Real estate entrepreneur, author and political activist Don Peebles was among the first and most prolific developers to announce an interest in opportunity zones.
Opportunity zones offer tax relief in exchange for investments in designated communities that are underserved and distressed. They’re a federal initiative of the 2017 Tax Cuts and Jobs Act.
Peebles announced in June the launch a $500 million investment fund for minority and women property developers in markets where his firm, Peebles Corp., operates. That’s South Florida, New York City, Los Angeles, Boston, Washington D.C., Philadelphia, and Charlotte.
Opportunity zones are an economic development tool designed to stimulate real estate development and job creation in distressed communities, according to the IRS. To qualify, opportunity zones must be nominated and designated by the U.S. Treasury. Tax relief comes in the form of deferred capital gains, among others.
Proponents say opportunity zones will reduce poverty, increase employment and encourage growth. Critics say history proves they won’t work.
More than 40 U.S. states created “enterprise zones” during the Ronald Reagan era. The Clinton administration created a program in 1994 that set up “empowerment zones.” Both programs have since expired and the consensus is they did not work, CityLab reported.
In an exhaustive study of 75 enterprise zones in 13 states, Alan Peters and Peter Fisher, professors of urban and regional planning, found that that tax incentives had “little or no positive impact” on economic growth.
That didn’t deter Peebles.
Marlon Nichols is the co-founder of Cross Culture Ventures, an early-stage venture capital firm in Los Angeles. Nichols weighed in on opportunity zones during an interview on The Network Journal, a magazine for Black professionals and small businesses.
Listen to GHOGH with Jamarlin Martin | Episode 08: Marlon Nichols
Jamarlin talks with Marlon Nichols, co-founder of Cross Culture Ventures, about the culturally-themed fund he started with Troy Carter.
While he has no immediate plans to invest in an opportunity zone, Nichols invests in tech companies that are creating solutions for underserved communities. These include Catalyte, a consultancy that uses artificial intelligence to leverage talent.
For VC firms thinking about investing in opportunity zones, Nichols has five tips to avoid mistakes that he said could harm rather than help the communities they are supposed to benefit. From The Network Journal:
The people who live in the community have eyes and ears on the ground and can give you the facts. Hire a dedicated team tasked with protecting the community and have local employees on call to make sure the community is safe and happy, Nichols said.
The new restaurants, condos and businesses in Harlem, New York City, are great, but longtime residents can’t afford the rent to live there. If you’re going to create businesses in an opportunity zone, recruit from that neighborhood so residents can earn enough to stay there. By hiring local talent and building local offices, you will spend in the local economy, further revitalizing the area.
Help develop the local business and tech ecosystem by partnering with the local government or organizations to create startup accelerators for local entrepreneurs, Nichols said. Starting an accelerator in an opportunity zone helps to build efficiencies. Advertise that you’re hiring local residents who have certain talents. For example, Catalyte doesn’t recruit from Ivy League schools. It advertises on Craigslist and at community colleges.
A startup named Bodega was called out on social media in 2017 for seeking to displace local workers at bodegas — often people of color and/or immigrants — with vending machines. The owners of the startup failed to research and understand what those stores meant to residents, Nichols said. No one bought into their idea. The lesson: Surround yourself with a diverse team and listen to them. And remember, the best people to solve a challenge in any community are people who have lived there because they understand what’s real in that community.
If you’re creating a company in an opportunity zone, you don’t always have to import talent. Figure out what skills are missing for the kinds of companies you want to create and establish programs that can build those skills. Invest in training programs, coding academies, or whatever will be the focus of your business. New industries won’t flourish if there’s no one to hire. Teaching local workers new skills through technology and business boot camps will revitalize an entire generation of workers and will help fill your jobs, Nichols told The Network Journal.
You can see a list of designated Qualified Opportunity Zones in IRS Notices 2018-48 (PDF) and 2019-42 (PDF). A visual map of the census tracts designated as qualified opportunity zones can be found at Opportunity Zones Resources.