By Edwin Moss, executive vice president
Much of the news surrounding Birmingham over the past several years has highlighted its recent wave of significant growth. This coverage is justified – from new entertainment venues to growing industries, the city is on an upward trajectory that is attracting new residents and setting up the potential for a bright future.
But there is still work to do in our communities. Today, there are neighborhoods across Jefferson Country struggling financially and in deep need of assistance and support. Urban revitalization is a priority across the nation – not just in Alabama. It’s no surprise, then, that Congress has moved to support urban growth through a new tool – the Opportunity Zone Program.
Opportunity Zones are set to significantly impact the commercial real estate industry across the country. For CRE firms, its crucial to understand what the program is, how it is set to function and how best to capitalize on the opportunity to make a private investment into the future of your own community.
What is an Opportunity Zone?
An Opportunity Zone is an economic designation cities and states can leverage to spur growth – namely development and job creation – in financially unstable communities. They were created in December 2017 when the zones received bipartisan support in Congress and were added to the tax code by the Tax Cuts and Jobs Act.
Today, Opportunity Zones exist in all 50 states. In order to qualify as a designee, communities must meet a specific set of criteria (requirements that 57 percent of American neighborhoods meet, according to Brookings Institute) and receive certification from the U.S. Department of Treasury.
Opportunity Zones and Real Estate
Opportunity Zones spur growth by providing the incentive of tax benefits to potential private community investors. This allows the designated communities the opportunity to receive financial support from sources other than taxpayers. Similar programs have been established in the past, but the advantages of the Opportunity Zones are their flexibility, cost effectiveness and potential for high sustainability.
Opportunity Zones hold the potential to deeply impact our firm’s industry, as the money from the program’s private investors can be designated to not only support startups and small businesses, but also real estate developments.
It appears, too, that Opportunity Zones are being introduced at an optimal moment – HousingWire reports that there is a significant desire to invest in “multifamily properties due to economic and demographic trends.” With this in mind, it becomes even more valuable for CRE firms to understand and take advantage of the program’s benefits.
To this end, it is projected that billions of dollars will be invested into the program’s over 8,700 designated communities. As this money is poured into communities across the United States, the real estate industry is bound to experience growth in areas that have struggled financially for decades.
Opportunity Zones in Birmingham
Jefferson County has been granted 28 Opportunity Zones to support neighborhoods across the Birmingham metro area. Locally, investors are contributing to the Birmingham Inclusive Growth (BIG) Fund that aims to not only increase quality of life and growth, but to also support investors. Early estimations state that the Innovation District, the Civil Rights District and the Fourth Avenue Business District will benefit from local opportunity zones, as well as the city’s downtown, Avondale, Woodlawn, East Lake and the communities surrounding the Birmingham-Shuttlesworth Airport, among others.
As Birmingham continues to grow, Opportunity Zones will play a critical role in ensuring that every community in our city enjoys the potential for a bright future. These will continue to impact quality of life in our county as well as the commercial real estate industry, so stay tuned to see the positive and exponential effects that these tools will leave in our communities.