Opportunity Zones





Opportunity Zones were enacted as part of the 2017 tax reform package (Tax Cuts and Jobs Act) to address uneven economic recovery and persistent lack of growth that have left many communities across the country behind. In the broadest sense, the newly enacted federal Opportunity Zone (OZ) program provides a federal tax incentive for investors to invest in low-income urban and rural communities through favorable treatment of reinvested capital gains and forgiveness of tax on new capital gains.  In Colorado, Opportunity Zones may help address a number of challenges:

  • Promoting economic vitality in parts of the state that have not shared in the general prosperity over the past few years
  • Funding the development of workforce and affordable housing in areas with escalating prices and inventory shortages
  • Funding new infrastructure to support population and economic growth
  • Investing in startup businesses that have potential for rapid increases in scale and the ability to “export” outside the state of Colorado
  • Upgrading the capability of existing underutilized assets through capital improvement investments

This economic and community development tax incentive program provides a new impetus for private investors to support distressed communities through private equity investments in businesses and real estate ventures. The incentive is deferral, reduction and potential elimination of certain federal capital gains taxes. U.S. investors currently hold trillions of dollars in unrealized capital gains  in stocks and mutual funds alone— this is a significant untapped resource for economic development. Opportunity Funds provide investors the chance to put that money to work rebuilding the nation’s distressed communities. The fund model will enable a broad array of private equity fund managers and investors to pool their resources, increasing the scale of investments going to under-served areas.

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Opportunity Zone Map

Areas highlighted in yellow are designated Opportunity Zones.
If you use the search tool, scroll out to detect zone vs non-zone areas.
For map resources, click here.
For census tract contacts in Colorado, click here.
Opportunity Zone census tracts available here.
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HOW OPPORTUNITY ZONES WORK

Opportunity Zone Fundamentals Presentation (6/28/18) (Kenan Fikri, EIG; Marc Schultz, Snell & Wilmer; and Steven Mount, Squire Patton Boggs)
Opportunity Zone Fundamentals Presentation (8/22/18) (Marc Schultz, Snell & Wilmer; Jason Brinkley, Snell & Wilmer; Nicole Ament, Brownstein Hyatt Farber Schreck)
IRS FAQs 
Opportunity Zone Fact Sheet (Economic Innovation Group)
CDFA Opportunity Zone Resources (CDFA)
Opportunity Zone Overview (Enterprise Community)

UPCOMING EVENTS

Glenwood Springs OZ Discussion – Morgridge Commons – October 17, 2018
EDCC Drive Lead Succeed – Estes Park – October 24-26, 2018
Opportunity Zone Training – Durango – November 7, 2018
4th Annual AGNC Economic Development Summit – Rangely – November 9, 2018
Opportunity Zone Meetups

FOR COMMUNITIES

There are currently trillions of unrealized capital gains sitting on balance sheets across the country. An Opportunity Zone market is already beginning to develop, and much of this capital is actively seeking projects.  In order to ensure that communities are able to successfully attract capital to projects that the community wants and that will benefit the citizens, stakeholders will need to organize themselves to build prospectuses, structure deals and add incentives that are attractive to investors, and work to engage investors.

Through the Department of Local Affairs, there are grants available to support communities in prospectus building or developing projects. Click here for more information.

Guidance for Communities:
1. Be Proactive – The best way to ensure that your community attracts the investment it would like, you must make those projects the most attractive and the easiest to find. If you do not take a seat at the table, investment will happen to your community instead of with your community.

2. Urgency is Key – To realize the full benefits of the incentive, an Opportunity Zone investment must occur before the end of 2019. While OZ investments will continue after this date, communities and projects that organize themselves quickly will have an easier time attracting capital.

3. Think like an Investor – The Opportunity Zone incentive will not make a bad project good, but instead will help bring a good project over the finish line. Focus on projects that will help investors realize a return, and consider what your community can do to increase that return even more.

4. Layer Additional Programs and Incentives – In the right situation, Opportunity Zone incentives can be used in conjunction with Enterprise Zones, New Market Tax Credits, TIFs, LIHTC, land donations, fast-tracked permitting, and many other programs. Consider what else your community can add to make a desired project them as attractive as possible to investors.

5. Opportunity Zones are Another Tool in the Toolkit – There will be some projects that are not well-suited for Opportunity Zones, or problems that Opportunity Zones can’t solve. Think about how Opportunity Zones can fit into your existing economic development tools, because in the right situation, the incentive can be catalytic.

OEDIT Prospectus Outline
Resources for Communities (OEDIT and DOLA)
Mesa County Prospectus Building (Grand Junction Economic Partnership)
Opportunity Zones: Policy Strategies & Opportunities (Enterprise Community Foundation)
Enterprise Tools  (Enterprise Community Foundation)
How States Can Maximize Opportunity Zones (The Governance Project)
The Investment Prospectus Approach (The Governance Project)
Example Prospectus: South Bend (The Governance Project)
Opportunity360 Data Tool (Enterprise Community Foundation)
Equitable Investment in Opportunity Zones (PolicyLink)

COMING SOON: State Investment Database – stay tuned for more information.

FOR INVESTORS

The Opportunity Fund creates an additional incentive to invest in communities by deferring and possibly eliminating the capital gain tax on long-term investments. Some investors have a social investment drive – they want their capital to improve communities they know and love. Volatility in the stock-market has many investors sitting on unrealized capital gains; they can transfer these into Opportunity Funds putting the full value of the capital gain to work.

Benefits of an Opportunity Zone Investment

  1. Deferral – No up-front tax bill on the rolled-over capital gain and investors can defer their original tax bill until the earlier of a) December 31, 2026 or b) the sale of the Opportunity Zone investment
  2. Reduction of tax on the rolled-over capital gain investment for long-term holding.
    • A 5 year holding increases the rolled-over capital gains basis by 10%
    • A 7 year holding increases the rolled-over capital gain investment  basis 5% for a total of 15%
  3. Tax-free appreciation- If an Opportunity Fund investment is held for ten years, the taxpayer pays no capital gains tax on appreciation

Questions To Answer Before Investing In An Opportunity Fund (Marc Schultz, in Law 360)
Opportunity Zone Resource Center (Novogradac & Company)
Opportunity Zone Benefit Calculator (Fundrise)

OPPORTUNITY FUNDS

 The U.S. Treasury is finalizing their regulations to implement this new law and guide the Opportunity Funds. Investment groups are organizing and contemplating opportunities.

Opportunity Funds are a new class of investment vehicle that must be organized as a corporation or a partnership. The funds will specialize in attracting investors with similar risk/reward profiles to aggregate and deploy their capital in rural and low-income urban communities. Opportunity Funds will be comprised of private capital and guided by market principals. The funds must invest 90% of their assets in opportunity zone assets. Funds may invest in opportunity zones via stock, partnership interests, or business property.

Fund assets must create new business activity. If invested in an existing business, the fund must double the investment basis over 30 months. The funds can create new businesses, or new real estate or infrastructure. Funds may not be invested in certain types of business like golf courses, country clubs, gambling establishments, and a few other specifically excluded types of business.

 

HOW WERE ZONES DECIDED?

Colorado’s Office of Economic Development and International Trade (OEDIT) conducted an inclusive and rigorous process to nominate census tracts for Opportunity Zone status. OEDIT produced metrics for evaluation, took public input, and collaborated with regional economic development partners who brought extensive human intelligence to the table to select census tracts with need and opportunity characteristics that present a good case for private capital investment. Colorado’s Opportunity Zones present a portfolio of investment opportunities from urban to rural, and business starts to infrastructure. A majority of the census tracts are outside of the Front Range and touch much of the state with the goal of raising up our rural economies. The census tracts nominated have been approved. Colorado’s OZs are now set for the duration of the program (through 2026).

Every state and territory could designate up to 25% of eligible census tracts as OZs; Colorado has 126 census tracts designated as Opportunity Zones. Private equity in Opportunity Funds will seek the best investment opportunities aligned with their missions and return requirements – it’s important to remember that OZs in Colorado will frequently be competing with OZs throughout the United States for capital investments.

OEDIT does not specifically endorse or take responsibility for any information or resources posted here, and no information included should be considered legal or investment advice. We are very grateful for our partners – if you have something helpful you would like us to publicize and share, please send it to us!

Colorado Office of Economic Development and International Trade (303) 892-3840 oedit.info@state.co.us
Colorado Office of Economic Development and International Trade (303) 892-3840 oedit.info@state.co.us
Colorado Office of Economic Development and International Trade (303) 892-3840 oedit.info@state.co.us
Colorado Office of Economic Development and International Trade (303) 892-3840 oedit.info@state.co.us