The city of Newark has one of the top locations in the country for investors looking to take advantage of the new Opportunity Zone Program, according to a national study released Thursday morning.
The LOCUS National Opportunity Zone Ranking Report ranked a census tract in downtown Newark in a tie for sixth place among the top Opportunity Zones for Smart Growth Potential, in a ranking of nearly 8,000 tracts.
In addition, a tract in Newark ranked fourth overall in locations deemed to be the top Social Equity and Vulnerable Places with High Smart Growth Potential, meaning the city not only could handle the investment, it would do so without hurting the existing population.
The report, from Smart Growth America, was produced by LOCUS in partnership with the Center for Real Estate and Urban Analysis at the George Washington University School of Business and in collaboration with SPARCC, or Strong Prosperous and Resilient Communities Challenge.
The Opportunity Zone program was created out of the recent tax code changes. In a nutshell, the program allows investors to reinvest capital gains with reduced tax liability. Some feel more than $6 trillion dollars of unrealized capital gains could be available to invest.
The study looked at nearly 8,000 Opportunity Zone locations in the 50 states and the District of Columbia (tracts in Puerto Rico were not able to be analyzed due to an inability to get all of the necessary data).
Its authors said the biggest finding was that so many of the designated Opportunity Zone areas are not in a position to successfully handle investment.
Smarth Growth America Vice President Christopher Coes said it is important for investors — and municipalities that have been designated Opportunity Zone areas — to understand this.
“We all know in the real estate and business communities that places are not created equally — and we also know that Opportunity Zones are not created equally,” he said earlier this week on a conference call to discuss the findings.
“Therefore, understanding which Opportunity Zones, with investible projects and businesses and community-informed and community-driven framework, are best positioned to create vibrant, inclusive communities, it’s critical to the overall success of Opportunity Zones.”
Tracy Loh, a senior data scientist at George Washington, said the numbers are stunning.
“We found that the vast majority of Opportunity Zones have extremely limited smart growth investment potential,” she said. “Over 98 percent of Opportunity Zones scored less than 10 on our 20-point smart growth investment potential index. That means only 2 percent of designated Opportunity Zones have what we consider high smart-growth investment potential.
“A further point that’s critical to note is that, of these 2 percent of Opportunity Zones, many of these zones are not only low-income communities, but are communities that are considered socially vulnerable because of other characteristics that make them communities of concern, such as high ratios of renters, so a lack of ownership stake in the community, different language affinities, overcrowding in housing and unemployment.
“Because of these other concerns, it’s entirely possible that the Opportunity Zone program, instead of being a program that benefits these communities and attracts investment that achieves the triple bottom line, this program could be actually a hazard.”
Newark scored a 16 on the smart growth list, just one point lower than the five areas that scored the highest.
Ted Zangari, chair of the real estate and redevelopment practice at Sills Cummis & Gross in Newark and an early leader in Opportunity Zone program opportunities, said he wasn’t surprised by the findings.
“Downtown Newark’s fourth-place ranking among the top 50 OZs in the country will come as no surprise to those who have studied the OZ maps — the downtown Newark census tract sweeps straight across the Broad Street corridor, from Penn Station to the Broad Street station. Incredible real estate by any measure, including proximity and mass transit connectivity to one of the world’s greatest cities,” he said.
Mayor Ras Baraka said he’s thrilled the city has been identified as a top place to invest, but he noted that it did not come by accident. And that the city is doing all it can to take advantage of Opportunity Zones.
“We’ve already assembled teams in the city of Newark that are going to be targeting those tracts,” he said. “Teams that consist of planners, project managers and developers in those areas (will) begin taking inventory of all the abandoned property, abandoned land, the rents, everything that’s going on in that area.
“We look at this as an incredible opportunity for the city to jumpstart a lot of development in areas where we have had no development. We have a heavy industrial area to around the airport that we also tagged as an Opportunity Zone because we want to encourage the kind of advanced manufacturing and development or job creation and growth in that area as well to help our residents get high-paying jobs.”
Baraka said the city is in the process of creating a database for potential investors.
“We’ve also assembled all of the development projects in our census tract areas and we are in the process of making them available digitally for the public and for developers … so they can have easy access to what the development projects are, how to get involved in those projects, and what the city’s ideas are about what development should look like in those areas,” he said.
“We also have established local policy … an inclusionary zoning ordinance that requires a certain level of affordability. We’ve established a stronger rent control law. We’ve also established right to counsel, particularly in those areas have begun to do some land trust or banking that assemble parcels of land together, so we can begin preparing the way for projects that we think are necessary and will be beneficial to the residents of this community (can get done) quickly.”
The scoring for both rankings was as follows:
For Smart Growth Potential, Opportunity Zones were scored on four metrics — walkability, job density, housing diversity and distance to the nearest Top 100 central business district — to generate a final score ranging between 0 and 20.
A census tract in downtown Newark, along with one in Portland, Oregon, scored a 16 — or one less than census tracts in Oakland, Seattle, Baltimore (the Inner Harbor), Philadelphia (City Center East) and an additional tract in Portland.
Census tracts in Jersey City (Journal Square), with a 15, and a second tract in Newark (the North Ironbound), with a 13, were the only other New Jersey locations in the Top 50.
For Social Equity + Social Vulnerability, Opportunity Zones were scored on four variables — transit accessibility; housing and transportation affordability; diversity of housing tenure; and social vulnerability — to generate a final score ranging between 0 and 20.
The downtown Newark tract, with a score of 16, was one behind tracts in Portland, Oakland and Seattle. No other New Jersey tracts made the Top 50.
Loh said it’s important for municipalities to understand that Opportunity Zones are just a first step.
“Because of this finding, we’re recommending in this report (that) these most promising Opportunity Zones, from a real estate perspective, consider implementing additional policies in order to guide the Opportunity Zone program to make it a smart growth and socially progressive program, which it’s not just under the framework established by the tax law,” she said.
Baraka said Newark already is moving in that direction.
“We’ve had an extensive conversation with the Governor’s Office about making sure that we create the right level of subsidy and tax incentives in those areas as well, particularly in areas that don’t get the kind of tax incentive and subsidy that usually come, to partner with Opportunity Zone funds in that specific area to make those projects perform easier and (be) more attainable and more productive,” he said.
“And with that, we are hoping to leverage the tax subsidies and the other types of things in those areas to get developers to do other things around jobs around homelessness, around affordable housing as well. So, we are looking at this as a comprehensive piece, not just an Opportunity Zone and a one-off. We’re trying to get the state and the municipality (to) put everything that we have together in a medley of things to target those areas.”
Zangari, like the study’s authors, said investors need to proceed with caution when considering various areas.
“The Opportunity Zone program will provide another money source for redevelopers struggling to put together their capital stack, but, let’s be clear — this is not a grant or low-interest loan,” he said. “Opportunity Zone funds must be invested as equity into a project, so the program is no substitute for the incentives and debt financing that will still be needed for a project to make sense in the first place.
“Opportunity Zone investments will not spark a project — in fact, given the time constraints of the program, there’s no time for that anyway. Rather, Opportunity Zone investments will likely be most effective in completing the final missing piece of funds needed for an otherwise shovel-ready, fully entitled project.”
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