As we move beyond a difficult election cycle, it is time to focus on an ambitious community investment agenda that has a meaningful impact on development and growth across the country. Programs like Opportunity Zones, which have enjoyed bi-partisan support, offer a chance to bridge political, geographical and financial gaps in order to catalyze opportunity for millions of people.
Since the Opportunity Zone program was introduced in December 2017, we have seen billions of dollars of interest in distressed communities with the potential to direct vast amounts of capital to communities at attractive returns for investors, bringing new capital to projects with lasting impact on the development and growth of their neighborhoods.
The original bill was sponsored by leaders from both parties, and President-elect Joe Biden was an original proponent. While critics have expressed skepticism (in some cases justified) about the community impact of Opportunity Zone investments, President-Elect Biden has reiterated his support and proposed fixes such as impact evaluation and more coordination with traditional community development organizations.
Opportunity Zones: What have we learned?
No one could have predicted that the first full year of Opportunity Zone investment would hit a global pandemic head-on. Yet, in many ways, the investment dynamics in Opportunity Zones are illustrative of larger headwinds and tailwinds we see in the economy.
We have seen three trends that will define Opportunity Zones going forward:
- Unlocking of private capital that has not previously been interested in distressed communities. Since the enactment of Opportunity Zones, we have collectively been in hundreds of conversations, convenings, and conferences (in person and virtual) across the country. LISC has partnered with the Rockefeller Foundation to connect capital in several cities to high-potential projects. The Opportunity Zone conversation has brought capital to the table, and projects that would not have worked prior to Opportunity Zones now have private interest. As one example, Blueprint Local is the lead private investor in the redevelopment of historic Penn Station in Baltimore, a transformational project that had stalled for 20 years before this incentive.
- More capital seeking opportunity in “Zoomtowns.” Post COVID, it is likely that geographic shifts will accelerate. We are seeing talent in substantial numbers migrating to “Zoomtowns” like San Antonio, Texas and Greenville, S.C. According to the U.S. Census, both have been among the five fastest-growing cities in the country for the last five years, but both also lack adequate access to capital. And often, as growth rapidly increases, so too does inequality: San Antonio is the second-poorest major city in the country, and Greenville is among the most unequal. Thoughtful investment is key.
- A small business slowdown that requires capital to rebuild and grow. Even prior to Opportunity Zones, according to the Economic Innovation Group, entrepreneurial activity in the U.S. was at a 40-year low. Because of the pandemic, we are seeing a 100,000 small businesses a month go bankrupt. While Opportunity Zones were anticipated to help small businesses, only 4% of Opportunity Zone funds to date have been focused on operating businesses, according to Novogradac.
Going forward, what does the investment community need to do?
Opportunity Zones have had bright spots of promise, despite a number of high-profile stories about projects that have not fulfilled the law’s original intent. There are organizations working hard, every day, on long-term projects that bring together city and state economic development programs, philanthropic funding, and attractive private investment opportunities. These take years to come together and are just beginning to come to fruition.
Executing on these efforts requires strong partnerships. It’s why LISC and Blueprint Local are excited to announce a collaboration to organize projects and opportunities in 2021 across the Southeast in Alabama, Tennessee, Florida, Georgia, South Carolina, North Carolina, Virginia and Washington, D.C. The combination of a nimble Opportunity Zone equity investment strategy with a community development infrastructure means that lending to small businesses, federal programs such as New Market Tax Credits, and community organization plans can be aligned in projects that create wealth in communities.
Our first investment is in The Current, a mixed-income, mixed-use project in Richmond’s Manchester neighborhood, on the south side of the James River from downtown, led by Lynx Ventures, a leading community developer in Virginia. The project flows from a quality of life plan that LISC helped launch a decade ago, in which community members said they wanted a mix of workforce and market-rate housing, commercial and office infrastructure to attract jobs, and environmentally friendly considerations. The Current addresses those concerns. In fact, last week, developers announced that the ground floor will be Richmond’s first food hall, called “Hatch Local,” which is a collaboration with Hatch Kitchen, a food-entrepreneur incubator in the neighborhood. A project like this, providing quality housing and employment opportunities in a historically distressed area, is only possible when private investment and long-term community development align.
Long-term, inclusive community collaborations like this defy the political and financial stereotypes of division. There need not be two Americas. As we look to the future of economic development, we need strategies that bring together engaged organizations, residents, and investors in shared efforts to chart a path forward.
Maurice Jones is the CEO of LISC. Ross Baird is the CEO of Blueprint Local.