Real Estate Wired recently talked with the Director of Ferzan Company, DeVon Prioleau, about the impact of opportunity zones on affordable housing in New York City.
Can investment in an Opportunity Fund revitalize the urban core and help alleviate the affordable housing epidemic in NYC?
Within the broader real estate industry, “Opportunity Zones” or “Opportunity Funds” have been the buzz-terminology, describing the newly-invented distressed-housing financing products. The Opportunity Zone (or Fund) Program was created to revitalize economically distressed communities using private investments rather than taxpayer dollars. Specifically, taxpayers who invest in “Qualified Opportunity Zones” are eligible to benefit from capital gains tax incentives, exclusively available through the program. The Program is meant to encourage investors to reinvest their capital gains resulting from other investments (i.e. stocks, bonds, real estate or partnership interests). In addition, they are intended to create local jobs, improve affordable and workforce housing, provide better food options and enhance infrastructure in disadvantaged communities. To qualify, investors must put their capital into a “Qualified Opportunity Fund”, which invests in properties. They are rewarded according to how long they keep their interest in the funds (i.e. after 10 yrs., no taxes on gains). Across the US, areas only qualify when they have been nominated by the State and certified by the US Treasury for that designation.
The success of any program relies on the resulting benefits to all parties. In this case, there are two components: a) the investors who would be infusing healthy capital into specific properties, and b) the community members inclusive of tenants, local businesses, schools and other infrastructure provided by governmental funding. This Program is devised to allow beneficial outcomes to both sides. Easily, the financial benefits to investors is clearly a plus. Especially, in consideration of recent cuts and reductions in tax incentives. While the conditions in NYC may be aggravated because of the population densities and complex issues plaguing urban communities, it offsets the failed attempts by current institutions such as NYCHA to monitor and remedy conditions across so many properties by providing funds for improvements. Now there is available capital to repair and upgrade deteriorating properties to acceptable and exceptional standards. Hence, uplifting the entire surrounding community to which these properties belong.
As well, the Program is an impactful solution for the affordability crisis and creates a locally absorbed economic stimulus for NYC. Current statistics reflect New York State having over 500 approved Qualified Opportunity Zones. Inevitably, “affordable housing” as part of these communities, would be improved to provide accommodations to tenants beyond the minimal standards currently evidenced across properties in NYC. Having said this, it is imperative that the funds are monitored closely with checks and balances designed to directly improve each property and in turn, impact the respective zoned communities.
Already, financial institutions such as PNC Bank, Goldman Sachs and RXR Realty have begun to form funds upwards of $3B. Smaller funds are accumulating to a foreseeable estimated platform as high as $30B over the next few years. The future of this Program leaves a lot to be discovered, but with strategic partnerships could be the catalyst for transformation in many urban pockets in NYC and nationwide.
About DeVon Prioleau
DeVon Prioleau is Director at Ferzan Company, an active program and project leadership and consulting firm. He is also Founding Principal at PRI-O-LEAU Development Group, a real estate advisory company. DeVon uniquely combines his two areas of formal study (Architecture and Real Estate Development) to provide strategic planning, design, construction and management services for public & private real estate projects both domestic & internationally. Projects range in size from 1,000SF to over 1.5MSF and include feasibility & market studies for pre-development loan packages, community master planning, corporate interior fit-outs, modular hotel construction as well as significant upgrades to base building infrastructure systems. Learn more about DeVon at www.pdgprofile.com