MEDA Board of Directors Blog
Best Practices in Economic Development from Experienced Leaders
The Opportunity in Opportunity Zones
Economic Developers in Michigan have an exciting new tool: Opportunity Zones (OZ’s). This federal program provides opportunities for investors with capital gains to reinvest in federally designated areas. There are OZ’s in every county in Michigan. Visit MSHDA’s website or click here for a map. The investments occur through a new vehicle known as Opportunity Zone Funds. There are three targets for investment: real estate; businesses located in OZ’s; or venture-funds for startups.
This is a complicated program and it is advised that economic developers take advantage of the resources that exist to learn the rules and work with their local communities in designated OZ’s to capture as much benefit as possible. This article focuses on the role of the economic developer.
There are three broad areas where professionals can create impact:
- Assisting communities to identify and market their real estate opportunities
- Assist businesses or property owners to create their own fund
- Recruit local or national investors to consider opportunities in your OZ
The key to the program is to identify market-ready projects that need capital. Projects should already be identified with a clear understanding of the financial model. Once a fund is established, it has 31 months to deploy its resources. Building rehabilitation is an example of a good project, but rules require that the proposed investment must equal or exceed the basis (value) invested in the real estate minus land. In other words, if an investor buys a building for $500,000, he must invest at least the same amount for it to be an eligible project. Greenfield projects also are attractive if the market is well-established for the proposed development.
The most effective method of marketing OZ projects thus far is to create a prospectus that describes the opportunity, demographics, zoning and community for which the project is proposed. Here are two examples of online prospectus’ that exist today:
Erie, Pennsylvania: www.flagshipopportunityzone.com
Louisville, Kentucky: https://louisvilleky.gov/government/louisville-forward/opportunity-zones-louisville
Once projects are identified, look for portals to list your opportunities. At the moment, there are more funds to invest than development-ready projects. Here’s one location where you can list your projects: www.theopportunityexchange.com.
Businesses and real estate owners need to be educated about this new program to understand how it may benefit them. Consider partnering with an attorney to hold an educational program. Here’s a partial list of attorneys who are assisting communities and businesses with matchmaking or creation of funds: Howard & Howard – Gina Stoudacher or William Burdett; Plante Moran – Gordon Goldie; or Dykema Gossett PLLC – Scott R. Kocienski.
A web presence with a description of the program and the benefits to investors is a good way to start your marketing campaign. Ann Arbor SPARK and Lansing LEAP are two EDO’s that have launched new sections on their websites. Other EDO’s will soon join the parade, so don’t miss this OPPORTUNITY to attract capital to development-ready projects or businesses in your area.
Authored By: Dan Casey, Chief Executive Officer, Economic Development Alliance of St. Clair County. Dan is MEDA's 2019 Board Treasurer.
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