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Can Indoor Farming Fulfill The Dream Of Opportunity Zones?

Opportunity zones and indoor farms are both new frontiers for investment, and one company is seeking to combine them.

An indoor grow unit at Local Grown Salads' R&D facility in Windsor, Ontario

Zale Tabakman has developed a concept for an indoor farm that grows greens, herbs and vegetables using modular construction, called Local Grown Salads. One LGS farm would be 15K SF and fabricated off-site almost entirely — even the HVAC system, often one of the costliest elements of construction. All the site needs is for the walls, floor and ceiling to be sealed and the water and power to be connected to the grid.

“It’s like installing a giant washing machine into a building,” Tabakman, who is based in Ontario, Canada, told Bisnow.

Tabakman estimates that without any delays, an LGS unit can be installed in two weeks, with its first harvest possible in 30 days, and each subsequent one 30 days after. Each plant produced will be certified organic, non-GMO and kosher (in order for greens to be kosher, they must never come into contact with insects). Each farm is estimated to cost $2.2M, require 15 to 20 workers and start producing income after 150 days.

Several companies have already introduced urban farming, particularly near some of the most in-demand urban markets such as New York and San Francisco. But whereas many of those farms are in sizable, purpose-built new industrial buildings, LGS has a much smaller capital requirement and can take space in older warehouses that are otherwise obsolete for any industrial use.

Because each LGS unit only requires a 15K SF pad with 14-foot clearance heights, Tabakman believes it is actually better suited to older warehouses than newer buildings with higher ceilings, saying “all that extra space would be wasted.” The model is, in a way, ideally suited as an opportunity zone investment.

To that end, Tabakman is working to launch a qualified opportunity fund called I95 OZF, focusing on the Northeast corridor, from Richmond, Virginia, up to Boston, where space is at a premium and the most dense population in the country has sky-high food needs.

Many of the opportunity zones in cities like Baltimore and Philadelphia that are in need of investment would consider fresh, local produce to be a godsend. Baltimore in particular is rolling out the welcome mat for opportunity zone investment.

“In community development, there is a lot of concern about food deserts, so something like [an urban farm] could meet community improvement needs,” Ballard Spahr Tax Credits Team Leader Molly Bryson said. “So [if a city had] any parameters about meeting goals of the program, that would potentially be within the spirit of the law.”

Those areas also often contain functionally obsolete industrial buildings for which an urban farm could easily meet the significant improvement threshold required under the opportunity zone regulations, according to CBRE Philadelphia Senior Research Analyst Lisa DeNight.

Bowery Farming, Kearny, N.J.

“[Philadelphia] is one of the oldest industrial stocks in the country, so its buildings are definitely on a smaller scale than other industrial hubs, even on the East Coast,” DeNight said. “Baltimore is probably very similar.”

Because the regulations are otherwise so open-ended, many cities are eager to welcome businesses like LGS with open arms.

“We talk to a lot of cities and economic development corporations, and what we’re seeing is that they want stuff to happen in opportunity zones that will help the people that live there, that will generate economic activity, create jobs and fulfill the purpose of the zones,” Tabakman said. “A new condo building, cities aren’t very excited by that. They want businesses, with jobs and permanent economic activity.”

Though he has not signed deals for any locations, Tabakman said that his business’ proper launch is not delayed by any lack of enthusiasm.

“One national investor told me, ‘Once you get past the first step, we’d like to [help you] be in 30 cities,’” Tabakman said.

Taking that leap remains the biggest obstacle to any opportunity zone investment at this point in time. Investing in an operating business is much more of a gray area than a pure real estate deal, and Tabakman is upfront about the amount of help he would need to truly get LGS off the ground.

“The kind of model we have in mind is [for] multiple buildings, and we do not have the skill for that,” Tabakman said. “We’re looking for someone to come in who has a lot of warehouses and brings us in as a tenant, with someone else coming in [to provide] money.”


Tabakman said that he has talked to institutional investors, private equity sources and cities with public investment funds, and few are willing to take the risk as of yet. The combination of normal startup risks and the unsettled nature of opportunity zone investing may be too much to overcome as of yet.

For example, LGS' business model requires that it sell to a distributor, grocery or restaurant chain of a big enough size, rather than to individuals.

"An issue is if you use a distribution center outside the zone, or if you sell to customers outside of the zone, that’s still a gray area,” Bryson said.

The exact structure of I95 OZF will be determined by its initial investors, but Tabakman envisions some combination of property management-savvy real estate owners and private equity firms. Either way, he trusts that his model will produce sustainable returns that both satisfy local community groups and investment targets.

“We’re attracting investors who either own [old industrial] buildings or are looking to own those buildings by putting opportunity zone funds in there, holding for 10 years and pursuing exit strategies,” Tabakman said. “My hope would be to buy the building for the farm after 10 years, but if after 10 years, gentrification happens, they may want to kick out the farm and redevelop the building or something like that.” 

While many investors wait on final clarifications to deploy their capital, a significant number of institutions are seeking opportunities for their social impact funds. Tabakman told Bisnow that social impact investors are among the most interested parties with whom he has spoken, but he has been cautious with his dealmaking because he is hyper-aware of the public damage a failed deal can do to a company touting its social benefits.

“The impact investment market is huge, but there are people who just say they’re impact investors and don’t have standards, and others that have lots of restrictions,” Tabakman said. 

Nailing down a potential investor at this moment is highly difficult because of the uncertainty surrounding rules of opportunity zone investing. The most recent hearing for regulation was Feb. 14, and the IRS and Treasury Department have yet to set a firm timeline for any further guidance or a final hearing.

Though Tabakman is confident that his business fulfills the spirit of the opportunity zone legislation, he is acutely aware of the herd mentality of investors.

“It’s just a matter of when, not if," Tabakman said. "The only challenge is risk tolerance for the people we’re dealing with. The opportunity zone [legislation] is kick-starting everything; I’m getting three or four calls a day."