When Opportunity Knocks: Cities Eager To Take Advantage Of Opportunity Zones
LONG BEACH, CALIF. — In Downtown Long Beach, million-dollar homes, high-end condominiums and luxury apartments line Ocean Boulevard, just a few steps from the beach. The waterfront has high-rise hotels, towering office buildings and chic retail and restaurants. The city also has pockets of abject poverty.
These struggling neighborhoods could benefit from a new federal program designed to bring investment and development into blighted areas — and city officials are eager to take advantage of that opportunity.
Long Beach Deputy Director of Economic Development Sergio Ramirez said opportunity zones, passed in December as part of the Tax Cut and Jobs Act, could provide a much-needed jolt to revitalize the city's ailing neighborhoods. The opportunity zone program encourages investors to place long-term investments in low-income communities in exchange for a tax break.
Cities nationwide are examining how the new federal program could pour millions of dollars of investment into places that have long been neglected and provide much-needed jobs and housing for residents. Investors are paying close attention to what these cities are looking for. Opportunity zones will be discussed at the Evolution of LA's Submarkets & The Impact of Opportunity Zones event Aug. 14.
Long Beach has a lot going for it. Shipping cranes dot the port of Long Beach, an economic engine that annually generates $4.9B in local, state and general federal taxes from trade.
But only a few blocks north — a five to 10-minute drive — homeless individuals on a recent day were lounging under a tree at Cesar E. Chavez Park while nearby a disheveled man was fishing for aluminum cans and plastic bottles in a garbage can.
Blocks are densely filled with apartments. Street parking is scarce. Signage of retail buildings and restaurants are missing letters or are faded, only showing a marking of what they once were.
These working-class neighborhoods in Cambodia Town, Willmore and MacArthur Park are hungry for economic investments, Ramirez said.
There is a need for more affordable and workforce housing, retail and offices to provide residents with jobs, he said.
“After 2012, when cities lost the tool of redevelopment, there hasn’t been anything like this to get some dollars into areas that have not seen investments in the past,” Ramirez said, referring to the dissolution of redevelopment agencies in the state. “This will be a tool to induce investments. Luckily, the city doesn’t have to do anything. We don’t have to take a vote. It’s already in place. Investors could just come in.”
The opportunity zone program allows investors and businesses to roll over capital gains or place a investment through an opportunity fund into a property in these state-designated low-income tracts — based on census numbers — in exchange for a tax break. The longer the investor holds the property in that area, the bigger the deferral or elimination of federal taxes on capital gains on the investment.
Industry pundits are questioning the program's overall effectiveness and raising some concerns, but since the passage of the act, investors are lining up and preparing to take advantage of the program.
Avanath Capital Management founder and Chairman Daryl Carter told the crowd at a recent Bisnow event that the company is looking into creating an opportunity fund. He said studying the opportunity zone designations nationwide has become a criteria for his company when considering multifamily investment opportunities across the country.
“We are looking to create a fund because there are a lot of investors wanting to invest,” he said.
Cities with these designated tracts are taking inventory and preparing business presentations to push vital investments into parts of towns that may have been long neglected.
In California, there are 879 designated opportunity zones. Los Angeles County has the most with 274 designated tracts. Orange County has 27. Riverside County has 49.
“This is a great program and could turn around this area,” Pacoima Neighborhood Council land use committee chair Mikayeel Khan said. Pacoima is a neighborhood in the valley area of the city of Los Angeles with at least eight opportunity zone tracts.
Khan, who has lived in Pacoima since 2012, said the predominantly Hispanic neighborhood has had a bad reputation of gangs and high crime but that is not an accurate depiction.
“The people here are nice,” Khan said. “We are a working-class neighborhood with a lot of hard-working families.”
Khan said there is a need for more affordable housing, especially near transit stops, and a shopping center where people can gather. He said residents have to drive 15 to 20 minutes to Burbank to visit a mall.
Most importantly, he wants businesses to invest, open offices and provide jobs to local residents.
Without a main job center in Pacoima, many residents have to drive out or take public transportation 30 minutes to an hour away to get to their jobs, he said.
“This could be a good place for investment,” Khan said. “We are centrally located and have several major freeways that go through here.”
In the city of Lancaster, a 70-mile drive north of downtown Los Angeles, there is a need for more tenants to occupy vacant retail space and more industrial buildings to meet demand.
Lancaster has at least six designated opportunity zone tracts. Nearly half of the households in the city earn less than $50K annually, according to the Southern California Association of Governments.
Retail vacancy is up to 6.9% in 2017 in the city compared to 5.9% the previous year.
Lancaster Chamber of Commerce CEO Mark Hemstreet has not been fully briefed on the opportunity zone program but thinks it is a good idea.
He said local state Rep. Steve Knight is expected to hold a forum with business leaders in the Antelope Valley region on the opportunity zone program sometime in August.
“Big-box retail, like many places, is hurting here,” Hemstreet said. “Not a lot of people want to occupy the former Sports Chalet 30K SF building, but if you have an industrial project, there’s a wait in line.
“The big pros here is that land is really cheap,” Hemstreet said. “You can invest up here and buy some commercial space for retail, but if you have an industrial project, you can fill them as fast as you can build them.”
Long Beach has had a gritty reputation, often portrayed by hometown rappers Snoop Dogg, Warren G and the late Nate Dogg as an inner city rife with gangs and crime.
But those inner city perceptions run counter to today’s Long Beach.
Long Beach has one of the world’s busiest seaports, a bustling waterfront, airport and a university. It is home to a high school that has churned out and produced the most players in the history of the National Football League.
Ramirez said the opportunity zone program could help encourage development and make Long Beach into a world-class city.
Ramirez said among cities that have waterfronts, such as Baltimore, San Diego and Boston, Long Beach is less dense and has plenty of room to grow. There are 19 opportunity zones, or about 2,300 acres of the city that currently have a designation that meets the program criteria, he said.
“[The opportunity zone program] will help continue to spur investments in downtown Long Beach,” Ramirez said, adding that some of the designated tracts sit right next to the city’s Blue Line light rail. “That’s going to help with the mid-town specific plan and provide us with more housing — market-rate and affordable housing next to transit.”
Ramirez did raise one concern. The city does not own property in any of the designated tracts. The properties in those areas will be subject to market-rate prices and traded on the public market, but there are plenty of owners in those areas that are selling their property.
A look at Loopnet shows several multifamily and retail buildings for sale in some of the designated opportunity zone tracts.
Within the next 30 days, Ramirez said, he and his staff are planning to create a marketing campaign to promote the opportunity zone program to businesses and investors. Inventory will be taken. The city is looking into hiring someone specifically to help these investors navigate through the different opportunities. They want to streamline the process.
He said with 40 new projects and over 300K SF of ground-floor retail in the pipeline in the various mixed-use developments in the downtown area with these opportunity zones, “folks could open new businesses, restaurants, services, shops, etc., in a very short period of time.”
Ideally, he said in the long haul if the program could help the city generate more multifamily market-rate and affordable housing products, an additional 3K SF of retail space and four or five office buildings, it would be a success.
“We feel like the stars are aligning,” Ramirez said. “We want to tell those small and big investors that there are limitless opportunities here. We can take on any kind of projects in every size and that we are here ready to help.”
Find out more about opportunity zones at the Evolution of LA's Submarkets & The Impact of Opportunity Zones event Aug. 14 at the JW Marriott in downtown Los Angeles.