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Opportunity Zone investments start to gain foothold

Opportunity Zone investments are getting a foothold in Detroit.

In the city, the neighborhoods the most replete with investment — downtown, Midtown, New Center, Corktown, Eastern Market, the Detroit riverfront and others — are squarely in Opportunity Zones, the official name of areas that has become sort of a catch-all term to refer to a complex tax provision that allows for reduction and deferment of capital gains taxes.

In known Opportunity Zone funding deployments to date, they are being used in development and redevelopment totaling more than $150 million in areas around downtown.  But the focus on neighborhoods that have become healthier without such incentives has even developers and others who are taking advantage of them are starting to say they could have been deployed better.

In short, some argue, the capital gains tax benefit folded into the 2017 Tax Cuts and Jobs Act tax code overhaul could have been more acutely targeted at U.S. Census tracts where investors may need more of a two-handed shove than a gentle nudge to put cash into things like real estate developments and business investments. In addition, others say more oversight is needed of how the funds are used.

Yet those areas of greater downtown prior to 2017 were teeming with serious, underway development and redevelopment activity ranging from new and redeveloped office buildings to penthouse apartments leasing for thousands of dollars a month to other mixed-use developments.

In Detroit and other cities, that has caused some to argue that the tax benefit provides little more than lip service to helping communities struggling outside of the greater downtown’s 7.2 square miles and a handful of other areas like the University District instead of funneling much-needed equity into things like affordable housing and jobs.

“Don’t you just love the government?” Dennis Bernard, a metro Detroit real estate expert who is founder of Southfield-based Bernard Financial Group, asked wryly on Sept. 18 when addressing a group of Crain’s Detroit Business Detroit Homecoming VI attendees about Opportunity Zones and other real estate-related matters. “When the Opportunity Zones came along, the government decided to use spray paint instead of a brush.”

“We are really blessed,” Bernard continued. “Most, if not all the action that is going on in the CBD (central business district) and Midtown and going up the spokes are in Opportunity Zones, so not only do you have good fundamentals of real estate, you have Opportunity Zones, which of course is going to help with your equity investors. You gotta just love the way government does things. Look at where the real estate is good, and you’re going to have a good chance to find the Opportunity Zones there.”

Opportunity Zone Projects

A number of projects in Detroit have already put Opportunity Zone incentives to work:

• The Corner: A $37.5 million mixed-use development with 111 apartments that began welcoming its first residents earlier this year on the site of the former Tiger Stadium at Michigan Avenue and Trumbull. The project used about $4 million in Opportunity Zone funding and has about 27,000 square feet of ground-floor retail space, according to Eric Larson, the project’s developer.
• Lafayette West: A $108 million development on the site of the demolished former Wayne State University pharmacy school building, Shapero Hall. The development on the 5.2-acre site is expected to bring 374 apartments and for-sale lofts to the neighborhood in a series of buildings, including a 12-story mid-rise, in a development headed by Novi-based Ginosko Development Co.
• Chroma: Detroit-based developer The Platform LLC is under construction on a $16 million redevelopment of a vacant building at 2937 E. Grand Blvd. When complete, it’s expected to include a food hall, co-working and office space.

Posted By: Crain’s Detroit Business on September 29, 2019.  For more information, please click here to read the source article.

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