Opportunity zones: Can an anchor be a catalyst?
A catalyst is a powerful thing. In everyday conversation, a catalyst is typically used to mean a person or circumstance that speeds up what would have happened anyway. But sometimes a catalyst causes a different kind of change – a deeper, more meaningful one.
The term “catalyst” has been used liberally in the context of opportunity zone investments. The federal tax incentive itself is a catalyst of sorts, but at a local level the type of transformation that the opportunity zones incentive will catalyze remains an open question.
The legislative intent behind the opportunity zones tax incentive was to create sustainable economic development with a focus on long-term benefit to the local community. It can be an opportunity for local stakeholders in all sectors – public, private, and philanthropic – to unify behind a shared community development goal. Anchor institutions, being firmly rooted in place, are well-positioned to act as powerful catalysts to realize this opportunity.
To have a catalytic effect, an institution must have the weight and substance to create an effect that reverberates beyond its own walls. Anchor institutions have that weight. Universities and colleges, hospitals and health systems, large corporations and sports franchises – all of these institutions have large campuses where many people come to work, learn, and gather. In many cases – although not all – these institutions seek to strengthen their relationships with local constituents and leverage their substantial weight for the overall good of the community. The opportunity zone tax incentive offers these institutions an avenue to do so.
Institutions of higher learning have many assets that they can leverage to catalyze growth – land and other real estate holdings, devoted alumni and other financial contributors, academic research primed for commercialization. In many cases, colleges and universities sit smack-dab in the middle of an opportunity zone. If they take a big-picture view, these colleges and universities have an ideal opportunity to capitalize on the federal tax incentive and shape the development of that real estate, not only for the benefit of the institution, but for the benefit of all who live there.
Some investors have those institutions squarely in their sights as they seek to develop projects with long-term social impact. As just one example, Renaissance Equity Partners has launched a $50 million qualified opportunity fund to direct capital into mixed-use developments around campuses of historically black colleges and universities (HBCUs). In East Baltimore, the Southern Baptist Church is developing Southern Streams Health and Wellness Center and has signed Johns Hopkins as its anchor tenant to provide health services to residents of the Hopkins-adjacent neighborhood.
Research parks lend themselves well to investment by qualified opportunity funds. Bruce Katz and Jeremy Nowak of New Localism Advisors have written about the prospect that opportunity zones will help cities modernize their institutions to “maximize economic, social, and environmental impact.” Cortex Innovation Community in St. Louis – which was founded by a consortium that includes three of its universities, a large health system and the Missouri Botanical Garden – is one example of an innovation district that has an established track record of “harnessing private and civic capital for investments in both companies and the greater innovation ecosystem.” They also note, “A major challenge for those initiatives is to identify opportunities to match their innovation moves with inclusion strategies.”
Perhaps one of the strongest assets that universities and other anchor institutions have – and the one that gives them the greatest potential for doing well by doing good – is their staying power. As compared with individual investors and small-business owners who often have only a short window to react to a specific transactional opportunity, these institutions have the financial means to take the long view. As a result, these institutions can afford to make a plan that leverages their substantial assets for an exponentially greater effect.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
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