How to Attract Investors to Your Opportunity Zone
It is not up to outsiders to decide what the right investment is for any given community. It falls to that community to recognize the needs of its businesses. Since 2017 with the Tax Cuts and Jobs Act, governors of states in the US have been able to designate certain areas as Opportunity Zones. Once designated, those community leaders and businesses in that area find there are few resources to discover how to engage Opportunity Zone investors to support them. The EPA outlines five key strategies for engaging Opportunity Zones investors including resources and tips that can help communities attract investment to their revitalization efforts.
Investors in Opportunity Zones are seeking tax incentives to offset capital gains. While many OZ funds are altruistic, the investors in that fund are often simple seeking a tax shelter.
The tax incentives of investing in an Opportunity Fund are:
- Defer federal capital gains taxes owed today for a period of years
- Be eligible to receive a reduction in those capital gains taxes
- Be exempted from paying future capital gains taxes if certain investment criteria are met.
Sometimes an Opportunity Fund is established by an individual investor, such as in the case of our Crivello Capital Fund. Opportunity Funds can invest in projects or businesses in any of the 8,700+ Opportunity Zones, they are not limited to the area in which the fund is created.
Novogradac is a company that maintains a national database of Opportunity Funds that voluntarily report their investment activities and they reported OFs raising over $12 billion for Opportunity Zone projects and businesses. Some of the funds invest in projects in a single city or state, and many with a regional or national focus.
Evaluating Community Resources
In 2020, the Economic Innovation Group released results stating that 40% of Opportunity Zone investments are buoyed up by outside investment from local Development Finance Agencies (DFAs), Community Development Finance Institutions (CDFIs), traditional lenders, tax credit investors, or other government and philanthropic grants.
Securing funding from federal agencies such as the U.S. Environmental Protection Agency, Economic Development Administration, Department of Housing and Urban Development, or Department of Agriculture helps to attract Opportunity Zone investment.
Strategies for Engaging Investors
Investors do not need local communities to be experts on Opportunity Zones statutes and regulations. They just need community leaders to align their capital with community priorities.
Be prepared
Put together a presentation that outlines why you need investment, what your business plan is, how an investor would get paid back and on what timeline.
Stay in touch
Talk to the OF managers regularly about opportunities, businesses, buildings and projects. Remember, they are not in your neighborhood, they won’t know who is ready for investment.
Enlist the big dogs
One idea is to coordinate with local hospitals, universities, or other major employers who likely already have investor relationships. These types of major institutions benefit from a thriving economy, so there is an incentive for them to partner on revitalization efforts, especially in distressed neighborhoods and communities.
Prioritize
Pick something shiny and big to invite that initial investment, and more money will follow. Organizations like The Opportunity Exchange provide options for sharing project goals to a national audience of interested investors, and your marquee project will be very attractive to outsiders.
Sell it
Getting local investors involved signals to Opportunity Funds that they don’t want to be late to the party. Local investors can get the ball rolling and OZ investors will hop on board
Know what you want
If what you want is a thriving downtown, clarify that goal. If what you want is more green space, be clear not hat too. OZ funds are more likely to invest if you can articulate the end goal clearly. Many investors have a goal of creating positive impact.
