1. Vice President for Public Policy
Opportunity Zones
Marion McFadden
Vice President for Public Policy
Enterprise Community Partners
Title
Date

2. Qualified Opportunity Fund
Enterprise Community Partners
Who we are:
Proven and powerful nonprofit that improves people’s lives by making well-designed homes affordable.
Nationwide, Enterprise has invested $36 billion in equity, grants and loans to help build or preserve nearly 529,000 affordable homes in diverse, thriving communities in all 50 states.
We know that access to the social determinants of health can influence an individual’s trajectory in life, which is why our investment portfolio also includes health clinics, schools and access to healthy foods and public transportation. Together with safe, decent, affordable quality housing, these are the attributes of economic mobility and opportunity.
Qualified Opportunity Fund
Any investment vehicle organized as a corporation or a partnership for the purpose of investing in Qualified Opportunity Zone Property (Other than another QOF).
Who We Are:
We bring together expertise in both the public and private sectors across a range of areas to deliver capital, develop programs, and advocate for policies that strengthen distressed communities.
And our vision of successful implementation of Opportunity Zones would include many of the same best practices that we have seen developed over the past three decades.
Developing affordable homes,
Creating jobs that pay a living wage,
Supporting minority and women owned businesses,
Engagement with Opportunity Zones
Early supporter of the Investing in Opportunity Act which was introduced the Opportunity Zones concept because we saw the potential if properly implemented.
Since enactment we have remained aligned with key stakeholders on implementation at national and local levels.
In May testified to Congress on key items that needed to be addressed as part of implementing Opportunity Zones
A diverse cross-section of the organization has come together to build our Opportunity Zones platform and provide free resources, host webinars, write blogs, create the state mapping tool accessed 50,000 times by users in every state, Opportunity360 Measurement Report

3. IRC Section 1400Z – Opportunity Zones
Opportunity Zones - Background
The Tax Cuts and Jobs Act created Opportunity Zones—a tax benefit designed to incent long-term equity investments in businesses and real property located in designated underserved communities.
Investing in Opportunity Act, bipartisan support (114th, 115th Congress)
Economic Innovation Group
Internal Revenue Service (IRS) will oversee, not a tax program
Special rules for capital gains invested in Opportunity Zones
No reporting requirements, state oversight, or investment mandates
Intent was to spur economic growth and job creation and connect investors to overlooked, but credit-worthy, investment opportunities
IRC Section 1400Z – Opportunity Zones

4. What are Opportunity Zones?
Designated census tracts eligible for investments
Definition of low-income census tract based on Section 45(D)
Any census tract that has poverty rate of at least 20 percent or that has a median income that does not exceed the highest of 80 percent of the median income of the metropolitan area or of the statewide median income
Governors nominated up to 25% of low-income census tracts
90 – 120 days post enactment to select
Exemption: Up to 5% could be eligible based on contiguity
Treasury approved these nominations
Final as of 6/15/2018
Designations last for 10 years

5. IRC Section 1400Z – Opportunity Zones
What are Opportunity Funds?
Any investment vehicle organized as a corporation or a partnership for the purpose of aggregating and deploying investments in Qualified Opportunity Zone Property
Flexible structure:
Private or public fund manager
Wide range: National, multi-asset fund or single-asset fund
Must hold at least 90% of assets in Qualified Opportunity Zone Property
Investments must meet the substantial improvement test
IRC Section 1400Z – Opportunity Zones

6. What is Qualified Opportunity Zone Property?
Eligible investments in business and real estate
QOZ Partnership Interest: Capital or profits interest in a domestic partnership
QOZ Stock: Stock in a domestic corporation
QOZ Business Property: Tangible property used in a trade or business of the Fund.
Requirements include:
at least 50 percent of the total gross income of such entity is derived from the active conduct of such business
a substantial portion of the intangible property of such entity is used in the active conduct of any such business
less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to nonqualified financial property
not a “sin business”
the opportunity zone incentive is expected to support a wide range of business types. Unlike the NMTC, there appears to be no prohibition for residential rental real estate businesses to qualify. However, because of the tangible property requirement, investments in established businesses may be limited. This is because of the requirement that substantially all of the tangible property owned or leased by an opportunity zone business must be opportunity zone business property. By definition, opportunity zone business property must be property purchased after Dec. 31, Accordingly, established businesses owning or leasing older assets may find it difficult to meet this test.

7. Qualified Opportunity Zone Partnership Interest
How It Works
Private Capital:
Investment income subject to capital gains tax
Investment Vehicle: Opportunity Fund
Qualified Opportunity Zone Partnership Interest
Qualified Opportunity Zone Business Property
Qualified Opportunity Zone Stock
And here is how that flows
Capital gains receiving the special treatment
Aggregated into an Opportunity Fund
Invested in Opportunity Zones for these eligible purposes
equity investments in business and real property
Qualified Opportunity Zone

8. Tax Benefits for Investors - Deferral
Temporarily defer an unlimited amount of capital gains realized from the sale or exchange of any property with an unrelated party
Reinvest all or just a portion of capital gains
Investments are made as equity, not debt
December 31, 2026
Pay taxes on original gain when you either exit the Opportunity Fund or on 12/31/2026
Deadline for investing into an Opportunity Fund is 12/31/2026
Example: Sell property/stock with a tax basis of $200,000 for $1 million. Capital gain is $800,000. Taxes on $800,000 of capital gain can be deferred if reinvested in an Opportunity Fund.

9. Tax Benefits for Investors – Reduction in Tax Liability
Incremental benefits meant to incent long-term investments
10 Year Scenario:
2019 (deferral)
$800,000 of capital gain invested in Opportunity Fund
2024 (Year 5 benefit): 10% of deferred gain permanently eliminated
$800,000 of capital gain invested; $720,000 of deferred gain is taxable
2026 (Year 7 benefit): 15% of deferred gain permanently eliminated
$800,000 of capital gain invested; $680,000 of deferred gain is taxable
2029 (Year 10 benefit): Additional Benefit - full tax exemption of any gains on Opportunity Fund investment
Sold investment in Opportunity Fund for $1 million; no gain taxed on the sale since investor recognized original gain in 2026.
On LIHTC, the thought is that competition for Housing Credits in OZs could increase credit pricing, ultimately introducing more equity into developments located in OZs. Some people say this is just hype and there probably won’t be much of an impact on pricing.
NMTC is primarily a debt product, while OFunds have to be an equity investment. OFunds could complement NMTC allocations by introducing additional equity into a particular project, ultimately stretching resources.
However, there is still so much uncertainty around the potential to even pair these tax credits with OZs that all of this is purely speculative.
OFs could offer another source of equity in RAD transactions but that’s said with all the same disclaimers as lihtc. 

10. IRC Section 1400Z – Opportunity Zones
Where Things Stand
Opportunity Zone nominations: Complete
Total 8,762 zones approved as of June 15, 2018: 50 states, 5 territories, Washington, D.C.
Guidance on Opportunity Funds: Ongoing
IRS published FAQS (April and June 2018):
Funds will self-certify
Additional FAQS anticipated before year-end
Need for clarification on numerous issues including reporting requirements
Creation of/investment in Opportunity Funds: Currently happening
State and Local Efforts: Ongoing
Convenings, legislation, community and investor engagement
Full implementation of law: Anticipated Q3 2018–Q4 2018
IRC Section 1400Z – Opportunity Zones

11. Fund Activity Announcements:
Fundrise - plans to create a $500 million Opportunity Fund. First project announced - a partially-vacant property in Washington D.C.’s LeDroit Park which will fill the building’s ground-level retail space.
Bridge Housing - $500 million Opportunity Fund for affordable housing projects on the West Coast
Virtua Partners - raising $200 million for an Opportunity Fund, primarily investing in residential rental property development, hospitality and offices in high growth sunbelt markets.
PNC bank - planning an Opportunity Fund to finance mixed-use, multi-family naturally occurring affordable housing, commercial rental and owner-occupied housing.
Other early movers include Enterprise, LISC, Access Ventures and Village Capital

12. Zone Designation Analysis
35 million people live in Opportunity Zones
Over three-quarters of Opportunity Zones are within metropolitan areas
Opportunity Zones are nearly evenly split between high density (urban) zip codes and low density (rural) ones, with the remaining 22 percent in medium density (suburban) communities.
294 Opportunity Zones contain Native American lands—proportional to their share of all eligible low-income communities
Total of 8,762 Ozones designated nationwide.
All of the data and analytics were conducted using Opportunity360
Information from the Economic Innovation Group

13. Zone Designation Analysis
Households in Opportunity Zones have lower home values, lower homeownership rates, and higher levels of renter cost burden.
There is a significant overlap of Opportunity Zones with the affordable, subsidized housing stock
Opportunity Zones tend to have larger-than-average populations of African American and Hispanic/Latino residents and smaller populations of Non-Hispanic White and Asian residents.
Total of 8,762 Ozones designated nationwide.
All of the data and analytics were conducted using Opportunity360

14. State and Local – Policy Engagement
Examples:
Several states are currently considering preferential treatment of state capital gains to incentivize Opportunity Zones investments
Missouri SB590 modifies state Historic Preservation Tax Credit to set aside credits for projects redeveloped inside Opportunity Zones
California – AB3030 would add projects financed by Opportunity Funds to list of those exempt from the California Environmental Quality Act
Note about North Carolina: SB99 is the Omnibus budget bill. It was vetoed by the governor but subsequently overridden by the legislature. Much of the back-and-forth between the legislature and the executive branch focused on education and taxes. The governor said: “I will not sign my name to a budget that protects corporations and the wealthy at the expense of schools and students. This budget falls short of what our teachers and public education need. North Carolina will not stand for a secret, unchangeable budget born of a broken legislative process. Therefore, I veto the bill.” So, veto not directly related to Opportunity Zones in any way that we are aware of.
Gain that is deferred for federal tax purposes as a result of new IRC section 1400Z-2(b) (which allows taxpayers to elect to defer inclusion of gain on a sale or exchange of property if the proceeds are reinvested in a qualified state opportunity zone) must be added to North Carolina’s federal taxable income starting point of a corporation or the adjusted gross income starting point of an individual.  That is, North Carolina decouples from the federal gain deferral.  Once the gain is recognized for federal purposes, S.B. 99 then provides a subtraction modification, as the gain was already previously taxed for North Carolina income tax purposes.

15. State and Local – Community Engagement
Examples:
Colorado – statewide convening on June 28th, hosted by the Colorado Office of Economic Development and International Trade
Washington – the Washington State Department of Commerce is hosting a series of listening sessions throughout the state in July and August. Those sessions will culminate in a statewide convening in October
Maryland – the Maryland Department of Housing and Community Development hosted a statewide convening on July 30, 2018
Bay Area – Enterprise, in partnership with PolicyLink and the San Francisco Federal Reserve, is hosting a Bay Area convening on August 13th

16. What’s Next Impact Investing Federal Policy State and Local Policy
Investor engagement
Fund development
Reporting on outcomes
Federal Policy
Ongoing engagement with Congress and the Administration on guidance and implementation
State and Local Policy
Engagement with governors, mayors, county executives, local leaders, and other important community stakeholders
Policies, programs, and planning that ensure equitable and inclusive economic development and expand access to opportunity for existing residents and local businesses
KIS: Data and Analytics, mapping
Enterprise Advisors: Technical assistance on implementation activities