While some rural areas are benefitting from OZ projects, others are finding it difficult to attract investment. A new playbook aims to help these overlooked communities.
Since being created as part of the Tax Cuts and Jobs act of 2017, the Opportunity Zones (OZ) initiative has brought billions of dollars in capital investment to underserved communities, with the US Department of Housing and Urban Development estimating that OZ has already created close to half a million jobs and is on track to reduce the poverty rate in OZ tracts by 11%, lifting one million people out of poverty.
Some of the main criticisms of the OZ initiative have been that too much of the investment has been in real estate, where many created jobs are only temporary, and that investment has been too concentrated in urban areas, specifically those that are already being gentrified.
40% of OZ tracts are in rural areas, and there are many other incentives offered to increase investment in these areas. However, some in the industry believe tax incentives alone will not be enough to bring the level of investment rural communities are hoping for.
If the goal is for OZ to benefit the entire country, the industry needs to find ways to get investment toward rural areas that badly need it. Luckily, there are investors, fund managers, and local activists working to do just that.
Finding success in rural areas
There are many potential reasons why it might be harder for rural communities in Opportunity Zones to attract investment. For one, a lot of developers and investors are much more used to urban areas, and so they have a better understanding of the costs and risks associated with, say, the construction of a hotel as opposed to the reopening of a mine in a small town. They also may not live close to these communities, and want to invest closer to home.
Some have suggested recalibrating the definition of an OZ to exclude some of those urban tracts, and the map may need adjusting periodically to keep the program working properly. But until that happens, rural communities are going to need to work harder to get noticed.
Some communities are taking extra steps to make sure investors understand the value they represent. As noted recently in an article from Purdue University, “As the country – and world – emerges from the pandemic with a renewed desire to live in rural places working remotely (if necessary), so emerges the demand for rural placemaking, benefitting both investors and communities.”
Indiana has no shortage of opportunities: 46 of the 156 census tracts selected as OZs in the state are located in nonmetropolitan areas that have no town with 50,000 or more people. To promote these OZs, the Indiana Office of Community and Rural Affairs began a Rural Opportunity Zone Initiative. 10 communities received assistance through partner organizations to select projects and promote them through the creation of an investment prospectus.
Other states are stepping up to the plate as well. Colorado offers information on its OZs and Opportunity Funds online, highlighting some of the benefits of investment in the state. Depending on how competitive the market for OZ investment becomes, states may offer further tax incentives or insurance against OZ investments seen as high-risk.
The most obvious reason many fund managers and investors haven’t put money toward rural Opportunity Zones is that they simply don’t know about them – they don’t know where they are or what potential opportunities are available. Simply being in an OZ isn’t enough; you have to attract investors, and now there’s a tool to help.
The Rural Opportunity Zone and Recovery Playbook
To help stakeholders in rural communities take advantage of the benefits of OZ investment, the Sorenson Impact Center at the University of Utah’s David Eccles School of Business has created “Rural Opportunity Zone and Recovery Playbook: A blueprint to attract private investment for community priorities.”
Funded by the Economic Development Association (EDA), with match funding by the Governor’s Office of Economic Opportunity (Go Utah), the playbook targets “rural economic developers and community champions” and lays out “best practices for developing a strategy to attract private capital,” offering “concrete steps communities can take.”
Some of the steps highlighted include planning for social impact, understanding OZ investors, and leveraging incentives to increase the attractiveness of a project. Additional insights in the report focus on “the importance of a regional approach, the power of attracting local investors, and case studies that demonstrate successful development of rural areas by leveraging private capital.”
These case studies are important in helping rural communities understand not only “the type of investors who are active in the OZ space,” but “the way deals are often structured” in order to overcome “the lack of shared language and frameworks between communities and investors.”
While it’s true that the majority of early OZ investment was focused on a small number of tracts, there are funds operating in rural areas doing great work to revitalize communities. JTC has witnessed many of these success stories through our clients and partners, who’ve shown OZ capital deployed to rural areas can not only create jobs and bring businesses to neighborhoods, but contribute to efforts that benefit our entire society.
LandFund Partners: sustainable OZ investments to protect our future
Based in Nashville, LandFund Partners acquires, manages, and improves row crop farmland properties in the Mississippi River Valley. Identifying investments with an eye toward crop diversity, groundwater abundance, and low price per acre, the farms are leased to operators under the supervision of the firm’s experienced management team.
The company’s LFP Soil Enrichment Fund, LP, for which JTC performs fund administration duties, acquires farmland with the goal of embracing sustainable practices, reducing and sequestering greenhouse gas emissions, and improving soil health.
LandFund’s large and diverse portfolio demonstrates how OZ properties can be incorporated into an overall investment strategy. It’s possible for fund managers who aren’t OZ-specific to find value in Opportunity Zones and use their expertise to attract investors.
Some investors may be familiar with OZ, while some may not, and some may be more focused on the tax benefits of OZ while others care about impact. How do you caters to all types of investors when raising capital?
The JTC difference
It’s important for investors to understand all the benefits of OZ investment. We know that many who invest in OZ do so in order to take advantage of the tax incentives, and they’ll want to make sure they qualify for those benefits. That’s why JTC’s award-winning investor portal allows for 24/7 access to fund information and documents so investors can get the information they need anytime, anywhere, from any device.
On the other hand, OZ investments are impact investments, and ESG-focused investors want to know their money is really making a difference in addition to generating returns. To do that, you need proper impact tracking. JTC has been a pioneer in social impact tracking and helping investors compare investments with different impact goals. By working with JTC, you can ensure all investors’ needs are accounted for so you can attract capital now and in the future.