MBJ asked Shelby Stringfellow, the Chamber’s Director of Corporate Development, to outline how the program works and how it benefits the city overall.
What is The Opportunity Zone Program?
Opportunity Zones are low-income areas that have been designated by the U.S. Treasury Department as eligible for tax incentives intended to drive private investment to these low-income areas through the deferral and reduction of capital gains tax. An Opportunity Zone designation is required to become eligible for the incentives, and The Opportunity Zone Program is what allows businesses and individuals to defer paying tax on recognized gains if that gain is invested in a Qualified Opportunity Fund (QOF). They can receive a 10- to 15-percent reduction in their capital gains tax obligation if they commit to a long-term investment of a minimum of five years. Holding the investment for 10 years or more will allow the investor to avoid capital gains tax on the appreciation of the new investment. A QOF can be anything from partnership interests in businesses that operate in an Opportunity Zone and stock ownership in businesses that conduct most or all their operations within an Opportunity Zone to property such as real estate located within an Opportunity Zone.
Developers and businesses looking to take advantage of this program can either: invest capital gains in their own projects or own businesses (and receive all the benefits described above) or seek local or national capital from new and existing Opportunity Funds. Those Opportunity Funds are typically looking for strong potential returns over the course of their 10-year holding periods and may be able to provide additional investment capital to help projects get done and businesses get funded.
How are Opportunity Zones selected?
The low-income census tracts that have been designated as Opportunity Zones were nominated by the chief executive of each state, so in Alabama’s case, Governor Kay Ivey. Congress empowered states to nominate up to 25 percent of their low-income census tracts, which allowed only 158 of Alabama’s 629 qualified census tracts to be considered. The Governor’s Office, along with ADECA and the City of Montgomery, evaluated these census tracts based on where the program would be most effective. The Governor submitted her recommendations to the U.S Department of Treasury on March 20, 2018.
How is the Chamber involved?
The Chamber is working with an organization called Opportunity Alabama to compile a clearinghouse of eligible projects here in Montgomery that it can plug into its network of investors. I serve as the point of contact here as the OZ Project Manager and point of contact for Montgomery. Our department (Corporate Development) has coordinated with the City, County, utility partners and local stakeholders to prepare a prospectus that highlights the investment that has already taken place in Montgomery as well as identifies the assets and infrastructure that make Montgomery a smart choice for further investment.
How does the Opportunity Zone Program benefit the entire city?
The prospectus is designed to allow us to hand it to someone who has never been to, seen or considered Montgomery, and in less than five minutes, have them coming to us or Opportunity Alabama for more information on our community. Once it is finalized, we’ll be ready to reach out to investors and Opportunity Zone Funds and bring that money here and put it to great use in areas that need a shot of prosperity.
Building Opportunity: Nuts & Bolts of The Opportunity Zone Program
- TAX BENEFITS:
- Investments held for 5 years receive a 10% reduction in capital gains tax obligation
- Investments held for 7 years receive a 15% reduction in capital gains tax obligation
- Investments held for 10 years will not be subject to capital gains on the appreciation
- REQUIREMENTS:
- Gains must be invested in a QOF within 180 days
- QOF must invest in Qualified Opportunity Fund Property
- ELIGIBLE INVESTMENTS (Qualified Opportunity Fund Property):
- Partnership interests in businesses that operate in a qualified Opportunity Zone.
- Stock ownership in businesses that conduct most or all their operations within a qualified Opportunity Zone.
- Property such as real estate located within a qualified Opportunity Zone.
MGM Opportunity Zones
- DOWNTOWN CORRIDOR
- $169 million has been invested in the last 5 years, including public spaces, mixed-use retail and residential options
- MAXWELL CORRIDOR
- Maxwell-Gunter Air Force Base
- Alabama River
- Walking and Biking trail connections from Maxwell Boulevard to downtown
- $18.6 million, 164-unit apartment community
- INDUSTRIAL CORRIDOR
- 160-acre industrial site shovel-ready for development
- Visibility from Interstate 65
- Site is fully served with utilities
- Increased Investment Pays Off for All
MEET Opportunity Alabama
Based in Birmingham, Opportunity Alabama is a nonprofit organization that uses a data-driven approach to connect Opportunity Zone communities, investors, entrepreneurs, businesses and educational institutions to provide positive returns for investors while bringing vitality back to areas in need.
In December of last year, Opportunity Alabama’s effective and transparent work earned it a coveted spot on the Forbes OZ/20: Top Opportunity Zone Catalysts List, alongside similar organizations in Atlanta, Baltimore and others.
