Opportunity Zones 101 for Public Housing Authorities February 4, 2020 National Development Council
Webinar Overview Goals: • Introduce Opportunity Zones, including how they work, • and how they can be used as a tool for community and economic development, especially affordable housing Share ways Public Housing Authorities (PHAs) can • engage with Opportunity Zones 2
Agenda 1. Opportunity Zones (OZs) Overview 2. Potential roles for PHAs 3. How do OZs work? 4. Leveraging federal resources 5. Case studies: How PHAs have engaged 6. Questions 3
What Are Opportunity Zones? Opportunity Zones (OZs) are geographic locations – • low-income census tracts designated by Treasury Provides a tax incentive for investors to invest • capital gains into projects in Opportunity Zones Investors can invest in real estate and operating • businesses Established by congress in the Tax Cuts and Jobs • Act of 2017 and administered by Treasury Goal is to spur private sector investment and job • creation in economically distressed communities 4
What Are Opportunity Zones Not ? OZ is not a federal grant program • There is not an application for OZ funding • Capital from OZ investors will not be the only • source of funding for a project – still need other sources in the capital stack (debt, LIHTC, etc.) OZ is not only for housing projects – a wide variety • of real estate projects and operating businesses can benefit 5
Where Are Opportunity Zones? https://opportunityzones.hud.gov/resources/map 6
Who are the players involved in OZ? Cities & Counties Economic Developers Community organizations Communities PHAs Banks National & regional CDFIs funds Foundations Investors Other capital Local funds Federal programs Individuals OZ (potentially through PHAs) Projects Project Entrepreneurs Dealmakers/ Sponsors or Landowners Matchmakers Enablers Companies Incubators Accountants PHAs Attorneys Brokers Financial Advisors 7
What are the potential roles for PHAs? As a project developer: If a PHA develops housing, OZ capital could be one portion of their capital stack, and can work alongside LIHTC and other federal and local sources of funds As a convener: PHAs often know what their communities need, and know the different stakeholders involved. As anchor institutions, they can help bring people together to educate on what OZ is, organize around a community strategy, and connect partners to facilitate project development. 8
What are the potential roles for PHAs? (cont) As an advocate: PHAs can participate in community OZ activities, making sure that community voice and values are included in the conversation. As a landowner: PHAs can sell or lease land in Opportunity Zones to projects that utilize OZ capital for construction of workforce housing, commercial space, or other mission- aligned projects. 9
What are the Investor Benefits? OZ offers three main benefits to investors: 1. Deferral of Capital Gains Taxes Until 12/31/2026 • 2. Reduction of Taxes • 10% at year 5 • 15% at year 7 3. Exclusion of Future Taxes on OZ investment 10
How can PHAs benefit from OZ? The tax incentive accrues to the investor – but • PHAs, and the communities they work in, can benefit from: More readily available capital for projects • More affordable capital • New housing & economic development projects in their • communities 11
How OZs Work • Stock or partnership Taxpayers Qualified interest in invest capital Opportunity operating gains from business in OZ Funds sale of assets (QOFs) • Qualified OZ property 12
How OZs Work: A Little More Detail Investor(s) 90% Asset Test Qualified Opportunity Fund (QOF) Direct Ownership Indirect Ownership 1. Qualified OZ 2. Qualified OZ 3. Qualified OZ Business (QOZB) Stock Partnership Interest Property Qualified OZ 70% Asset Test Business (QOZB) 13
Sample Structures Single Multiple Investor Investors $ $ $ $ $ Opportunity Opportunity Fund Fund OZ Project (i.e. multifamily housing) Portfolio of Projects 14
Timeline for Investing in OZ End of 7-year Investment Tax Deferral step-up window* window ends 6/30/27 ends 2026 2021 2027 2018 2019 Investment End of 5-year window step-up window* … 2028 2047 began *Investors can invest until 2027, but those that invest BEGIN 10+ END 10+ after 2019 will not be eligible to reduce their capital year disposal year disposal gains taxes by 15%, and investors that invest after 2021 window will not be eligible to reduce by 10%. window Adapted from EIG 15
Key Points to Remember • Equity investments (not loans or grants) • Market-driven (requires relationship with investor) • Best for projects that appreciate over time • Know the rules! (You can read the regs here.) 16
Opportunity Zones and Housing The OZ incentive is well-designed for market-rate • and workforce multifamily housing projects . Many examples of market-rate and workforce housing • https://irei.com/news/multifamily-development-bright- • spot-opportunity-zone-initiative/ OZ capital has been used for new construction of • affordable housing projects, typically coupled with other federal subsidies https://www.ncsha.org/wp-content/uploads/Case- • Study-Parramore.pdf https://www.ncsha.org/wp-content/uploads/Case- • Study-Ox-Fibre.pdf 17
What Other Benefits Does OZ Designation Bring? • Even if OZ capital isn’t used, being in an Opportunity Zone can bring other benefits to housing projects: • Many federal grant and programs are offering benefits to designated Opportunity Zones and Qualified Opportunity Zone investors • FHA has introduced incentives for certain multifamily loans insured by FHA for properties in OZ census tracts 18
OPPORTUNITY ZONES “Leveraging Federal Resources” February 4, 2019 Erich Yost US Department of Housing and Urban Development Office of Field Policy and Management 19
WHITE HOUSE UPDATES Guidance Provide Guidance on How to Target Investments Coordination Coordinate with Other Federal Agencies in Administering Programs Measure Measure Investment Outcomes 20
WHORC IMPLEMENTATION PLAN: WORK STREAMS ACTION ITEMS 21
WHITE HOUSE OPPORTUNITY AND REVITALIZATION COUNCIL HUD’S ROLE Coordinate Lead Collect Data Federal Programs Local Efforts to to Assess Effectiveness and Investments Attract Private of Investments from Other Investment Agencies Building and activating your Opportunity Zone ecosystem is a 22 joint effort across all HUD Programs lead by your Local HUD Office Field Staff 22
OPPORTUNITY ZONE WEBSITE opportunityzones.hud.gov 23 23 23
OPPORTUNITY ZONES TOOLKIT / VOLUME 1 24 24
OPPORTUNITY ZONES TOOLKIT / VOLUME 1 SUMMARY – PREPARING FOR POTENTIAL INVESTMENTS 25 25
OZ FEDERAL PROGRAM ALIGNMENT Federal Agency Opportunity Zone Resources (As of 1/31/20) 19 Federal Agencies have aligned 202 grants or • programs to Opportunity Zones Offer bonus points, preference points, priority • consideration and other benefits if working with and in OZ or with QOF Total of 161 Grants: 28 Currently Open • Total of 41 Programs • See OpportunityZones.gov for open and updated • listing. Annual Total Over $8 Billion! https://opportunityzones.hud.gov/localleaders 26
OZ FEDERAL PROGRAM ALIGNMENT: HUD HUD GRANTS WITH OPPORTUNITY ZONE PREFERENCE Choice Neighborhoods Implementation Grant Program Choice Neighborhoods Planning Grants Community Development Block Grant Program for Indian Tribes and Alaska Native Villages Comprehensive Housing Counseling Grant Program Fair Housing Initiative Program – Education and Outreach Fair Housing Initiative Program - Fair Housing Organization Initiative Fair Housing Initiative – Private Enforcement Initiative Healthy Homes Production Grant Program for Tribal Housing HOPE VI Main Street Grant Program Indian Housing Block Grant (IHBG) Program-Competitive Grants Jobs Plus Initiative Lead Hazard Reduction Grant Program Project Rental Assistance Program of Section 811 Supportive Housing for Persons with Disabilities Resident Opportunity & Self-Sufficiency Program Rural Capacity Building for Community Development and Affordable Housing Grants (RCB) Section 202 Supportive Housing for the Elderly Program Section 4 Capacity Building for Community Development and Affordable Housing Grants Section 811 Supportive Housing for Persons with Disabilities (Capital Advance) Self-Help Homeownership Opportunity Program Veterans Housing Rehabilitation and Modification Pilot Program Note: those marked in RED are currently open. See OpportunityZones.gov for open and updated listing. 27
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