Peter Hirshberg spoke of Opportunity Zones and localism as “America’s Next Great Frontier” at the Near Future Summit 2019 #NFS19 during their “Local Maximum” session. The capsule focused on how Big Data meets public/private partnerships to bring new solutions to communities in record speed.
Originally introduced in the Investing in Opportunity Act (IIOA), the Opportunity Zones Program was enacted as part of the 2017 tax reform package (Tax Cuts and Jobs Act). The program is designed to drive long-term capital to rural and low-income urban communities throughout the nation, and uses tax incentives to encourage private investment in impact funds.
Here is a set of links that provide valuable background and context to what an Opportunity Zone Fund is and why it matters to stakeholders in cities and towns interested in new forms of economic development and inclusive growth.
LISC – Local Initiatives Support Core
LISC’s mission is “With residents and partners, LISC forges resilient and inclusive communities of opportunity across America – great places to live, work, visit, do business and raise families.” Provides an Opportunity Zone 101 and FAQs:
Bruce Katz, author of the New Localism
Formerly head of the Metropolitan Program at Brookings, Mr. Katz now heads up the Nowak Metro Finance Lab at Drexel and has written extensively about Opportunity Zones
- Guiding Principals for Opportunity Zones
- How Cities Maximize Opportunity Zones
- Seizing the Opportunity of Opportunity Zones
EIG (Economic Innovation Group)
The EIG covers opportunity zones extensively; this is a bipartisan group with a mission to “to advance solutions that empower entrepreneurs and investors to forge a more dynamic economy throughout America.”
Accelerator for America
Accelerator for America is a group set founded in 2017 by Rick Jacobs with Los Angeles Mayor Eric Garcetti, Accelerator which seeks to “scale and replicate local solutions to economic insecurity across the country.”
- There’s a short video on their role in the ecosystem available on this page:
- See also this page for a set of tools relevant to cities and their development of prospectus to drive investment capital: AfA Tools
Tax & Real Estate Implications Implications
- Opportunity Zones: Rules finally come out, and yup, they’re complex (but manageable)
- These Low-Income Communities Should Prepare for an Influx of Cash
- Property Prices Jump 20 Percent in U.S. Communities Named Opportunity Zones
- Cadre (Real Estate investment platform) 101 on Opportunity Zones
- Math for investment in Opportunity Zone Fund versus a REIT – note that we don’t agree with this math … one of the biggest issues is that fees on most OZ funds are at 1% not 2%
List of Qualified Opportunity Zone Funds
Other players in the data ecosystem around Opportunity Zones that we can introduce you to that may be pertinent:
We are happy to make the necessary introductions here.
Connecting the dots: from Maker City® to Opportunity Zones
It would be a pretty strange nation that concentrated all its economic goodness in one tiny place and left everywhere else future starved. Yet that’s precisely where we are as a nation.
One of the most hopeful economic stories in America is the investment in innovation in cities large and small in the USA. Some of this is being driven by the global trend back toward cities. When we were children, people were fleeing big cities due for the suburbs.
Remarkably the tech revolution has made cities more desirable. Because it’s easier and cheaper to start things than ever before (thanks to the cloud, easier ways to prototype products, lean methodology) it can be done most anywhere. But the formula only works because cities are places that can attract a concentration of talent and then build an ecosystem to support that talent. So today, we find cities competing on quality of life, attracting talent, supporting ecosystems.
What’s interesting is the most successful cities and towns away from the two coasts aren’t trying to be me-too copies of Silicon Valley, they are coming up with unique expressions of innovation based on their strengths. Witness Louisville building small batch manufacturing near its logistics hub, and GE co-creating appliances there with makers, artists and entrepreneurs at its First Build facility.
Pittsburg transformed from a steel town to software and now onto robotics and advanced manufacturing. In the process they are well into merging art, computing and making classes into integrated fab spaces for K-12 in the public-school system. They’ll have as diverse and sophisticated workforce as any city because of this. Mayor Peduto has been very intentionally planning invitation spaces, quality of life, and education as the future of his city. Chattanooga, Raleigh, Los Angeles, Salt Lake City, Miami and Burlington are all hip to this.
You could argue that one of Silicon Valley’s great exports is our approach to innovation. This is a particularly apt moment for all this because what needs to get invented nowadays is no longer pure software. In the world of IoT, wearables, new materials, additive manufacturing, more customized and smaller runs of products that take sophisticated authoring to create (everything from turbine blades to medical prosthetics), we need a wide range of making and manufacture cleverness. This calls on the full range of skills and capabilities seen across our cities –what Detroit is good at, the skills of the remade Brooklyn navy yard, the aerospace and making tradition of Los Angeles –coming together as probably the most exciting story and economic movement in America.
And we should give this movement it a name!
A couple years ago, Dale Dougherty, the Institute for the Future, Peter Hirshberg, and Marcia Kadanoff started calling this phenomenon “the Maker City.” The values of Silicon Valley and the Maker movement (experiment, fail fast, figure stuff out before you scale), the application of all this to makers, coding and project-based education, and its application to workforce development. We even wrote a book about this and the book itself became a modest best seller.
The book – entitled Maker City: A Practical Guide to Reinventing American Cities – was graciously funded by the Kauffman Foundation and is both a report on what works and a movement to further this progress. It’s been a privilege and exhilarating to work with so many cities which are at work on their future.
This is not some tired candidate complaining “who let the jobs out?” or more protectionist xenophobia. It’s America’s cities quietly figuring out what works, implementing 100 variations of the next economy, fueled by young people who are seeking out these affordable places and realizing they are great yet again. And to think Silicon Valley had something to do with this. That’s a hell of a thing to brag about.
9 Things We Learned at the Stanford Opportunity Zone Investment Summit
1// More deals than capital attended Monday.
When one of the speakers did a “raise your hands” poll, only about 15% of the people in the room represented capital. Shamina Singh from the Mastercard Center for Inclusive Development (who underwrite the conference) expressed similar conversations to me: they had hoped for more money, funds to show up. A lot of the funds we spoke with were still getting organized or were family offices figuring out what to do. Very few traditional Silicon Valley types attending; a notable exception was Patrick McKenna of High Ridge Capital that has successfully invested in tech companies based in less expensive cities for years.
2// The cities that presented had well thought out, mostly shovel ready plans.
Deal flow will be happening through a prospectus process – at least initially. Both Bruce Katz (Drexel University) and Mayor Eric Garcetti (Accelerator for America) have been coaching cities on how to be more proactive and showcase “shovel” ready programs. Katz published their “early observations and next steps” from having developed plans with the first 27 cities. Strong insights you can read here.
The cities went to great effort to showcase what they’ll be doing to make a particular opportunity zone successful (“We’ll bring you renters, work to move business there, structure investment according to OZ timing …”) Norfolk really played with the spirit of things: “we want your capital to redevelop these buildings. We will bring you the renters. And we will arrange for the property to be purchased from you in 10 years. There is no reason not to do this. We hope to wrap up the $30mm this week…”
3// City Pitches!
The day concluded with Mayor Garcetti hosting 2-minute elevator pitches from about 20 cities. All seem eager to meet with investors and have pitches with top-line numbers. Prospectuses are available here on the Accelerator for America site.
Peter spoke with Mayor Garcetti about the process and what its been like for cities to learn real estate thinking and investors to understand cities’ social benefit requirements. See our 3-minute video.
Insight from one mayor: The Mayor of Dayton and her economic development told us that the first couple of projects have deals in progress, not yet signed, but expect to sign soon. Her next tranche of projects are looking for funds focused on projects that sit between the hospital and university and she’ll be working to make it a valuable innovation district. She said she really isn’t looking for a lot of value add from capital because “we’re taking the planning and community development pretty seriously.”
4// OZ deals mostly don’t happen without city involvement
Even shovel ready programs may require much community engagement to get the community aligned around the project and to build the vibrant ecosystem around the real estate project that the community wants. The capital stack includes not just equity but debt and funding from community-based foundations (CBIF) to fill the financing gap as otherwise the projects would not “pencil out” to provide a market rate return even with the OZ tax-benefits.
The Kresge Foundation has been looking for a way to invest in cities for years; they’ve stepped up with a $22M fund to underwrite early movers in the market committed to transparency; there is also talk they will step up to provide debt financing against OZ investments in selective markets.
5// Both city- and thought-leaders acknowledge that real estate alone will not lift up cities that have traditionally been subject to deinvestment.
There is strong support for our thesis that it will take investment in more than just real estate to make city and regions thrive. Kansas City, a city we work with thanks to our relationship with the KC Star and the Maker Community there, pitched a company that greatly reduced home construction costs together with a mechanism that created connected communities to move into the homes. San Jose pitched a culinary district. There were several financial innovation companies pitched by cities.
6// These approaches /proposals are resolving into a set of formats, templates for community development that are likely repeatable
Ross Baird at Blueprint Ventures presented what could be a repeatable process for investing in street-corner OZ projects. The California Clean Energy Fund presented a whitepaper describing repeatable community-owned local power generation as OZ projects. $200K investment, 100KW solar generation, 50KW storage, connected to traditional off-takers. This very much resonates with another project we are involved in called Swytch.
7// Better data to drive OZ decisions was a key point of discussion
There is a strong desire for data to de-risk projects and communities. Mastercard Center for Inclusive Development, which sponsored the conference led this conversation.
Their key point is this: cities need much more granular information, down to the block level to understand what’s going on.
Here is a recording of their presentation on the subject.
The public sector (foundations) and private sector (Citi Ventures, MasterCard Center for Inclusive Growth) are committed to providing data and insight to Opportunity Zones. Some players are actively considering open sourcing their data/analytics; others will probably make a business around the data they can provide.
8// Most cities and some states are interested in a path to local ownership for some of the businesses and/or real estate projects that get invested in.
Some cities are experimenting with the idea of local ownership of assets but this thinking has not yet risen to the central discussion in the presenting cities; one sees it in smaller experimental projects.
One company in the middle of this: Neighbor.ly was there in force with SEC permission to go ahead with tokenized municipal bond mechanisms.
9// Titles of who is in charge of OZ bidding inside a city vary
It is sometimes an economic development officer, sometimes the head of a nonprofit set up for economic development purposes, sometimes the City Manager, not usually the Mayor
Opportunity Zone Interviews: Videos with Mayor Eric Garcetti and Bruce Katz
On March 18, 2019 we had occasion to attend the Opportunity Zone Investor Summit sponsored by Accelerator for America and Mastercard Center for Inclusive Growth; hosted by the Stanford Global Project Center.
You can read about what we learned here.
Peter Hirshberg, Cofounder & Chairman of Maker City®, had the occasion to interview Mayor Eric Garcetti (Los Angeles) on this historic occasion, which brought together Mayors from around the United States (by our count there were 20+ different cities and towns represented), with investors, ecosystem builders, and data partners.
Peter has known Bruce Katz since 2015/16 and has long been an admirer of his work as Director of the Brookings Metropolitan Policy Program and more recently as the author of the New Localism and Director of the Nowak Metro Finance Lab at Lindy Institute, Drexel University.
Bruce and Accelerator for America had done a lot of work together in the lead up to the Investor Summit, coaching and encouraging 27+ opportunity zones (“OZ” for short) to put together prospectuses that described what their particular OZ offered to potential investors.