SCOTTSDALE, Arizona – Wall Street valuations can spiral through the stratosphere one week toward a crash landing the next. That’s why some savvy investors have shifted their focus from the glittery allure of Silicon Valley startups to more socially conscious projects in qualified opportunity zones (QOZ).
Opportunity Zones as Momentum Markets
Created under the 2017 Tax Cuts and Jobs Act, the federal QOZ program incentivizes investors to place their unrealized capital gains into the revitalization of deprived communities. Launch Pad, an innovator in the coworking space, has another word for these cities: momentum markets—smaller locales with potential to become thriving entrepreneurial cities that draw talent from across the country.
“[These are] great lifestyle cities where we can really build and support the entrepreneurial community and have a real impact,” says Anne Driscoll, Launch Pad CEO and cofounder. Driscoll, a former Google executive, left Silicon Valley to focus on fostering these ecosystems using opportunity zones and Launch Pad’s innovative coworking spaces and educational programming. The company now has locations in East Nashville and Memphis, Tenn., Newark, N.J., New Orleans, La., San Antonio, Tex., Stockton, Calif., and a forthcoming location in Mesa, Ariz.
“[The QOZ] program unites people across the board,” says Chris Loeffler, CEO and co-founder of real estate investment firm Caliber, which invested in Launch Pad and leased the Mesa location. “It’s important to know that Caliber is investing in Mesa; Launch Pad is a critical part of that investment; and there is significant unity and collaboration between us and all levels of the community, the government and the private sector.”
Qualified Opportunity Zone Funds are not only an excellent vehicle for investors to stash capital gains and reduce taxes—but to grow and nurture these momentum markets.
“These funds have been the ideal investment product for what investors need right now, as well as what is needed in many neighborhoods,” says Chris Loeffer, co-founder and CEO of Arizona-based real estate investment firm Caliber, which has made multiple investments in opportunity zones across the Phoenix and Tucson areas. “The funds support jobs and revitalize distressed areas while giving investors valuable tax savings and longer-term upside earnings potential.”
Across the country, 8,766 urban, rural and suburban census tracts have been identified; in Arizona there are 168. Investors can gradually reduce capital gains tax as the investment is held over time. If the money stays in a project for at least 10 years, the tax is exempted entirely.
Caliber and Launch Pad hope that investment the downtown Mesa QOZ will create jobs and small business opportunities at the tail end of the pandemic. “Coworking has become a critical component of entrepreneurial ecosystems in mid-sized markets across the country,” Driscoll says. “In a post-COVID world, remote work will become the norm, creating a real need for community-focused coworking spaces.”
Opportunity Zones by the numbers
The White House Council of Economic Advisers last week delivered a progress report on the opportunity zones to Housing and Urban Development Secretary Ben Carson illustrating the program’s success to date:
- Opportunity zones have attracted $75 billion in capital investments as of year-end 2019. $52 billion would not have entered opportunity zones without the tax incentive.
- Opportunity zone investments have created at least 500,000 new jobs.
- From the second quarter of 2018 to the fourth quarter of 2019, private equity investments into opportunity zone businesses grew 29% relative to a comparable set not in designated areas.
- An opportunity zone designation alone has increased private property values within the designated areas by 1.1%, which translates to nearly $11 billion.
- The Feds also are putting their money where their mouths are by starting to house some federal offices in opportunity zones. In fact, a recent Presidential Executive Order instructs agencies to prioritize the location of facilities within distressed areas and opportunity zones, which will save taxpayer dollars and spur redevelopment.
“This initiative is bringing jobs and revitalization to communities in Arizona,” said U.S. Sen. Martha McSally in a press briefing with Launch Pad and Caliber. “The more we can tell that story, the more people will understand the impact that it’s making.”