Some federal ‘opportunity zones’ attract investors who might have come anyway
Investors are searching for deals throughout the Columbus area in hopes of capitalizing on a federal program that could save them a bundle in taxes while reshaping the development landscape of central Ohio.
They are targeting their search in central Ohio’s 52 “opportunity zones” — neighborhoods that local and state officials have identified as blighted and in need of investment. They’re scattered from Marysville to Buckeye Lake but concentrated in Columbus.
“We wanted to focus on neighborhoods of need ... places where we can create a lot of jobs,” said Mark Lundine, who led the opportunity-zone effort for the Columbus Department of Development.
Although some details of the tax benefits of opportunity zones are still unclear, investors think the main benefit — allowing investors to defer or perhaps even
eliminate capital-gains taxes — will drive money to the neighborhoods.
“I think this will spur a lot of activity in the Columbus market,” said Jide Famuagun, the chief executive officer of Alpha Capital Partners, a Pittsburgh investment group that is targeting opportunity zones in Columbus and other cities.
Through its opportunityzone fund, Alpha Capital is buying a South Side apartment building that it plans to renovate. Alpha was considering buying the building before the creation of the opportunity-zone incentives but probably would have invested less in renovations without them, Famuagun said.
Alpha’s experience, and that of others, raises a question: Will the opportunity zones draw new investment or merely provide tax breaks for investments that would have happened anyway in neighborhoods already on the rise?
Researchers at the Urban Institute, a Washingtonbased nonprofit organization, studied the nation’s 8,762 opportunity zones and concluded that 28 percent already had received substantial investment without the zones. Of the 44 in Franklin County, 17, or 39 percent, were on the rise before the zones were created.
“Those are already strong markets,” said Brady Meixell, one of the three researchers on the Urban Institute study. “They’re already receiving a substantial amount of investment, so they probably don’t need a federal incentive to draw more investment.”
Franklin County’s opportunity zones include several neighborhoods already enjoying a resurgence: east Franklinton, where the city’s major developers have assembled large plots of land; the area west of Route 315 that includes Ohiohealth Riverside Methodist Hospital and has enjoyed a medical boom; Crosswoods near Worthington, where several apartment complexes have been built in the past few years; and the area around Rickenbacker Airport that is alive with new warehouses.
Other neighborhoods more in need of revitalization, such as west Franklinton, the Eastland area and parts of Linden, the South Side and the Hilltop, also are designated as zones.
Lundine acknowledged that some city neighborhoods need the investment more than others, but “because it was a brand-new program, we thought, ‘Let’s get a diversity.’”
The city used four criteria, Lundine said. The neighborhood had to be: in need, capable of absorbing investment, able to benefit from new jobs, and on major transit routes.
For investors, the zones are a magnet. Experts forecast that up to $150 billion will be invested across the country through opportunity-zone funds.
“I do expect it to make a difference. I’ve probably talked to more than 100 people who have (capital) gains who are interested in investing,” said Darci Congrove, managing director of the Columbus CPA firm GBQ Partners, who has helped explain the program to several central Ohio community and investment groups.
“I’ve been doing tax work 25 years. This is one of the most interesting and exciting provisions we’ve seen.”
Columbus developer Brad Dehays recently bought property in South Linden for an affordable-housing project in one of the opportunity zones.
“We pay a lot of attention when these programs come out,” said Dehays, who, with the help of tax credits, is redeveloping an old trolley-barn site near Franklin Park on the Near East Side into a market, brewpub and space for retail and offices. The trolley barn is in one of the zones.
“After you’ve invested for 10 years, the entire capital gain in investment is taxfree,” he said.
But Dehays also said that some investors who own land in opportunity zones are using the designation to pump up their prices.
“We’ve had a couple of groups we’ve purchased property from who tried to command a premium,” Dehays said.
Chris Haydocy, the auto dealer who has championed redevelopment in the Hilltop area, hopes the opportunityzone designation will help drive the redevelopment of the dead and blighted Westland Mall, a major hurdle to reviving the West Broad Street corridor.
“The appetite to invest in a neighborhood such as Franklinton or in our neighborhood is greatly enhanced with a tool such as this,” said Haydocy, who is investing $7 million to build a recreational-vehicle resort on a 20-acre property he bought in 2018 that is in an opportunity zone.
Pizzuti Cos. recently bought the former Graham Ford property at 707 W. Broad St. in Franklinton. That, too, is in an opportunity zone. The company plans to redevelop the site, but Joel Pizzuti, the company’s president, said tax breaks weren’t the only reason to pursue the site, which was already attractive.
When Columbus investment adviser Graham Allison first saw the opportunityzone rules, he said “it was like being struck by lightning.”
Allison partnered with Columbus developer Brian White to create the Opportunity Zone Development Group. Although the fund is targeting investments of $20 million to $50 million, it is also pursuing some smaller ones. One of the fund’s first investments, Allison said, is in a nonprofit group that was facing bankruptcy. Because the investment isn’t final, he did not identify the organization.
The funds allow investors to benefit in multiple ways, but Allison, Famuagun and other investors say they expect the most common investments, at least initially, to be in real estate.
Because investors receive the most tax benefits by keeping an investment for a decade, the zones will discourage quick property flips, the investors say.
Famuagun said his fund expects to hold onto the South Side apartment complex for a decade — longer than it probably would have otherwise — because it is in an opportunity zone. And spending more on renovating the property than he might have otherwise is good for the neighborhood, he said.
“It needs a lot of work,” he said. “But we’ll end up with a solid affordable-housing component in the community south of the city, where working-class families can call home . ... We also think our $20 (million) to $30 million investment in this neighborhood will spur investment by others.”
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