Investing for Impact: Real Estate Convening on Opportunity Zones

November 8, 2018 | The Beeck Center

The Beeck Center recently convened 40 leading real estate investors and developers to Georgetown for a dialogue on Opportunity Zones, established under the Tax Cuts and Jobs Act of 2017 to drive private capital into 8,700 designated low-income census tracts. Some analysts are predicting that more than $6 trillion in capital is eligible for investment in underserved communities. Annie Donovan, Director of the Community Development Financial Institutions Fund at the U.S. Department of Treasury, shared remarks at the event.

The 2017 Act offers investors deferrals on capital gains invested in the nation’s most distressed areas — with the potential for full tax forgiveness on additional gains realized through Qualified Opportunity Funds. These funds must hold 90% of their assets in Opportunity Zones, including stock, partnership interests, and business property, encouraging investors to deploy capital strategically while also creating robust social infrastructure in capital-starved, under-resourced communities. With a median household income of $33,345, a poverty rate of 31.75%, and unemployment rate of 13.41%, opportunity zones stand to benefit immensely from newly mobilized equity.

Despite these provisions, however, many of the policy’s elements remained in flux until October 19, when the U.S. Department of Treasury issued its first round of regulatory guidelines and announced a 60–day comment period for stakeholder input. Attendees shared their perspectives on the guidelines, opening up a productive cross-sector exchange on vital matters of policy, regulation, and compliance.

With its sustained focus on innovative and scalable approaches to complex social challenges, the Beeck Center has long anticipated the need for a cross-sector approach to investing in underserved areas, seeking to ensure that this new legislation is used as a tool for community development and not solely for financial gain. The Center, with initial support from the Kresge Foundation, regularly convenes an expert group of community development practitioners to explore how Opportunity Zones can serve a double bottom line. This working group has grown to include over 40 organizations from across the country.

More recently, in partnership with the Rockefeller Foundation, The Center and the Kresge Foundation reviewed nearly 150 letters of inquiry submitted by Opportunity Fund managers. And together with the U.S. Impact Investing Alliance and the New York Federal Reserve, the Center convened a roundtable of community development investors, researchers, and practitioners in July to discuss the future of Opportunity Zones and the importance of inclusive economic policies.

The real estate convening, supported by the Ford Foundation, furthered that conversation, providing a platform for discussions about potential shared frameworks for meaningful impact and leading-edge policies and practices that can keep people and communities at the heart of place-based investment strategies. This work builds upon the efforts of CDFIs, trusted partners with a record of proven impact in underserved communities.

Significantly, while the 2017 Act allows investors to benefit from Opportunity Zones through tax breaks and competitive returns, it in no way protects community stakeholders from gentrification, displacement, and other consequences that can accompany place-based investment.

The Beeck Center, in collaboration with the working group it leads, has drafted a list of guiding principles for Opportunity Fund investments:

Investors should request that fund managers integrate the needs of local communities into the formation and implementation of the Opportunity Funds.

Opportunity Fund investments should seek to be additive and generate equitable community benefits.

Investors should monitor, measure and track progress against impact objectives, allowing for continuous improvement.

Opportunity Funds should be transparent and held accountable, with processes and practices that remain fair and clear.

Fund managers and developers at this convening offered their own insights into these principles, emphasizing the need to balance support for community-centered investment strategies with fiduciary responsibility to maximize the value of their assets and returns to investors.

Here at the Beeck Center, we believe that economies that are truly inclusive can create sustainable growth across society, affording equitable opportunities through financial innovation. And as protectionist policies at home and abroad destabilize markets and perpetuate injustices that have marginalized historically underserved communities, inclusive practices can help us change course decisively — driving down inequality and ensuring widespread economic and financial well-being.

We believe that the best policies put people first, and that putting people first begins with bringing people together— especially folks who might not cross paths very often, like the investors, developers, and government representatives we welcomed to campus for this dialogue. It’s why a centerpiece of our work is investing in leaders from the public, private, and the social sectors; convening them to explore the most wicked problems we face today; and creating the multi-sector infrastructure we need to deliver positive outcomes across society, particularly for our most vulnerable populations.

We drive impact, rather than implementation, at scale because we see the change around us as a reminder — that well-intentioned initiatives out of touch with everyday life are inevitably out of reach for the people they’re meant to serve. And we challenge ourselves and our partners to rethink the fundamental assumptions that introduce and perpetuate structural injustice, leveraging our work across policy innovation and impact investing to move our thinking forward and more meaningfully serve our communities.

Opportunity Zones offer a great deal of promise to that end, and it’s up to all of us to ensure that everyone stands to gain.