Opportunity Zones Webinar Series Series 2 – Mechanics of the Tool and Marketing the Zones

Today’s Presenters Joel Walters, Director Missouri Department of Revenue Joel.walters@dor.mo.gov Mark Stombaugh, Business Development Unit Director Missouri Department of Economic Development Mark.Stombaugh@ded.mo.gov

Today’s Content Webinar Series Investment Mechanics – Next 2 Wednesday’s at 11:00 AM Guest speakers Investment Mechanics – Opportunity Zone funds Opportunity Zone investors Marketing Your Zone – Investors and Deal Flow Activities Around the Nation Q&A

Opportunity Zone Webinar Series complete: Sept 26 - Updates, Resources and Actions- What We Can Do Now/What Others are Doing Speaker: Michael Eggleston, St. Louis Federal Reserve, Sallie Hemenway, DED) This session provides a refresher on Opportunity Zones in Missouri and nationwide, what resources have been made available in the months since the designation and what activities States and Local governments can undertake to maintain an edge. today: Oct 3 - Investors and Deal Flow - Marketing Your Zone Speaker: Director Walters, DOR, Mark Stombaugh, DED This session focuses on the different types of strategies can communities deploy to attract investors.  

Opportunity Zone Webinar Series Oct 10 - Entrepreneurs and Opportunity Zones/Sparking Investment Speakers: Bill Anderson, TBD  This session describes the match of angel and early stage investors with opportunity zone funds to take advantage of benefits tied to those riskier equity investments. Oct 17 - Fund Management and Treasury Regs Speakers: Brian Bear, DED, UMB Bank representatives This session reviews the most recent information from Treasury and identifies funds and fund management in the works.

Opportunity Zone Facts 161 Missouri Zones designated 8700 Zones designated nationwide 12 percent of the nation’s census tracts 1/8th of America’s neighborhoods $3-6 trillion in estimated potential income subject to capital gains

Early Keys to Success Requires a proactive stance versus reactive stance Requires efforts developed from the perspective of the investor Allows participation in good deals versus marginal deals Allows focus on returns Allows locals to match good deals to redevelopment plans (purpose) Places emphasis elsewhere - Money isn’t the issue, this time.

Investment Mechanics Why will it work Investment Mechanics Why will it work? The only way to think like an investor is to understand the tool.

Investment Mechanics perspective of the investor Provides incentive for the private sector to invest in low income communities Two powerful motivators Delay and avoid taxes Make money Equity investments in property, stock or partnership Not debt financing Not a tax credit Expectation of a return

Investment Mechanics perspective of the investor Three tax incentives for investing in Missouri’s 161 designated Opportunity Zones through an Opportunity Fund: Temporary deferral A deferral of inclusion of taxable income for capital gains reinvested into an Opportunity Fund Step up in Basis An increase in basis by 10% if the investment is held by the taxpayer for at least 5 years and 5% more if held for 10 years – excludes 15% of original gain from taxation Permanent Exclusion Excludes from taxable income capital gains made from the sale or exchange of an investment in a Fund if held for 10 years.

Fund Mechanics How does this work Fund Mechanics How does this work? The only way to think like an investor is to understand the tool.

Source: EIG – Based upon capital gain realized and invested in 2018

Marketing Your Zone Not a tool to just pack away in the toolkit Not a tool designed to limit private sector returns Private money for a public benefit Develop local strategies for building your market What does success look like to you? What are the specific redevelopment plans for the Zone? Seek investors that match your goals Identify deals Create deal flow Initiate an “investor prospectus” Showcase the assets of your Zone

Marketing Your Zone Research your target investors Remember the investors at home Match private investments with complementing public investments Attract capital with capital Commit to the long-term Measure and report outcomes – success attracts capital

Other States? State operated Opportunity Funds Clearinghouse Activities Investor Prospectus (KY) Encouraging local zone strategies (CO) Layering Incentives, credits, for investment into specific funds. (OH) Ohio has introduced legislation that would provide a 10% state tax credit on investments greater than $250,000 in qualified Ohio opportunity funds. States can use additional zone- and credit-based programs to compete. Given the six month requirement to invest funds, development incentives (e.g. density bonuses and streamlining reporting) can help communities attract and absorb capital.

What can we provide? MO Actions Zone review and approval Program specific legislation, SB773 (Historic) Cabinet Committee on Infrastructure exploring ways to leverage regional tools, including Opportunity Zones What other tools will help Missouri Zones? Fund development? Host interactive website? Host investor/deal summit?

Q&A Thank you!