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Opportunity Zone Gentrification: Federal Government Signals It Wants to Track the Results

Saul Ewing Arnstein & Lehr partner  Ronald Fieldstone and McDermott Will & Emery partner Steven Hadjilogiou
Saul Ewing Arnstein & Lehr partner Ronald Fieldstone and McDermott Will & Emery partner Steven Hadjilogiou

Saul Ewing Arnstein & Lehr partner Ronald Fieldstone and McDermott Will & Emery partner Steven Hadjilogiou, both based in Miami. Courtesy photos

Criticism that opportunity zone tax breaks will benefit well-heeled developers and investors at the expense of low-income residents has been heard by the federal government.

The Trump administration has taken a preliminary step to address complaints that the zones are little more than a tax vehicle for gentrification. But whether the latest initiative actually would halt gentrification and truly help communities depends on whom you ask.

The Treasury Department issued a seven-page notice April 16 asking stakeholders to suggest how to measure the community impact from opportunity zone investments.

"I think it's a starting point," Miami attorney Ronald Fieldstone said.

Once the data is collected, the Saul Ewing Arnstein & Lehr partner said the government can reevaluate the program's community impact.

"This tracking device won't change the legal requirements under the tax code, but what it will do is at least gather information for the government to determine if this has been a successful program that they possibly will extend, change or modify," Fieldstone said.

He previously called on local governments to require developers and investors to benefit communities in return for incentives.

Miami attorney Steven Hadjilogiou isn't as convinced this will help.

"There's no teeth to it," said the McDermott Will & Emery partner. "They are just collecting data. They are not changing the rules of how these zones work. You can still have your major companies coming in and gentrifying an area. These rules don't change anything that they would otherwise be doing. They are just collecting data to show or to attempt to show what a great piece of legislation they enacted."

The Tax Cuts and Jobs Act of 2017 created opportunity zones to revitalize economically distressed communities by encouraging investment through tax breaks.

Investors can defer paying taxes on their capital gains from any venture by putting the money into a qualified opportunity zone fund. The fund, through a fund manager, seeks eligible real estate and business projects in the 8,750 opportunity zones across the U.S.

The amount of a tax break depends on how long investors keep money in the opportunity zone fund.

The law includes no requirements for benefits for the existing residents in opportunity zones.

South Florida's 122 opportunity zones include some areas already undergoing significant redevelopment.

Fieldstone said some of the tracking requirements the federal government could impose would record the number of new jobs created in an opportunity zone as well as the amount and types of community benefits, such as job training, infrastructure work and new affordable housing.

"That's the information gathering because they want the program to be financially viable to investors, but at the same time they'd like to see if it's really encouraging economic growth and investment in distressed communities," Fieldstone said.

Despite the gentrification criticism, the opportunity zone law still is good news for these areas, added Hadjilogiou.

"I think overall it is a benefit to the community because it is encouraging investment in these areas and it is creating jobs," he said. "Better than doing nothing. That's for sure."

Related stories:

Opportunity Zone Regulations Unveiled With Strong Investment Appetite in South Florida

South Florida Opportunity Zone Investments Strong Even Before Latest Guidelines