Converting Conversations into Impactful Investments in Opportunity Zones

May 22, 2019 | Lisa Hall and Jen Collins

This week more than 300 individuals from across the country gathered in Newark, NJ, to talk about investing in Opportunity Zones. The impressive day-long agenda included remarks from a New Jersey state senator and U.S. presidential candidate, three mayors, the governor of New Jersey, professional athletes, hip hop icons, and some of the wealthiest impact investors in the world along with a host of influencers and stakeholders from the traditional and impact investing communities.

We left, however, wondering when there would be less talk and more doing, along the lines of Antony Bugg Levine’s recent blog on how to break the logjam in impact investing. We also realize that long term impact and real outcomes take time and that the most successful investments in Opportunity Zones will involve unlikely partners and unusual alliances. We believe as Stephen Covey describes in his book on the topic, that relationships move at the speed of trust and that the corollary is also true — social change moves at the speed of relationships.

Much of the conversation at the 2019 Forbes Opportunity Zones Summit: Investing for Impact was self-congratulatory, centered on the great programs and new investment funds that have been launched in the past year since the passage of the Opportunity Zone legislation at the tail end of 2017. As most in the field of impact investing know by now, the legislation is designed to drive investment into low income neighborhoods through a deferral of taxes on capital gains. But as referenced many times during the event, Opportunity Zones are still in the warm up phase. Building upon the baseball analogy, we are not even in the first inning.

Convenings are crucial to spreading information and educating stakeholders about the benefits and challenges of this new tax incentive. In 2018, Beeck Center organized a number of meetings on Opportunity Zones including a convening with real estate investors, a forum on impact management to move towards a shared impact framework, and a training for community development agencies from all over the country. We are clearly big believers in the power of bringing people together to discuss and learn about important issues, like investment in communities that have not historically had access to capital.

As convenings go, the Forbes event was a good one. Many people noted a palpable buzz in the air and excitement around plans for revitalizing poor communities. Having attended our fair share of OZ convenings this year, we also noted with enthusiasm that the composition of panels reflected the inclusion that the industry often aspires to but more often than not, fails to achieve. The organizers, Forbes and the Economic Innovation Group, delivered on their intention to have an extremely diverse and inclusive audience. We found ourselves at every turn meeting social entrepreneurs like Vince Harris of Hoozip and community leaders from the local Newark community development scene like Aisha Glover of Newark Alliance, alongside billionaires like long time Newark booster Ray Chambers, and Sean Parker of Facebook and Spotify fame, all seeking to leverage the incentive.

Nonetheless, nearly 18 months have passed since the legislation was enacted and there are still far too few deals that have closed. Most of the organizations represented on stage have not yet closed on investments in Opportunity Zones. Prudential is a notable exception to this reality. In January, Prudential Financial’s Impact Investments group invested in a mixed-use, New Markets Tax Credit project known as Yard 56 in Baltimore, MD which will involve the development of more than 2.2. million square feet of real estate. Prudential is of course, not the only investor to have closed a deal in an Opportunity Zone, but transactions of any size remain few and far between, despite the announcement of dozens of new investment funds that are currently raising capital to invest in Opportunity Zones.

So we ask ourselves — what will it take to convert conversations into more action and actual investments? What will it take to create more doers? We suggest the following as a few ways for investors to start:

  1. Commit to impact. The enthusiasm around Opportunity Zones has led to numerous stakeholder conversations about the impact that investors can and will have in Opportunity Zones.  The Beeck Center in collaboration with the US Impact Investing Alliance has published a set of principles and a reporting framework for impact which can be applied to investing in Opportunity Zones. We have already seen adoption by foundations like Kresge who has incorporated these principles in their covenants for two deals for which they will provide guarantees. The State of California has also referenced the guidelines in their proposal which has now been introduced to conform their state capital gains treatment with the federal incentive. The Sorenson Impact Center also shared their adoption of the framework in their announcement of The Catalysts: Top Opportunity Zone Visionaries which will highlight the work of impact-oriented stakeholders.
  2. Identify and leverage ecosystem activities already underway. There are many national and local initiatives helping to identify investment opportunities in Opportunity Zones. Examples include the Governance Project, which has created a Municipal Tool Kit to help mayors attract investment to their towns and cities. Accelerator America and Mastercard Center for Inclusive Growth announced a partnership at the Forbes Opportunity Zone Summit, which will support 50 cities in their efforts to attract Opportunity Zone investments. And on a local level, Opportunity Alabama is a stand alone non-profit focused on Opportunity Zones and paving the way for investors to evaluate potential investments statewide.
  3. Commit to standards with others who are aligned. It is critical for industry leaders to come together and set standards for impact and the field of impact investing. There are several groups that have already come together on a regular basis like the coalition formed by Economic Innovation Group and the working group initiated by Novogradac & Company, LLP. At the Beeck Center, we are bringing together a small group of investors who are exploring how they can adopt our Principles and Impact Framework. The Opportunity Zones Investor Council will also explore ways to drive impact, cultivate unlikely partnerships, and lift up best practices. Stay tuned for more details about this effort which will launch over the summer.
  4. Engage and partner with a diverse set of community stakeholders. Financially successful investments in Opportunity Zones will benefit from engagement with unlikely partners. Community engagement was mentioned countless times during the Forbes Opportunity Zone Summit. Since February 2018 Beeck Center has been hosting a working group of community development practitioners who are committed to generating positive net impact in Opportunity Zones. The group includes LISC (Local Initiatives Support Corporation) and Enterprise Community Partners, both of which have extensive, longstanding relationships and investment experience in low-income communities through their work in Low Income Housing Tax Credits and grantmaking in communities across the nation. Furthermore, many community development stakeholders who have operated in and invested in Opportunity Zones for decades — anchor institutions like churches, universities and hospitals. Some of the most critical partners for investors may end up being Community Development Financial Institutions which have provided loans to businesses and real estate projects since 1993 and before. These trusted financial intermediaries have also successfully managed partnerships for New Markets Tax Credits in low income communities.

We believe there is no tradeoff in creating impact and generating a decent return in Opportunity Zones. Opportunity Zone legislation is a rare bipartisan idea in current divisive atmosphere on Capitol Hill. But community investing is still a world of both/and — not either/or. There does not need to be a tradeoff between creating impact and generating strong financial returns. Collaborative behavior will win. It’s time for capital to get off the sidelines. It’s time to stop talking and start doing.