Underserved neighborhoods across the nation frequently experience a lack of investment and development. As a result, these issues only perpetuates high unemployment rates and neglected neighborhoods. Today, there are a designated 8,700 areas like this across the country.
But there is a new dawn for underdeveloped areas that may bring some hope to communities across the nation. As part of the new United States federal tax bill, the opportunity zone program stimulates private investment in these designated opportunity zone communities in exchange for capital gain tax incentives.
This new program has the opportunity to be a game changer for low-income urban areas across the nation, including Buffalo, New York.
A Major Community Investment Tool
The Opportunity Zones initiative is a new community investment tool which was established by Congress in the Tax Cuts and Jobs Act of 2017 to encourage more long-term investment in low-income urban and rural areas. Investors, then receive a tax incentive to reinvest in their excess capital into an Opportunity Fund. These funds act as investment where at least 90 percent of investors’ capital in qualifying assets goes to Opportunity Zones. Since many U.S. investors hold trillions of dollars in unrealized capital (whether in stocks or mutual funds), this untapped source can offer significant economic development for these communities. Funds will draw from a wide variety of investors to pool money for opportunity zones and increasing the scale of development.
The Incentives that Encourage Long-Term Investment in Low-Income Communities
Opportunity Zones offer investors many incentives to put their capital to good use. Chief among them is the temporary tax deferral for capital gains which is then reinvested into the fund. This gain must be recognized before the date on which the investment is sold or by December 31, 2026.
A step-up in basis is also offered for capital gains that are reinvested in the opportunity zone fund. The original investment is increased by 10 percent if it is held by the taxpayer for at least five years. An additional 5 percent is added on if it’s held for at least 7 years, but excludes up to 15 percent of the original gian from taxation.
Another bonus is that those who sell or exchange an investment in a qualified opportunity zone fund can earn a permanent exclusion from taxable income of capital gains accrued from the investment in one of these designated zones, if the investment is held for a minimum of ten years.
Opportunity Zone Potential in Buffalo, New York
According to the City of Buffalo’s Equal Opportunity Zones report, there are 17 opportunity zones that have been organized into 10 “zone clusters” based on various factors, like geography, economy and land use and planning. Zone districts include neighborhoods like Buffalo’s urban center, cultural district, Northland-Hospital, East Main & Jefferson, OuterHarbor, Delaware, University Heights, Industrial Heritage and more.
There are a variety of local and national supporters who are helping to make this plan a reality. In Buffalo, agencies like the Erie County Industrial Development Agency, Empire State Development, Buffalo Niagara Partnership, Invest Buffalo Niagara, among others are helping to offer resources like business/entrepreneurial assistance, financing, ny sales tax exemption to help grow development and the local economy.
The cultural district is one hotbet for such development. Currently, Buffalo’s downtown boasts at least four large-scale opportunity zone projects. As the city’s major area of employment, it offers opportunities for commercial real estate, like entertainment facilities, to prosper while increasing residential population.
Nick Sinatra & Company Real Estate in partnership with Ellicott Development has sought our opportunities in local Buffalo neighborhoods. Our project, Elmwood Crossing, is a multi-project, reuse of a former Hospital campus which is residential and amenity-focused. The district itself is a recognizable and very dense urban area with high-value housing stock and very active commercial presence. There are also high levels of investment throughout Elmwood and Delaware neighborhoods with opportunities for many different types of development.
In time, we will see how these opportunity zones investments payoff for the communities at-large, but without so many benefits for the investors themselves, if they build it, prosperity is likely to follow close behind.