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The full impact of the Opportunity Zone tax law on economic development may be unclear for years, if at all, but development officials and brokers are being as proactive as they can in turning interest to their zone.
The law was written a year ago, with the December 2017 federal tax overhaul.
In Augusta, where one of the first known Opportunity Zone projects in the country is being developed, that means a push to promote the city’s zone, particularly the downtown portion.
“There’s more flexibility [than with other incentive programs],” said Matt Pouliot, a real estate broker with offices in downtown Augusta. “It allows investors to pick a geographic area.”
Pouliot, who is also a state senator representing District 15, which includes Augusta's zone, and others involved in city development, hope investors who have given the Capital City a pass will take another look if they're considering investing in one of the state’s 32 zones.
Augusta officials aren't the only ones — development officials across the state are actively promoting their zones in an effort to get those with capital to look to them to invest.
In Waterville, the Central Maine Growth Council is planning workshops and actively working with developers.
A Maine Real Estate and Developers Association workshop in Portland on the zones, held on Dec. 6, was standing-room only, and more are planned across the state.
Keith Luke, Augusta’s deputy economic development director, said local promotion is key, since the tax law is about capital investment, and not geography.
When developers start talking about the top places in the state to invest through the zone program, “We want to be sure to be on the list,” Luke said.
The U.S. Treasury is still working out guidance for the zones. While there is a lot of interest in the tax incentive program, there are also challenges that don’t make it an automatic instant development tool.
The program allows capital gains to be formed into an Opportunity Zone fund, of which at least 90% must be rolled into development of a property or business in the zone.
Taxes are deferred for five years, then get a 10% step up in basis, and those held for seven years get an additional 5% step up. If the property is held for 10 years, any money from the sale can be rolled back into that fund, with no taxes charged. The fund can be used to develop other projects within that same zone.
Opportunity Zones are a financial tool, a tax incentive for investors and developers. There’s no obligation to report it as part of a development or planning process, and it’s not part of the development process.
Because of that, the only real role brokers and development officials can play is to let investors know the advantages of their zone. Those on the development end don’t have a lot of authority.
“Our role in promoting the Augusta opportunity zone is just that,” Luke said. “My goal as an economic development professional is to make sure [developers] know Augusta has one.”
Waterville, too, is actively working with developers to promote that city’s zone, said Garvan D. Donegan, director of planning and economic development at Central Maine Growth Council.
The council is planning at least one workshop, and has promoted to potential Opportunity Zone developers the $65.5 million invested in 20 commercial downtown properties in the city in the last few years, spurred by $50 million in development by Colby College.
Donegan said one developer has already created an opportunity fund for the Waterville zone, which stretches along the Kennebec River.
“CMGC has reviewed the program with several investors and developers who are interested in utilizing the program,” he said. “The downtown district has been of particular focus during these conversations.”
Like downtown Waterville, downtown Augusta is undergoing a resurgence. While Waterville has the Colby factor, Augusta has the state government, which gives its economy a solid base, Pouliot said.
“It’s a game-changer” for downtown Augusta, he believes, which already has a variety of incentives for developers, including the Tipping Point loan program, in partnership with Kennebec Savings Bank, which was started last year to help small property owners downtown renovate and add residential units. Last year, Water Street was also named to the National Register of Historic Places, making 51 buildings eligible for historic preservation tax credits.
Pouliot says the boost of the new tax law has to the potential to spur development and add investment to projects “that historically haven’t made sense.”
Downtown Augusta is ideal, because aside from the incentives, “It’s a place where people live and do business.”
Downtown is at the eastern end of Augusta’s expansive zone, which stretches between Western Avenue and Bond Brook west to the city line — almost the entire historic core of the city.
Luke points out that some major development sites in the city aren’t in the zone — for instance the three shopping centers, including the mostly empty Turnpike Mall, that are all on the non-Opportunity Zone side of Western Avenue.
But other areas are in it, including industrial/residential Leighton Road at the west end of the city near the turnpike, which is slowly being developed, and the historic residential and commercial blocks in the State Street area just south of Bond Brook and west of downtown.
Pouliot says that the zone designation has turned attention to Augusta it wasn’t necessarily getting before, and all of its assets can be highlighted, not just the opportunity zone aspect.
As a real estate broker, he’s heard from investors and developers who are interested in Augusta since the designation was announced.
“There’s a lot of infrastructure here, developed over a long period of time that makes this a great place to locate,” he said. “Because of [the designation], people are taking a closer look.”