Match 21, 2019 [Sam Allard, Cleveland Scene]
CLEVELAND, Ohio – A new initiative aims to use an expected wave of investment money in large swaths of Greater Cleveland to create new jobs, educational opportunities, affordable housing and other benefits for the community.
Opportunity CLE, a collaboration between the city of Cleveland, Cuyahoga County, Greater Cleveland Partnership, Cleveland Development Advisors, the Fund for Our Economic Future and the Cuyahoga Land Bank, on Thursday launched its strategy for taking advantage of the federal “opportunity zone” program. The group unveiled an investment prospectus, digital portal and website geared toward businesses, developers and investors.
The opportunity zone program, created as part of the 2017 federal tax overhaul, allows investors who put capital gains from unrelated investments into opportunity zones, meaning low-income Census tracts that meet certain criteria, to delay or avoid paying taxes on those profits.
Opportunity CLE’s goal is to attract opportunity-zone investments to Greater Cleveland, and to encourage deals that will benefit neighborhoods and residents.
Although the program has been open for months, members of Opportunity CLE say participation has been limited so far, likely due to unanswered questions about how it works. With a more complete set of regulatory details expected within a few weeks, the group is anticipating a surge in interest from investors.
“The floodgates are about to open regarding investment in opportunity zones, and we are gearing up to aggressively compete for investments in Cuyahoga County projects,” said Joe Roman, president and chief executive officer of the Greater Cleveland Partnership, in a statement. “This program has the potential to raise hundreds of millions of dollars in catalytic urban development opportunities here, stimulating growth and job creation in Cleveland and surrounding communities.”
There is an estimated $6 trillion in unrealized capital gains in the U.S., according to Opportunity CLE. The opportunity zone program aims to put those dollars into distressed communities in need of investment.
Local communities helped come up with a list of tracts that met the program’s criteria (including having at least a 20-percent poverty rate); the governor’s office selected the number of qualifying tracts allowed by the federal government. Then the U.S. Department of the Treasury approved Ohio’s list of 320 Census tracts. Now, investors can take profits from unrelated investments, put them into real estate, businesses or infrastructure in an opportunity zone and benefit in a few ways: delay paying taxes on capital gains by putting the money into a fund focused on opportunity zones; avoid paying taxes on a portion of those original gains if they maintain their opportunity-fund investments for five to seven years; and avoid paying taxes on any new gains from their opportunity-zone investments if they invest for at least 10 years.
In Cuyahoga County, there are 48 opportunity zones in the city and 16 spread across Bedford Heights, Brook Park, Cleveland Heights, Euclid, Garfield Heights, Maple Heights, North Randall, Richmond Heights and Warrensville Heights. Opportunity CLE has grouped those zones into 11 districts, based on geography, existing development areas, common land uses, and other factors.
Opportunity CLE has grouped Cuyahoga County’s 64 Opportunity Zones into 11 districts it will market to investors. (Opportunity CLE)
The city, county and their non-government partners have been working together for about a year on how to market the region to potential investors and maximize the social impact of opportunity-zone investments, Opportunity CLE members said. “Jobs, training, education, quality affordable housing, increased access to broadband, public transportation and healthy-living environments” are among the social impacts the group aims to promote, according to a news release.
One criticism of the opportunity zone program has been that some zones are in areas already attracting plenty of investment, while some of the region’s most-distressed communities, such as East Cleveland, did not get any, raising questions about equity. Opportunity CLE members acknowledged this concern.
“One of the great fears, nationally, is that this is the National Gentrification Fund,” said Brad Whitehead, president of the Fund for Our Economic Future, a philanthropic alliance. “That’s why it’s imperative that we come together and make sure that good deals get lifted up.”
How does Opportunity CLE plan to do that?
The first step is marketing the region, members said. The investment prospectus released Thursday pitches Greater Cleveland as a place where investment dollars can stretch further than they would elsewhere. The prospectus includes sections on each of the 11 districts and provides information about their assets, infrastructure, population and projects under development there, as well as a pitch for why investors should consider putting their money there. The 11 districts are: Downtown Cleveland, W. 25th-MetroHealth Corridor, Health-Tech Corridor, Opportunity Corridor, Glenville-Rockefeller Park Innovation District, Euclid/Collinwood Industrial Corridor, Outer Belt Development District, Aerozone Innovation Hub, Cuyahoga County Airport District, Transportation Boulevard Development District and Caledonia Park District.
Another tool is a project portal to which businesses and developers can submit projects and link up with investors.
Further, Opportunity CLE aims to play a role in shaping what deals ultimately are made. Members said that will mean identifying investment opportunities with the potential for positive social impact and educating investors about them. The group also plans to advocate for, and reach out to investors in, other similar programs, such as the New Markets Tax Credit, which encourages private investment in low-income communities.
“We’ll be working on … working with the federal agencies to try to enhance the programs that already exist. So, reauthorizing the New Markets Tax Credits program would be a component of that, and driving more of those types of dollars into these communities,” said Yvette Ittu, president of Cleveland Development Advisors, a real-estate investment affiliate of GCP.
They will also advocate for potential enhancements to the program, such as Gov. Mike DeWine’s proposal for a tax credit incentive for investment in opportunity zones.
Still, the group acknowledged the opportunity zone program is a private, market-driven incentive that leaves final decisions in the hands of investors.
“Estimates are that this could be literally hundreds of billions of dollars invested across the country. But it is private transactions, so how those investments get made is what’s so critical,” said Whitehead. “So the essence of this collaboration is trying to make sure that the right deals that deliver benefits to the community and to the people of Cleveland and Cuyahoga County get shaped, seen and invested in.”