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.

America loves a frontier, it’s our national myth. Think Kennedy’s New Frontier, or Reagan’s city on a hill. That’s when our national character is best. We’re kind of vile when we don’t have that, when we’re told our story is, “sorry we’re closed, go fight over the pickings.” Today I’d like you to consider that we are at a “Frontier Again,” in America. This isn’t just a metaphor. We’re in the midst of remaking our cities for a very different economy. Rediscovering downtowns with great bones that were neglected in a former era which now attracts new people, new companies, new ideas.

You’d know this frontier is working if you saw a lot of experiments and progress toward our near future challenge. This may explain why localism is having such a moment, including this moment, at the Near Future Summit. At a time when we’ve lost faith in national institutions, local institutions and initiatives are flourishing!

Which is great because one thing the left and right can agree on is the future probably won’t be coming from Washington. We have to make decentralized mechanisms work in synchrony and find ways to unleash capital and value commensurate with our challenges.
By the way, this shouldn’t be surprise. Local is a defining part of the system architecture of America – were highly distributed!
Justice Louis Brandeis argued for this in 1932 when he wrote that states are Laboratories of Democracy to try novel social and economic experiments without risk to the rest of the country. Tocqueville was astounded by the American urge to build civic association when we wrote Democracy in America a century before that. “In France they’d call the King. In America they call a meeting, and then do an experiment,” said Tocqueville.
Today I’d like to focus on one mechanism we might use to accelerate these efforts, take a look at a new form of community development, report on its progress, and invite all of us to help shape its future.

We have to make local approaches meet the challenges of automation, the future of work, the future of capitalism, climate change. To connect these local experiments. And find a way to help pay for them.

Right on cue something kind of unexpected happened. Republican Senator Tim Scott, Democrat Cory Booker and Sean Parker started asking how might capital gains siting on the side lines be deployed in our cities to address the problems of our time. It was timely, because just as this was going on, capital was being deployed in our cites…

…but only in about 5 of them. 5 metros accounted for a third of our nation’s tech growth from 2010 to 2014.

Which was kind of polarizing and corrosive, resulting in this electoral snapshot of America. And so, the birth child of Republication worship of private markets and the progressive ideals of Democrats resulted in a mechanism that might move a few hundred billion dollars into underserved areas.

We know this as the Opportunity Zone provision in the Trump tax cut. Governors designated 8,700 underperforming census tracks in all 50 states for tax advantaged investment. With the potential to serve About 31 million Americans. Think about it: 8,700 zones, perhaps 100,000 experiments. That’s a lot of simulations innovation!

But here’s the rap on opportunity zones: It’s either a tax break that will give us more of the same, perhaps accelerating gentrification…

Or it jumpstarts experiments in the future of capitalism and the future of work, accelerating investments in affordable housing, placemaking and community development. The path we take depends a lot on the story we invent and tell ourselves, the vision of cities, and how investors, entrepreneurs and philanthropists shape this. There aren’t a lot of federal guard rails, to a great degree we get to make this up!

The program is a capital gains bonanza. Capital gains you have today can be deferred until 2026. If a new investment stays in the community for 10 years, its 100 percent tax exempt. The rules favor action: any fund has to start investing within 180 days!

In fact, if you look at the game mechanics of all this you might think it all this as, “The Near Future Acceleration Act” of 2019.

To pull this off we have to think in the broadest way about what’s possible, and how OZ’s can provide a canvas for so many investment types that can change our cities.
I grew up in computer networking, so I express this a 7-layer model, with the physical on the bottom and the most aspirational applications for our cites up top.
-Real estate, affordable housing, mixed use developments and placemaking form the foundation.
-A whole layer to measure and model impact which and allow broader participation in planning.
-Financial innovation, new forms of ownership, generative economies, and keeping wealth in communities must be a key part of the roadmap. Think of this as where we experiment on the future of capitalism.
-Locally owned infrastructure such as solar and broadband can keep wealth in communities and promote sustainability. All of these are viable opportunity zone investments.
-Local businesses as well as incubating high grown businesses are core to opportunity zone revitalization. The most models (which we’ll look at in a moment) suggest ways for that multiple forms of capital can reinforce one another.
-OZ’s can create a national market for many emerging innovations in workforce training and human capital development. Preparing citizens for the future is an essential role for cities.
-Healthy communities in many forms are a key principle in cities and must be in opportunity zones.

If opportunity zones are a new financial tool to stimulate interest, what they are leading to in cities is a new form of wiki-like community development. Cities and their ecosystems are self-organizing for the challenge. They are making it easier for investors. Working with Accelerate-for-America, led by L.A. Mayor Eric Garcetti, 40 cities have now developed a common investment prospectus, pitching their strengths, unique assets, and shovel ready deals.
Across cities, common investment types and new patterns are emerging. Imagine a Midwest downtown fund or innovation district fund or industrial zone fund. That’s completely new. Unlike the way bankers now package individual assets, this approach can create more holistic places – and create more value.
On Tuesday I was in Atlanta with their head of economic development. He told me how it’s is all playing out. Large funds are being raised, eager to deploy in cites, their 180-day clock ticking. Cites are racing to sort out cash flow projections, package deals and teach their communities how to get all this to pencil out. The momentum is palpable.

This is America so, road trip!
First stop, Louisville Kentucky which is piloting of one the most remarkable transformations of all: a way to reverse the effects of urban renewal that sliced neighborhoods with highways, paved downtown business districts with parking lots, and turned well-functioning minority neighborhoods to blight.

Meet Shelby Park. The construction of the Interstate turned a dynamic neighborhood connected to downtown into a place cut off from economic activity.
By 2010, 20% of the population was gone, half were below the poverty line, fully a quarter unemployed. Now what?
Enter Bruce Butler, community activist. He knew what wouldn’t work — trying to fix houses one by one.
Instead of focusing on one piece — “housing”, “startups”, or “workforce” — as a grant maker, investor, or government might, Bryce thought, ”lets fire up the ecosystem all at once.” It’s as if the more local you go, the more you can bring together all the components of a community, compress them in a critical mass and reignite an economy.
He launched a new type of community institution: hyper-focused on street corners and neighborhoods, able to raise and manage multiple types of capital. And execute on all-at-onceness!
Within 2 years, 4-million bucks led to 8 residential properties, renovated by the formerly incarcerated or homeless, 4 commercial buildings with thriving local business, and 5 venture funded growth companies.
That formula didn’t stay secret for long.

Ross Baird of village capital gave this approach a name, the “street corner thesis” and started Blueprint Local to do this work in Texas. His idea: this emerging pattern could be repeated in thousands of communities, driven by entrepreneurs who brought together multiple forms of capital and projects to make a street corner thrive. By packaging a rising community ecosystem rather than an individual project, he made the uninvestable, investable.
He’s open-sourcing his learnings so they can be shared nationally.
Remember those 7 layers I showed you? Many of them are at work here! This points out how central the relationship is between local entrepreneurs and community leaders in this new environment.

When it comes to localism, there is no place like home. I don’t think there is any place is better poised to take advantage of this frontier and new forms of business creation California’s Central Valley, our own emerging economy next door.

Meet Jake Soberal and Irma Olguin of Bitwise which is provides training, start-up capital and space for community acceleration in Fresno.

Their 250,000 square foot innovation center has fired the imagination of the economic and social development community.

Bitwise turns out 2,500 coders a year, 80 percent of whom have found jobs. 50% women, 50% minority. They are often the sons and daughters of migrant farm workers who might never have though tech was even a possibility.

The key to their success– all-at-oneceness! They created an education program, an incubator for 200 local businesses, and a place for the community. This is was catalytic to change Fresno’s story from “Americas most broken city,” to “underdog city-on the move!” Now they are expanding—exactly when there is national demand for this kind of business and expertise. And as the song goes, “If you can make it work in Fresno, you can make it work anywhere!”

I do want to address Steve Jurvetson’s Moon Base concern. The dark side of the moon is NOT an opportunity zone. Yes, its neglected and undeveloped, but no. On the other hand, many other exponentially transformative things are in opportunity zones.

We want to increase ownership in our communities, and one way to do that is ownership of local infrastructure like renewable energy or broadband. Here is a project in Puerto Rico where the investors make their return and then the asset is owned by a community co-op, permanently reducing their electric costs. Across the board this is major investment type in opportunity zones.
*quote above is from Jon Bonanno, New Energy Nexus.

Finally, here’s a project our firm, Maker City, has been working on with the MIT Media Lab to measure return on investment and model positive impact in communities. It’s a data driven collaborative planning system.

We can render explicit the attributes we might seek in a community: proactive heath, autonomous mobility, affordable housing. We can take the factors cities want to solve for…

…and turn them into a living simulation, which can achieve consensus, help predict outcomes, make decision making more inclusive. For example, if we dial up density or mobility, how will it affect affordability?

A system like this can go beyond planning and measurement and be used for dynamic governance to promote pro-social behaviors such as rewarding local production, community contribution, or circular economies. In this age of concentrated wealth and tech backlash, these distressed communities are exactly the places to trial less extractive forms of capitalism and mechanisms that reward community engagement.

Yes, we’re at a Frontier Again. Our cites are organizing in new ways to rebuild and renew. Have you noticed this frontier is a canvas for much of what we’ve seen at the Near Future summit?
This time help is not coming from on high. We’re weaving our futures locally, networking them nationally. We’re unleashing new forms of capital and getting real-estate, start-up capital and philanthropy to work as one ecosystem. To help ignite all this: opportunity zones, a multi hundred-billion-dollar boost with an exceedingly short timeline. Our timeline.

I’ve only touched the surface today. There is a lot more about Opportunity Zones, a deep dive on Fresno, and the prospectuses from dozens of cities all on our site. You can also read our book Maker City based on work we did with the Obama administration and how 100 cities are reinventing America. And fresh today – the localist manifesto, a call to action which comes from our collaboration with the USC Annenberg School.
Oh, and one more thing…

This time around perhaps we can make the frontier a bit more just than the last time around.
I’m inspired by two master builders who’ve never appeared on screen together before. We want to channel the spirit of both as we approach of today’s challenges. Quintessential Americans, Dr. King is the architect of justice and economic participation. Robert Moses is the restless urban builder who remade New York. Imagine if they worked together. Talk about people who restlessly wanted to get the future done now. Now it’s our turn to help America achieve her Local Maximum.
Opportunity Zones
Background Information
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:
Short Video - 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
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
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.
Here’s what we learned.
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.