GRAND RAPIDS — Developers behind two affordable housing developments in Grand Rapids credit their locations within Opportunity Zones for helping make the projects feasible.
West Garfield Apartments, being developed by Grand Rapids-based LINC Up, and Eastern Lofts, a project by MVAH Holding LLC in partnership with LINC Up, were awarded additional points when receiving low-income housing tax credits because of their locations within the city’s established Opportunity Zones.
“The fact that they were in an Opportunity Zone helped make them viable projects for us,” said Jeremy DeRoo, executive director of LINC Up.
Enacted as part of the federal Tax Cuts and Jobs Act of 2017, Opportunity Zones are designed to spur private investment in low-income census tracts. West Michigan has 26 Opportunity Zones, which communities began marketing to potential investors last year.
To receive the full tax benefit, investors needed to have invested by the end of 2019 but the benefits still remain significant for qualified investors.
Commercial real estate industry watchers say more developments will begin to crop up in 2020, as people begin to better understand Opportunity Zones, particularly since the Internal Revenue Service updated guidelines about them a couple of times last year.
“If anything, communities have gotten more educated over the last year, and that’s continuing,” said Ryan Bryker, principal and manager for the Muskegon office of accounting firm Rehmann LLC. “I think there’s more activity to come, more qualified Opportunity Zone funds. There’s definitely more coming.”
About a year ago, Rehmann participated along with other local groups in a learning session for potential investors in Opportunity Zone funds in Muskegon.
A lot of activity with Opportunity Zones took place in the first half of 2019 because of a June deadline imposed for gains recognized in 2018, Bryker said.
Investors in an Opportunity Fund in 2020 will get a 10 percent reduction in capital gains tax, instead of a 15 percent reduction that ended in 2019.
“The 5 percent isn’t going to change people’s plans that significantly,” Bryker said.
The city of Grand Rapids selected Opportunity Zones strategically by identifying low-income neighborhoods likely to receive significant investment in the future, DeRoo said.
“The fact that has been leveraged to establish significant affordable housing now, prior to those investments entering the community, is a significant way of preventing gentrification and ensuring that existing populations can participate in future benefits,” DeRoo said. “Affordable housing is a great opportunity to start with.”
Soon after the creation of Opportunity Zones, investors who created funds were unable to deploy them as quickly as they had hoped because the investments needed to be vetted to make sure they are viable, Bryker said.
“That’s what we’re seeing coming: more solid investments that can stand alone,” he said. “The qualified Opportunity Zone is more like icing on the cake in many cases.”
Lakeshore Advantage Corp., the economic development organization for Ottawa and Allegan counties, also has received interest from companies that want to invest in the region’s Opportunity Zones, said President Jennifer Owens.
One of Holland’s Opportunity Zones includes the decommissioned James DeYoung coal-fired power plant on the Lake Macatawa waterfront. The city and other stakeholders recently finished a visioning process for the site, and will now begin assessing the value of the property.
“That really calls for a significant mix of potential private and public investment,” Owens said. “We hope that will help us attract developers to look at the site.”
Not many developers outside of the area have inquired about the location, Owens said. She believes bigger Opportunity Funds are looking at major cities, but is hopeful that could change yet this year. Owens said investors and communities were uncertain how the program would continue because of multiple updates to the federal guidelines.
“If we can really have surety that the rules are done, no further changes, there’s a long-term commitment to this program, I think we’ll see some developments for sure,” she said.
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