CAR Opportunity Zone forum sheds light on a groundbreaking program

by Andrew Morrell

CAR Opportunity Zone forum sheds light on a groundbreaking program

Left to right: Sarah Ware, Bo Kemp, David Howat and Leon Walker. Credit: Chicago Association of Realtors

Modern U.S. history has been increasingly defined by  polarized politics, but few Americans disagree about the nation’s stark economic divide. Interestingly, it’s this extreme stratification between wealthy cities and poor rural and urban areas where both Democrats and Republicans can find common ground. A bill with bipartisan support tucked into one of the most partisan laws passed in recent memory offers a potential remedy to this place-based polarization. But even though most agree that the ultimate aims of this new law are noble, achieving those goals invites new politically charged questions.

The Commercial Forum of the Chicago Association of Realtors hosted a seminar on Opportunity Zones June 18 at the International Interior Design Association, bringing together real estate professionals, community leaders and even a key architect of the program to discuss its impact. Between three panels and numerous speakers, attendees came away with both a better understanding of this still-evolving program and perhaps even more unanswered questions about what impact it will have on Chicago and the rest of the U.S.

More on this issue

Read more about the Opportunity Zone program in this article from our January issue

“I don’t think we can continue on the way we have been,” said Steve Glickman, the event’s keynote guest. “Big companies are making big profits and half the country isn’t benefiting. We have a very economically divided nation, so I think we need this to work.”

Speaking to former CAR president Rebecca Thomson, he went on to describe the tax benefits underpinning the Opportunity Zone program as “the only part of our tax code that works this way without you having to die first.”

Glickman currently serves as the CEO of Develop LLC, which provides advisory services for Opportunity Zone investors and funds. But Glickman is also the co-founder of the Economic Innovation Group, an organization led by Sean Parker (most famous for creating Napster and making an early investment in Facebook) that was a key architect of the Opportunity Zone bill. Glickman’s close involvement in crafting the legislation behind Opportunity Zones makes him both a booster and a guru for the program, although his five-year stint in President Obama’s economic advisory council lends him additional qualifications in that regard, too. “As it turns out, anyone can work at the White House,” Glickman joked.

His passionate belief in the program’s transformative potential, though, is dead serious. Glickman estimated that some $100 million in private investment could flow into Qualified Opportunity Funds each year, money that otherwise would’ve gone unutilized. By design, those funds will go toward rebuilding and revitalizing some of the most economically depressed communities in the U.S., including large portions of Chicago’s South and West sides.

Understanding how Opportunity Zones will work toward that end was a key topic of the discussions that followed. The rules governing the program’s tax benefits and administration continue to evolve, but Glickman and others made note of a few recent developments. Numerous funds have already sprouted across the U.S. targeting specific Opportunity Zones, managed by both major financial institutions and community investor groups. Even some household names from the political world, like Chris Christie and Anthony Scaramucci, have announced their intention to capitalize on name recognition by opening their own Opportunity Funds.

But it’s still early in the process, Glickman said, with plenty of time left for market forces to sort the wheat from the chaff.

“Most [early investors] are looking for opportunistic deals,” he said. “Over time they will want to concentrate. The smartest funds will use that kind of strategy. In the second half of this year you will see money in the ground, and you will see the smart developers start engaging with the community.”

After all, the spirit of the Opportunity Zone law is about reinvigorating the people and businesses that make up those communities, not investors and fund managers in a corner office looking for a convenient tax break. So what will it take to ensure the gains trickle down to the right people, and don’t just drive increased displacement?

Opportunity in action

As part of the first panel discussion of the day, Reverend Dr. Richard Tolliver of Washington Park offered insight into his experience in this regard. Tolliver’s nonprofit, the St. Edmund’s Redevelopment Corporation, was among the first beneficiaries of a Chicago-based Opportunity Fund and therefore one of only a few in the entire U.S. so far to see the program in action.  

“The major motivation of non-mission-based investors is not altruism,” Tolliver said, speaking about why his organization was attracted to Opportunity Zones from the beginning. “We need to be altruistic as well as use common business sense.”

Tolliver came to Chicago in 1989 as the rector of St. Edmund’s Episcopal Church in Washington Park, and soon after established the nonprofit St. Edmund’s Redevelopment Corporation (SERC) to help revitalize the area’s housing supply. Washington Park was designated one of several Opportunity Zones on Chicago’s South Side, creating a unique opportunity for SERC. The company was able to direct capital gains earned from the sale of a 230-unit apartment building it owned into Washington Park’s Qualified Opportunity Fund, which was also being managed by SERC. That money, almost $2 million, is now helping fund the construction of an office building that Tolliver hopes will become part of a new commercial district in the heart of Washington Park. He said a development on that scale wouldn’t have been feasible for SERC without the Opportunity Fund program, nor would most of the plans he now has in store for the neighborhood.

Another member of the panel, Scott Goodman, represented Decennial Group and Farpoint Development. In 2017, Farpoint was named among the groups chosen by city officials to pursue a major redevelopment of the former site of Michael Reese Hospital in Bronzeville, which closed in 2009. The 49-acre site, near the lakefront and McCormick Place, situated within an already up-and-coming neighborhood, has long been considered a prime redevelopment opportunity. It’s also been a sore subject for the city and community activists since its closing, after which then-Mayor Richard M. Daley authorized the purchase of the parcel using $2 million of public funds. It was supposed to serve as an Olympic Village for a Summer Olympics host bid that Chicago eventually lost. More recently, it was pitched as a potential site in the Amazon HQ2 search, which also fell through.

Now, Goodman and Farpoint’s development partners hope the Michael Reese Hospital lot’s location in a designated Opportunity Zone will provide the spark needed to kick off a redevelopment project that utilizes the site to its full potential.

“Michael Reese is the perfect situation for us,” Goodman said during the panel. “The Opportunity Zone program allows us to take a phased approach to development and community building which we believe is the intent of the law — to improve communities in a profitable way for investors.”

Farpoint’s current plans for the site, which it calls the Burnham Lakefront District, are to transform it into a mixed-use area spanning 144 acres total, replete with new housing, office buildings, commercial and retail space and improved transit access.

Engaging communities without running the clock

For those ambitious plans to come to fruition, though, Goodman and others present at CAR’s seminar acknowledged that a crucial roadblock in the existing Opportunity Zone legislation would need to be addressed, and quickly. As with many of the new tax breaks included in the massive Tax Cuts and Jobs Act, the incentives underpinning the Opportunity Zone program are set to expire in 2027, unless Congress passes legislation to renew or expand any aspects of the law before that deadline. This poses a concern for investors, developers and especially business owners who see the program as a catalyst for long-term redevelopment projects that require at least 10 years of commitment — and probably many more than that in most cases — to succeed.

“We need to get some early wins and promote those success stories so this program is renewed,” said Leon Walker, managing partner of DL3 Realty, a development and consulting firm which specializes in the legal, political and financial particulars of Opportunity Zones.

Walker and DL3 already have a few wins on the books outside of the Opportunity Zone Program: The firm played a key role in the development of Englewood Square, a shopping center featuring a Whole Foods outpost that received significant publicity upon opening in what some considered a “food desert” on the South Side. DL3 and Walker have also recently worked to bring new full-service grocery stores to other underserved South Side neighborhoods like Woodlawn.

Making those projects happen requires collaboration between not just business interests, but also government officials and community residents. In Walker’s experience, it’s the local bureaucracy that often stands as the biggest barrier to development in low-income neighborhoods.

“I like to say that government only shifts between two gears: first and fifth,” he said. The Opportunity Zone program will likely only magnify this phenomenon as new capital from sophisticated firms comes flooding into communities all over the U.S. that aren’t accustomed to it. This is where real estate professionals, including agents, can play a crucial role.

“Take a tough-love approach with the municipalities,” said David Howat, vice president of development at Inland National Development Company and a member of the third panel of the CAR seminar, alongside Walker and Bo Kemp of Faegre Baker Daniels Consulting.

Howat said that, as a developer, he’s become used to apathy among city council members during meetings about new development proposals that could revitalize an area, a phenomenon that is likely to continue in time-sensitive discussions around Opportunity Zones. He thinks real estate agents can serve as the agitators for progress in this regard by simply showing up to local meetings.

“If [Opportunity Zones] are going to be successful, you’ve got to give some tough love and get to that pre-development phase,” he said. “Don’t take ‘no’ for an answer. If the mayor’s not at the meeting, if the alderman’s not there, the answer to that question should be, ‘why not?’”

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