax Credits ______________________________________ ● On the debt - saved 500 basis points in annual interest: 12% - to 7% ● Interacted with 7 Government Agencies and/or Municipalities ● Financing Businesses within Opportunity Zones will have similar structures and we should embrace integrated capital!
  20. 20. OZs - Connect! ● Opportunity Zones Financing - not a DIY strategy ● Connect with Impact and Mission-Aligned Team Members ● National and Local ● Attornies, Accountants, Investment Bankers, Fund Managers ● Websites State-By-State
  21. 21. Thank you www.svcimpact.org Val Red-Horse Mohl valerie@svcimpact.org Executive Director
  22. 22. INTERSECTION The convergence of large investment pools of capital with economic development and city building will require a new way of thinking about neighborhood economics based on community wealth strategies Traditional real estate developers will need to align with hyperlocal operators, and better understand impact as a result of this new intersectionality of inputs in current real estate climate Q’Oz’s enable the hyper local market small businesses and investors to intersect with a traditional real estate investment • QOZs •Transformations in retail & SMEs •Social Equity (empowering local operators to build long-term business models •Funding Sources (Failure of traditional financing to meet community challenges
  23. 23. “ A Billionaire Ended Up Winning Big. “ An analysis by Zillow found that sale price gains in opportunity zones significantly outpaced gains in eligible tracts that weren’t selected. Real Capital Analytics found that sales of developable sites in the zones rose 24% in the year after the law passed. (ProPublica 06.19.2019) Cindy Ord/Getty Images North America
  24. 24. PROXIMITY Most QOZs are not equal opportunities. ○ Most economically desirable zones have the highest risk of community displacement ○ Desirable zones inherit the features of a sound traditional real estate development ○ Have the best opportunity for market based returns(10 year cycle) and impact We can aim to capture “impact value” by creating “Buffer Zones” to develop better strategies for community wealth and social equity PROXIMITY
  25. 25. CREATIVE PLACEMAKING How are QOZs able to actually harness economic value from culture, community and public art? ○ Longer-term value creation through alternative financing and civic-driven design process ○ Focus on affordable commercial development, not just affordable housing!
  26. 26. DESIGN COMMUNITY EQUITY ● Every development had a sub developer partner from the neighborhood? ● Municipal policy required (x)% of QOZ investment had a benchmark of local business and local capital? ■ Projects go through a fast track process for city incentives(TIF) and building permits? ■ Project are immediately eligible for City and State grants? ● Micro-neighborhoods are the true catalysts for innovation in the economic development of cities? WHAT IF ???? …
  27. 27. PARTNERSHIP
  28. 28. Return to community investment The greatest creation of city wealth in America was through community banking and local syndication (Chris Knapp, Collaboration Capital)
  29. 29. TIME HORIZON Draft policy & submit to 3 cities: Chicago, Houston, and New York end of Summer 2019 ● How soon should we implement these strategies? ○ Immediately - there are time limits on QOZ investments ● Exit strategy ○ Wait 10 years to receive full tax benefits(stabilize local communities)
  30. 30. WORKING FRAMEWORK ● Sharing Best Practices with other neighborhoods ● Aligning goals with leadership ● Increase Impact driven investments in QOZs ● Evolution to the new market and collaborative effort ● Buffer zone initiative in cities ● Showing developers and investors that this is the future of connected cities
  31. 31. P3 MARKETS CASE STUDY: BRONZEVILLE CHICAGO Snapshot of project ● Transit- Oriented development in “transit dessert” ● National brand(Choice Hotel)focused on investing in African-American owner/operators ● Culturally relevant design in a historical area ● Large developer partnering with minority developer ● Hyper-Local businesses signed 13 LOI’s ● 50% Affordable Housing Units ● City Grant Funds, and TIF earmarked for project ● Choice hotels will match a % of grants discount hotel fees
  32. 32. NEXTSEED CASE STUDY: THE PLANT Snapshot of project ● Commitment to workforce training partners ● Hyper-local businesses with permanent address in same zip code as Plant ● NextSeed partnership ● A block as a gateway to a corridor, and bridge connecting neighborhoods, “Complete Community” ● Located in a food and retail dessert ● Interconnected eco-system of neighborhood businesses working together to foster incubation ● P3 partnership with City on Complete Street, Transit-oriented development
  33. 33. While a potentially massively impactful community economic & revitalization tool, the Opportunity Zone program has obstacles • Lagging Opportunity Zone energy and knowledge in the communities themselves • Outside of large, urban-centric real estate pipeline, shovel-ready project demand is not prepared for Opportunity Zone capital inflow • Investors & business interests lack technical Opportunity Zone legal and tax expertise • Rural Opportunity Zone tracts and non-real estate businesses getting relatively minimal attention • Primary focus on financial returns rather than also community revitalization and wealth generation • Established connections between community business interests and investors largely do not exist in the Opportunity Zones • Unclear how to gather and combine additional Federal, State, and local incentives Key Challenges
  34. 34. Virginia is addressing these challenges with the creation of an Opportunity Zone Market The case for the Opportunity Zone Market: The Opportunity Zone program enables the goals outlined in the Comprehensive Economic Development Policy for the Commonwealth. As an equity-based program, stakeholders are rewarded for investing in and maximizing Virginia’s assets. The program is flexible enough to grow existing and new businesses across a range of industry. With proper oversight and facilitation, the program offers access to economic opportunity for citizens in traditionally underserved communities. Last, the program can be matched with Federal, Commonwealth, and local incentives to maximize the benefits for investors, communities and low- income individuals. Many States around the country have rallied around the Opportunity Zone initiative, but there is no prescribed leadership model for success. Like Virginia, many states have taken point by convening stakeholders, educating the community, and attracting investors. However, there is a unique opportunity for Virginia to be a beacon for the rest of the nation on two fronts: 1) building a market-place for stakeholders to learn & engage, to share project ideas & pipeline, and to link investors with business; and 2) making inclusive and equitable economic growth a priority alongside the market-driven capital flows.
  35. 35. The Virginia Opportunity Zone Market is founded on equitable and inclusive values 1. Encourage and enable positive community impact investments in conjunction with financial returns 2. Ensure fair and equitable access to Opportunity Zone resources, support, and guidance for all localities and interests 3. Attract and match national capital and businesses with easily accessible and current information 4. Empower local business, government, and community leaders to take point in the Opportunity Zones 5. Leverage the full suite of Federal, Commonwealth, and local government programs & incentives in partnership with philanthropic and non-profit institutions 6. Operated by a neutral and independent third party to manage and facilitate the inclusive market-place with full transparency on process and participants 7. Seed the effort with one-time funding and become a self-sufficient operation over time 8. Track and measure socio-economic impact in Opportunity Zone communities Guiding Principles
  36. 36. The Virginia Opportunity Zone Market will have three key features Ongoing outreach and proactive information sharing to local government, community interests, businesses and investors Large national convening in Virginia to build network of investors focused on inclusive model, with Virginia seeking to share best practices of inclusive opportunity zone marketplace Periodic convenings across state to generate energy, educate, and help build working relationships between stakeholders Tools and investment resources for local community, business and economic development leaders to encourage and drive funding to Opportunity Zone projects Identification of community impact investments and steering to additional non-profit, philanthropic, and technical assistance resources Connections to Federal, Commonwealth, local incentives and complimentary programs Inventorying of project pipeline and investors with parameters to help matching Online place for stakeholders to learn, interact and engage with projects Tracking and reporting on Opportunity Zone impact & trends to inform additional market-making activities Capital Attraction Pipeline Development Clearinghouse
  37. 37. Questions? Outside Advocacy Techniques asbcouncil.org/webinars
  38. 38. Outside Advocacy Techniques asbcouncil.org/webinars John O'Neill, Senior Tax Policy Analyst, ASBC: joneill@asbcouncil.org Rachel Reilly, Director of Impact Strategy, Economic Innovation Group (EIG): rachel@eig.org Val Red-Horse Mohl, Executive Director, Social Venture Circle: valerie@svcimpact.org Juan Saldana III, Managing Principal, P3 Markets: j@p3markets.com Adam Northrup, Financial Strategist, LOCUS: adam@locusimpactinvesting.org Ali-Reza "A.R." Vahabzadeh, Vice President of Memberships & Chief of Staff to CEO, ASBC: arv@asbcouncil.org

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