“We need more data.”

It’s the rallying cry of every scientist, researcher, policymaker, baseball general manager of the “Moneyball” school and journalist reporting out an ambitious story.

Ambition for change in community circumstances was at the heart of the Opportunity Zone (OZ) program when it was enacted in December 2017 as part of the Tax Cuts and Jobs Act. But change takes time.

Early returns on such programs can be as misleading or inconclusive as early returns on election night. When the real data start to stream in — in OZs’ case, after several years of regulation promulgation and then actual investment across the 8,000 designated high-poverty zones — a clearer picture emerges.

That picture is at the heart of “Are OZs Working? What the Literature Tells Us,” a paper published in October by Kenan Fikri and Benjamin Glasner that surveys nine valuable and oft-cited studies of the OZ program. Fikri is director of research and Glasner is associate economist at the Economic Innovation Group, the “bipartisan public policy organization dedicated to forging a more dynamic and inclusive American economy” co-founded by Napster founder Sean Parker, John Lettieri, and Steve Glickman that championed the Opportunity Zone concept from inception and has the archives to prove it.

I talked to Fikri the day after the research brief was published. He summed up the findings about the research studies as the data environment has evolved from “very poor” to decent: “Those who stopped data collection around 2019 found generally limited effects of OZs on commercial and residential property prices,” he says. “In the more recent studies that looked at things like building permits and construction jobs, lo and behold, they found a generally positive effect of OZs.”

The research brief builds on work from earlier in the year that looked closely at a U.S. Treasury Department working paper called “Use of the Opportunity Zone Tax Incentive: What the Data Tell Us” and a November 2022 paper by UC-Berkeley economist Harrison Wheeler that examined, among other information, new data sets on residential and commercial construction projects across some 12,000 census tracts in 47 large metro areas. Based on privileged access to IRS records, Treasury reported around $48 billion of direct OZ capital in Qualified Opportunity Funds (QOFs) raised across around 3,800 census tracts (48% of all OZs) by the end of 2020.

Trendco USA will invest $43 million and hire up to 292 people at its manufacturing operation and Tuskegee logistics hub located at Regional East Alabama Logistics (REAL) Park in Macon County, Alabama.

Photo courtesy of Trendco and Alabama Dept. of Commerce

“For us, that was a surprising breadth of OZ investment already by the end of 2020,” Fikri says, since full regulations didn’t really kick in until 2019. Meanwhile, data from Novogradac, which Fikri calls the best private information out there, showed a steep increase in fundraising in 2021 and 2022, tapering or plateauing in 2023, to a total of at least $100 billion in OZ equity flowing through the program so far, Fikri says.

Wheeler reports that while there was “no evidence of systematic differences in new construction between OZs and comparable areas in the four years leading up to the program,” after OZs were approved, “I find a large and immediate effect of the tax credit on new development. My main estimate is a 2.9 percentage point (pp), or 20.5%, increase in the monthly probability of new development. The effects increase over time.”

“One thing that comports with all the anecdotal evidence is they find a significant development response in vacant and underutilized urban areas,” Fikri says of the Wheeler paper. “Think of the periphery around downtowns, semi-industrial, full of parking lots and vacant buildings. Those areas are most responsive to the OZ incentives for a particular type of infill and redevelopment opportunity.”

Multifamily has been the hot sector in OZs. Asked for examples of projects that are more employer-based, Fikri mentions several. Last year The OPAL Fund (managed by a subsidiary of Opportunity Alabama) made an OZ investment in the development of Building 100 at the Regional East Alabama Logistics (REAL) Park, a 6.2 million-sq.-ft. industrial park in Macon County — a rural, underserved county in Alabama’s Black Belt region. 

In August, South Carolina–based Trendco USA announced it would invest $43 million to launch a manufacturing operation and Tuskegee logistics hub at the park, where the company will produce nitrile medical gloves to expand domestic supply and create up to 292 jobs over the next five years. “We created The OPAL Fund to invest in catalytic projects that could produce compelling returns for both investors and communities across Alabama and Building 100 is the perfect example of that thesis in action,” said Alex Flachsbart, founder and CEO of Opportunity Alabama (OPAL) and principal of The OPAL Fund.

Other examples involve Exceler Building Solutions in Hazleton, Pennsylvania; S&K Holdings, a personal healthcare services company, in Pittsburgh’s Allegheny County and Altoona’s Blair County; and aerospace startup Agile Space Industries in Durango, Colorado.

Fikri says the growth of demonstration cases is showing how an OZ can blossom for a community and for investors. “That’s going to continue as more corporate entities recognize OZs as a tool to finance expansion and growth,” he says. “For companies that are growing and have patient capital, who are in this for the long haul and want to be adding to the stock of distressed places in particular, OZs should be something they are considering. You could imagine a corporate client wanting to purchase a historic building for workers and move its headquarters into an OZ. If they’re going to invest a lot into improving it, it’s a perfect OZ investment. It’s right out of the playbook, the sort of thing OZs are well suited to.”

Congress is considering the Opportunity Zone Transparency, Extension and Improvements Act, which among its features aims to make estimating the costs and benefits of the program a much clearer process. Components of the act call for better metrics, the extension of the the investment and deferral period for qualifying investments to the end of 2028 and the designation of certain unpopulated former industrial brownfield tracts as OZs.

“It has bipartisan support,” Fikri says, “and is really viewed as an essential and uncontroversial piece of legislation.”

As lawmakers weigh the legislation, they’ll no doubt be turning to EIG’s work, where Fikri and Glasner conclude that “a close look at the most comprehensive data already makes clear that OZs are breaking new ground and challenging us to reimagine what federal tax policy can achieve in chronically distressed parts of the country.” 

Whe dollar amount invested in Federal Opportunity Zones climbed to another high in the third quarter of 2022, according to figures released in late October by Novogradac. The California-based consultancy is among the organizations that track and support the 50-state policy conceived as a market-guided propellant for economic dynamism in low-income communities. Others include Economic Innovation Group (EIG), whose billionaire founder Sean Parker is the policy’s spiritual father. According to Novogradac, Q3 investments through Qualified Opportunity Funds (QOFs) reached $32.69 billion, outpacing the record Q2 tally of $30.49 billion.

Consistent growth in OZ investment and some demonstrably successful outcomes aside, much ink has been spilled criticizing the program launched in 2017 under then-President Trump. The OZ project, says an emergent wisdom, is a boon to wealthy investors and developers (check) that skews toward residential rather than operating businesses (check) in a concentration of areas already showing promise (check) in support of projects that would have gotten off the ground without the federal incentive (inconclusive).

Broad-stroke assessments are risky, though. Results differ widely across the 8,764 census tracts into which investments through QOFs can confer distinct tax advantages. Moreover, data is woefully inadequate, due in large part to the last-minute elimination of disclosure requirements in the program’s original authorizing legislation. Novogradac, for example, has cautioned that its OZ investment numbers may be low by as much as a factor of four, limited as they are by information gleaned from press releases, SEC filings and voluntary submissions by QOFs. A bi-partisan bill in Congress seeks — among other measures — to resurrect the omitted disclosure mandates and thus provide a more accurate picture of the OZ policy’s impact. Supporters of the Booker-Scott legislation express hope that it will pass within a year’s-end omnibus package.

Baltimore: Why Not Try?

From the get-go, nothing about OZs has been perfect. Baltimore’s response was to give it a shot. Today, the city is widely viewed as doing OZs better than most, its approach seemingly guided by the notion that the perfect need not be the enemy of the good. With 42 of Maryland’s 149 OZs within Baltimore’s boundaries, the Baltimore Development Corporation (BDC) signaled an early embrace by hiring an Opportunity Zone coordinator, the position funded by the private Abell Foundation, whose philanthropic efforts are focused exclusively on Baltimore City.

“We were pretty early out of the gates,” says Ben Siegel, former executive director of the Johns Hopkins 21st Century Cities Initiative, who took the OZ Coordinator job four years ago. “We made a determination,” Siegel tells Site Selection, “that if we don’t do anything, then nothing’s going to happen. And here’s this available incentive for private investors and outside capital.”

With BDC having since been cited by Forbes as one of 10 “trailblazers” in the OZ firmament, Siegel suggests that efforts to promote investment within Baltimore’s OZs are producing important results that extend beyond them. 

“It’s brought an inflow of capital,” he says. “We’ve attracted investors who had never thought to look at Baltimore. They’re here for the first time because of Opportunity Zones. They wouldn’t be here otherwise.”

Not Just Residential

In an early coup, Siegel leveraged OZ incentives — sweetened, no doubt, by a $250,000 state tax break — to persuade Galen Robotics, a Johns Hopkins spinout that makes surgical robots, to move to Baltimore from Silicon Valley. After a stay at the City Garage innovation hub within the heavily capitalized Port Covington OZ, Galen this year unveiled a 5,000-sq.-ft. headquarters in a renovated factory in Southwest Baltimore’s Pigtown OZ, “by no means,” says Siegel, “an area that investors are attracted to.” Galen’s new neighbors at 1100 Wicomico, an eight-story, century-old former storage facility, include startups and a coworking suite. A “Baltimore Innovation Center” is planned for the top three floors, with hospitality and retail at street level.

Galen received an early investment from Verte OZ fund, a College Park–based QOF whose portfolio also includes Outlook Visual Effects Company (see “Baltimore is Wired for Tech Entrepreneurs,” Site Selection July 2022) in the West Baltimore Opportunity Zones Cluster. Last year, Verte spun off a second QOF in partnership with MDC Studio, a med-tech startup of the Maryland Development Center Partnership. The MDC-Verte Impact Fund was created to support MDC’s client companies, all of which are located within a Baltimore OZ.

Siegel says the volume of OZ investments in Baltimore is fairly split between businesses and residential, with residential representing up to 90% of the dollar amount. In West Baltimore’s Penn North neighborhood, a $1.1 million investment by Woodforest CEI-Boulos Opportunity Fund is helping to fund the renovation of a neglected but potentially very cool strip of row houses. The Zero Energy North Avenue Affordable Housing project is to create 20 sustainability-geared apartment units targeting households earning 50% to 80% of the area’s median income. Four commercial storefronts are to be leased to local Black-owned businesses and neighborhood nonprofits.