A 'Tremendous Infusion' Of Federal Funding Is Creating New Real Estate Opportunities In Appalachia
A surge of investment from the federal government and nonprofits has begun to spark new private sector interest in the Appalachian region, an often-overlooked part of the country that has for years suffered from population decline and poverty as the nation shifted away from coal mining.
With hundreds of millions of dollars coming in to fund infrastructure projects, small businesses and rehabilitations of old buildings — plus a renewed appeal for living in the area from remote workers who enjoy outdoor recreation — economic development officials say they are optimistic about the growth of Appalachia.
This investment and growth is creating new opportunities for real estate development, especially in areas designated as opportunity zones where investors can receive tax breaks for their projects.
In 2021, the federally funded Appalachian Regional Commission deployed $449M toward 465 projects, and it leveraged an additional $1B in private investments. In March, President Joe Biden signed a bill that appropriated $195M to ARC for fiscal year 2022, surpassing the previous record 2021 level by $15M.
“The spotlight now is on so many places throughout Appalachia,” Appalachian Community Capital CEO Donna Gambrell told Bisnow. “The last couple of years, what we are seeing is tremendous infusion of federal funding. … The impact has been really hard to describe.”
The federal government has been joined by nonprofits and private companies in putting more money into the region. In December, the Ford Foundation invested $10M into Appalachian Community Capital, a community development financial institution that aims to spur economic growth in underserved parts of the region. Gambrell said more investors are following in Ford’s footsteps.
“Now we are talking to other investors both current and potential that say, ‘Oh, we saw that Ford investment, Donna. Tell me a little bit about how that happened because we are trying to think through the best way to provide additional investment into the region as well,’” she said. “It helps that their organization took a lead.”
The Appalachian region, which spans 423 counties across 13 states from southern New York to northern Mississippi, has a long history of coal mining. In West Virginia alone, the mining industry employed 150,000 people, The Atlantic reported. In recent years, the areas of the region that had once benefited the most from coal production — West Virginia and parts of Virginia and Kentucky — became the ones with the highest unemployment levels as the nation moved toward cleaner energy sources.
Three of the five Appalachian subregions — Northern Appalachia, North Central Appalachia and Central Appalachia — experienced population declines of more than 2% between 2010 and 2020, according to an ARC report that used Census Bureau data. The percentage of Appalachian residents age 25 through 64 who were in the labor force between 2016 and 2020 was 73.8%, below the 78% national average. In West Virginia, the labor force participation rate was 68.9%.
“In southern West Virginia, coal was king, and we had coal mining towns everywhere. That industry is not coming back,” said George Carico, director of West Virginia brownfields assistance at Marshall University. “We’re faced with a lot of properties that are underutilized or abandoned.”
Many abandoned properties have been given new life in recent years with the creation of the opportunity zone program, a section of the 2017 Tax Cuts and Jobs Act that was intended to spur investment in underserved parts of the country. The Appalachian region has 737 opportunity zones with more than 2.8 million residents living in the areas, according to ARC.
Appalachian Community Capital developed the Opportunity Appalachian fund specifically for opportunity zones and other underinvested areas in Central Appalachian communities. The fund started with 17 projects in three states and has expanded to take on 33 projects in five states, Gambrell said.
Some of the projects in ACC’s portfolio include the $20M development of the Lake Chatuge Boutique Hotel in Hayesville, North Carolina, the $2M redevelopment of six downtown buildings in Shawnee, Ohio, and the $10M renovation of the first women-developed boutique hotel in Beckley, West Virginia.
Gambrell said the success ACC has achieved with its first round of opportunity zone projects has drawn more interest from developers.
“There was a really tremendous ripple effect,” Gambrell said. “These projects where you see the possibilities and can really grab onto them and see what more they can do in their respective towns.”
Rachel Reilly, who worked on opportunity zones with Enterprise Community Partners and Economic Innovation Group before founding her own consulting firm, Aces and Archers, in December 2020, said the program has drawn new attention to the region from outside investors.
“What opportunity zones have done is provided upfront equity that can be used to do all of these early stage development activities,” Reilly said. “That’s how I’ve seen OZ become really helpful in the rural context.”
Reilly said opportunity zones are helping move investments forward in markets where there are no comparable deals, which makes it harder to privately finance development projects. She said the increase in federal funding has helped draw more private sector investments.
“I’m not sure if these types of investments would happen on any meaningful scale but for these federal dollars coming in alongside those investments,” she said. “That federal money serves as an indicator to the private sector that there is investment going into these communities and that private sector investors can build off of those investments.”
For these communities that have tried to reinvent themselves and diversify their economies, it has been a difficult process, as rural communities tend to lack the density and developer capacity to bring on new projects and redevelopments.
In July, West Virginia’s governor awarded $18.1M in ARC grant funds to 14 projects. Of the projects, the Marshall University Research Corp. received $569K for its building removal and renovation initiative to help assess dilapidated buildings and their ability to be redeveloped.
“It’s helping these people with another step in their redevelopment process to figure out how they can reinvent themselves,” Marshall’s Carico said.
“That has really caught on big in several areas across the whole country,” he added. “Taking these underutilized or abandoned properties and trying to redevelop them for some positive use.”
Amid the pandemic, West Virginia, like many other states with a plethora of outdoor recreational activities, saw more interest from remote workers looking to escape from the big cities and their high costs of living.
“We have had folks working remotely,” Carico said. “We are seeing a lot more interest in people coming to the Appalachian region just because of the recreational opportunities and the outdoor activities.”
To help attract these remote workers, West Virginia in 2021 launched a program to offer cash incentives, free coworking space and outdoor recreation to new residents. The Ascend West Virginia program, a partnership between West Virginia University and state and local government agencies, was intended to attract and retain these workers in the state to spur economic growth.
The program has placed participants in the Morgantown area, Greenbrier Valley, the Eastern Panhandle and Greater Elkins, according to Danny Twilley, a leader of the program who serves as an assistant vice president with WVU’s Brad and Alys Smith Outdoor Economic Development Collaborative. He said the program began with 143 participants and their families and has had a 98% retention rate.
“We built the program off of community and how to build a sense of community among them,” Twilley said. “The other [reason] is purpose. Come make us better. We are not perfect as a state.”
Twilley said they looked to states like Utah and Colorado that have successfully used outdoor programs and access to public land as a way to bring in workers. For West Virginia, he said the program is not just about attracting workers but keeping residents in the state.
“It provides support for the businesses,” Twilley said. “People are like, ‘Do I have to leave the state to have prosperity?’ Imagine the message when you have people moving here that are returning or new residents that say, ‘This state is really special.’ That’s a really powerful message.”
An increase in remote workers coming to the region is creating an opportunity for residential developers, Twilley said.
“We know that there is an increased demand within the state of West Virginia for market-rate houses,” he said. “It’s an area that needs to continue to grow in West Virginia in terms of continuing to provide opportunities for housing.”
As the state continues to see investment flow, more communities that were once dependent on coal production are becoming comfortable with diversifying their economies and opening the door to new opportunities, from tourism to clean energy efforts.
Last week, Kentucky was the latest state to join the Appalachian Regional Clean Hydrogen Hub, a bipartisan program started by West Virginia to invest in clean hydrogen production in the region. The hub is expected to be centered in West Virginia because of its low-cost natural gas deposits and access to workforce and technology.
Gambrell said many residents have begun to understand that they need to think in a more equitable way about how to grow their economy.
“You have many people in the region that understand that we need to diversify our economy and work with entities and organizations that are not just extracting our natural resources but are also putting something back into our communities,” Gambrell said. “They understand that they are just as big a part of this as anyone coming into the region.”