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The Geography of U.S. Inflation: Prices are Rising Faster in Lower-Cost States


By Daniel Newman and Kenan Fikri

Prices nationwide rose by 6.8 percent in November relative to a year earlier, the fastest pace in nearly 40 years. But even inflation — a quintessentially macroeconomic indicator — varies geographically. The cost of goods and services is increasing at different rates depending on which part of the country someone calls home. Generally, prices are rising fastest in areas that were relatively cheaper to live and work in prior to the pandemic, and rising more slowly in the country’s more expensive corners.

The latest regional Consumer Price Index (CPI) figures from the Bureau of Labor Statistics (BLS) show that prices rose the fastest from November 2020 to November 2021 in the East South Central region covering Alabama, Kentucky, Mississippi, and Tennessee (the BLS does not publish inflation figures for individual states). This region registered a 7.8 percent annual inflation rate. At the other end of the spectrum, annual inflation ran comparatively lower in the Middle Atlantic (5.9 percent) and Pacific and New England regions (6.1 percent).



A look at the recently released Regional Price Parity Index (RPP) data from the Bureau of Economic Analysis for the year 2020 shows that the map of inflation currently resembles an inverse of the map of overall relative price levels. Pacific and most Mid-Atlantic and New England states have much higher price levels than the nation as a whole, while many Southern and Heartland states register much lower price levels. Thus, today’s price increases have been most intense in some states with the lowest cost of living like Mississippi, Iowa, and Idaho, and less intense in more traditionally costly states. A stark illustration of this divergence is that Hawaii, the state with the highest cost of living, recorded among the lowest rates of inflation nationwide. Meanwhile, Mississippi, the state with the lowest relative cost of living, experienced some of the fastest price increases.

Many of today’s inflation hotspots were actually becoming more affordable relative to the country until the Covid-19 pandemic hit. This pattern might be giving those who live in these states a sense of whiplash and can be seen by comparing changes in pre-pandemic regional price parities from 2014 to 2019 to the prevailing inflation rate in November 2021. Many states in the South and Mountain West that had been growing relatively more affordable with falling RPPs have undergone a swift reversal and are located in regions now experiencing the country’s fastest price increases. Meanwhile, states such as Oregon, California, and Massachusetts, which were becoming more expensive relative to the country overall prior to the pandemic are located in regions experiencing some of the country’s lowest inflation rates today.


To be sure, inflation has accelerated significantly across every region. The surge has been most dramatic in the two South Central regions, spanning Texas to Alabama. Inflation surged almost ten-fold in the East South Central region from 0.7 percent in November 2019 to 7.8 percent in November 2021 (a 7.1 percentage point increase), compared to a much more modest increase of 2.7 percent to 6.1 percent in the Pacific region (a 3.4 percentage point increase). In other words, the experienced bump in inflation has been twice as large in parts of the South as it has been on the West Coast, and inflation has surged fastest in the very regions where it was lowest just two years ago.


What explains these regional differences, and what might they mean? Many of today’s states with high-inflation experienced strong economic rebounds after the initial pandemic recession — likely due to a combination of industry mix and policy effects, like abbreviated shutdowns — and now boast very tight labor markets. Many are also home to industries disproportionately affected by price increases, such as manufacturing. Some are rural, where gasoline and other hard commodities feature strongly in the local household and business spending baskets. Some states have also seen rapid population increases drive up housing costs, especially in the Mountain West. Conversely, economies in the traditionally more expensive but currently lower inflation regions often have outsized services sectors, which have been slower to recover and still suffer from depressed demand. Their labor markets also appear to have more slack based on unemployment rates.


Over time, these differential rates in inflation may serve as a modest force for convergence in price levels if the gaps persist, leading those places that have consistently seen slower price increases to become — at least temporarily — slightly similar to their more expensive peers. The pandemic, in general, has placed a greater proportion of big city, coastal economies in a state of suspended animation, while more goods-producing, interior economies were quick to shake off the pandemic and resume their growth trajectories. Whether these differential rates of growth and price increases lead to a more lasting convergence across the country’s economic map remains to be seen. But coming hot on the heels of a decade that saw expensive coastal areas pull away from the Heartland, it’s a reversal worth noting–and watching.

Taking the Pulse of America’s Small Business Sector: December 2021


By Daniel Newman

The U.S. Census Bureau’s Small Business Pulse Survey provides timely insight into the condition of the country’s small business sector as economic conditions continue to evolve. This analysis primarily covers data from November 29th to December 5th.

Here are five things we learned about the small business economy this week:

  1. Though supply chain issues have ebbed somewhat in recent weeks, disruptions and price increases continue to burden the small business sector. More than half of small businesses experienced common disruptions overall last week, with domestic supplier delays most prominent. Nearly 44 percent of small businesses reported domestic supply delays, down slightly from the peak share of 46.3 percent recorded in mid-November. Disruptions and other difficulties are most impactful in those industry sectors highly reliant on raw materials and complex supply chains such as manufacturing, wholesale and retail trade, construction, and accommodation, and food services.

    Nationwide price increases are further compounding these challenges. Nearly three-quarters of small businesses indicated they are grappling with large or moderate price increases for goods and services relative to before the pandemic. The rising cost of doing business is nearly uniform across the three most highly-impacted sectors: manufacturing (91.4 percent), construction (89.6 percent), and accommodation and food services (88.6 percent).

  2. Unfilled job openings continue to challenge small businesses, particularly in the accommodation and food services, health care, and manufacturing sectors. Nearly one-third of small businesses (31.7 percent) have experienced difficulty hiring amid a tight labor market, with record-high job openings and jobless claims falling to a 50-year low. Since late summer, employers experiencing difficulties hiring paid employees have consistently outnumbered those employers who have not struggled to hire; however, the share of small businesses facing difficulty hiring paid employees has ticked down and is now nearly equal to the share that has not faced hiring difficulties. Small businesses in the accommodation and food services (57.9 percent), health care and social assistance (41.1 percent), and manufacturing (39.8 percent) sectors have indicated the greatest difficulty hiring paid employees.
  3. More than half of businesses have adapted in some way to the changing economic realities of the pandemic. Just over half of small businesses have changed their operations to adapt to pandemic-induced circumstances. The most common adaptations have been to change their overall strategies, adopt or expand the use of digital technologies, and change their management practices.
    One of the most visible aspects of the evolving business landscape has been the rise of remote work. Nationally, 15.2 percent of small businesses reported that there was still a moderate-to-large increase in the number of hours that employees spent working from home the week ending December 5th. This shift is more prevalent in some industries than others—greater shares of employees are still working from home relative to pre-pandemic times in white-collar sectors including professional services (32.9 percent), educational services (31.8 percent), and information (29 percent).
  4. The share of small businesses requiring proof of vaccination has plateaued in recent weeks, although requirements vary widely among states. Just over 12 percent of small businesses required proof of COVID-19 vaccination before coming to work in the past week, amid growing uncertainty over the severity of the Omicron variant and the Biden administration’s vaccine mandate. The patchwork of rules and regulations that has developed across states, counties, and other local governments in recent months has generated a stark variation in the share of businesses requiring vaccinations across states. Small businesses in Western states and those in the Northeast and Mid-Atlantic are much more likely to require proof of vaccination to work in person.
  5. A growing share of small businesses thinks that operations will never return to levels seen before the pandemic. The share of small businesses reporting a return to normal operations (19.5 percent) continues to lag behind its summer peak when almost one-quarter of survey respondents felt that current conditions resembled pre-pandemic operations. Troublingly, the share of small businesses believing that a return to pre-pandemic operations will never be achieved ticked up slightly to 12.3 percent last week. This figure is nearly double that of December 2020, when only around 7 percent of businesses feared they would never achieve a full recovery. This sentiment was strongest among small businesses in the education sector.

U.S. Real Estate Market Outlook 2022


Despite uncertainty from the omicron variant and other risks, a growing economy will fuel demand for space and increase real estate investment across all property types

Recovery resilient despite ongoing COVID threat

CBRE is maintaining a positive outlook for the economy and commercial real estate in 2022, despite uncertainty over the potential impacts of the COVID omicron variant and other risks. While the new variant will impact the timing of a large-scale return to the office, fiscal and monetary policy remains highly supportive of economic growth. There may be other bumps along the way, notably from the ripple effects of an economic slowdown in China and rising oil prices, but the factors that held back growth in 2021—labor shortages, supply disruptions, inflation, and other COVID variants—will ease. Monetary policy will tighten to keep longer-term inflation pressures in check, which may trigger some short-run volatility in the stock market, but it will not be enough to dampen investor demand for real estate.

We foresee a record year for commercial real estate investment, enabled by high levels of low-cost debt availability and new players drawn to real estate debt’s attractive risk-adjusted returns. Commercial real estate values will rise, particularly for sought-after industrial and multifamily assets. Investors will sharpen their focus on emerging opportunities in the office and retail sectors in search of better returns.

The supply/demand balance in the office sector will remain highly favorable for occupiers, but the pace of recovery will pick up following a sluggish 2021. With hybrid work, the new normal, office properties with amenities that enhance employee collaboration, connection, and wellness will fare best.

Retail, by contrast, is seeing the effects of a longer-term transition, which has included pricing adjustments, low levels of new construction, and beneficial investment in the best experiential and convenience-led centers. Sales-to-square footage ratios are surging and the demographic- and pandemic-induced shift to the suburbs will favor grocery-anchored and neighborhood centers. With strong forward returns now achievable, we anticipate a decade-high level of retail investment volume in 2022.

Industrial & logistics hardly broke step during the pandemic as e-commerce surged. 2022 will see slower demand for physical goods as the service sector reopens and attracts more consumer spending. This will give supply a chance to catch up with demand. Third-party logistics operators are beginning to dominate the sector and are looking to get ever closer to the end consumer.

Multifamily will continue its recovery in 2022, with downtown locations returning to pre-pandemic occupancy levels. Single-family rentals in the suburbs will also fare well as some millennials leave the city to raise families.

A notable trend in the second half of 2022 will be the return of downtowns. As business and tourist travel picks up, we will see a sharp revival in the hotel sector in gateway cities, alongside the already recovering food & beverage sector. This, in turn, will stimulate the return to the office and the fuller recovery of downtown life.

The outlook for real estate in 2022 is positive, with big cities potentially surprising on the upside. Amid this recovery, ESG, demographics, digitization, and decarbonization will take on new importance.

We have produced this report to help you navigate the macro environment we expect in 2022 and look forward to working with you in the new year.

The outlook for real estate in 2022 is positive, with big cities potentially surprising on the upside.

Continue to Chapter 1: The Economy

Image of city streets

Warren Buffett’s grandson and the art of Opportunity Zone social impact investing



Howard W. Buffett, through his advisory firm, has developed a tool that measures an Opportunity Zone investment’s potential social, environmental and economic benefit.

The grandson of legendary investor and billionaire Warren Buffett is getting into Opportunity Zones, but in an unusual way.

Howard W. Buffett is rolling out a software tool that measures an Opportunity Zone investment’s potential social, environmental and economic impact. Through his advisory firm, Global Impact, Buffett developed the software, “Impact Rate of Return,” with financial technology company NES Financial.

(L-R) Howard G. Buffett, chairman, and CEO of the Howard Buffett Foundation, stands next to his father Warren Buffett, chairman and CEO of Berkshire Hathaway, and son Howard W. Buffett, lecturer in International Public Affairs at Columbia University. (Credit: REUTERS/Carlo Allegri)

The project comes at a time when the federal Opportunity Zone program is under investigation by the Treasury Department into allegations it has provided a windfall for wealthy developers looking to build luxury real estate projects. The program’s intent was to spur development in thousands of distressed areas across the country.

So far, the Opportunity Zone legislation does not have a standard to judge whether a project in a designated zone is actually creating jobs or investment in the community, which has been a center point of the criticism. In his State of the Union address on Tuesday, President Trump sidestepped the investigation, and hailed the program as an unqualified success.

Buffett’s reporting tool, according to the firm, tracks an Opportunity Zone project’s location, development type, census tract, and investment size, then tabulates the data into one number.

Buffett is rolling out the software across 67 Opportunity Zone investment funds.

Buffett, 36 and an associate professor of international and public affairs at Columbia University, said in a statement that he hopes the software “will ensure that funds achieve their impact objectives in communities where they’re needed most.”

Reid Thomas at NES Financial, said “investors increasingly care about the impacts that their investments make.”

Once a niche submarket, social impact investing or “do-good” investing has taken off in recent years. Goldman Sachs is pledging $750 billion over 10 years to invest in sustainable finance, which includes clean energy and access to health care. Some of the same investors, like Goldman, are also investing heavily in Opportunity Zones or setting up funds north of $500 million.

The Opportunity Zones program allows investors or real estate developers the ability to defer or forgo paying capital gains taxes by investing in one of the 8,700 designated Opportunity Zones. The biggest tax break comes to investors who hold their investment in the Opportunity Zone for at least 10 years.

Over the past year, the program has also been mired in controversy after reports showed how wealthy developers lobbied for certain U.S. census tracts to be included as Opportunity Zones. In one example, a 700-acre industrial development in Nevada — part-owned by billionaire financier Michael Milken — became eligible for a tax break after the Treasury Department overrode its own rules to designate the area as an Opportunity Zone.

The scrutiny, however, is not scaring off investor interest. Opportunity Zones’ investment has surged in recent months thanks in part to the government’s release of its final set of regulations meant to provide investors and developers with more clarity. Close to $2.3 billion was put into Opportunity Zone funds between early December and early January, according to a survey from accounting firm Novogradac, a 51 percent increase over the prior month.

Jim Sorenson & Patrick McKenna: Investing for Impact in Opportunity Zones


Can Catalyst Opportunity Funds serve as both a counterexample to the wave of negative OZ publicity and a model for OZ fund investing?.

Episode Highlights

  • How Catalyst uses a proprietary Impact Scorecard to quantify the needs of a community and the reasons behind a community’s distress.
  • The institutional geographic divide, and how the Opportunity Zones incentive may be the “perfect catalyst” to move capital from successful coastal communities to places that have high potential and talent.
  • The four investments that Catalyst has made so far in Salt Lake City, Bozeman, and Los Angeles.
  • How Catalyst’s impact investments can serve as a counterexample to the wave of negative publicity that has been present in mainstream media.
  • Two big trends in impact investing: 1) the general growth in the category (and how a well-run Opportunity Zone fund is a great investment product for those seeking impact); and 2) the element of geographic diversification.
  • Jim’s approach to impact investing.
  • The biggest Opportunity Zone challenges that Catalyst has had to face so far.
  • Opportunity Zone trends for this year and beyond, and why Patrick thinks 2020 will be a big breakthrough year for the incentive.
  • The potential for more Opportunity Zone legislation and regulation.
  • Community Reinvestment Act regulatory reform and the potential for collaboration with banks that can be impactful in Opportunity Zones.

Featured on This Episode

Industry Spotlight: Catalyst Opportunity Funds

Founded by renowned impact investor Jim Sorenson, tech entrepreneur Patrick McKenna, and attorney Jeremy Keele, Catalyst Opportunity Funds launched last spring, aiming to invest in Opportunity Zones in middle America and select opportunities on the coast to truly make a difference. With a focus on workforce development and office space, their first four investments have been identified in Salt Lake City, Bozeman, MT, and Los Angeles.

Learn More

About the Opportunity Zones Podcast

Hosted by OpportunityDb.com founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

Show Transcript

Jimmy: Welcome to the Opportunity Zones Podcast. I’m your host, Jimmy Atkinson. The spirit and intent of the Opportunity Zone Policy is to spur impact investment in some of our nation’s most economically downtrodden communities. In many ways, the incentive motivates traditional investors into impact investing. And I think there’s no one better to discuss this topic with than today’s guests, co-founders of Catalyst Opportunity Funds, Jim Sorensen and Patrick McKenna. Jim and Patrick, welcome to the show.

Jim: Thank you, Jimmy. Great to be here.

Patrick: Yeah, glad to be here. Thank you.

Jimmy: Great to have both of you on the show today. First, let’s start by introducing the two of you. And Jim, we’ll introduce you first. You are the founder of the Sorenson Impact Foundation and funding partner at the University of Utah’s Sorenson Impact Center. Your late father, who was himself a renowned entrepreneur and billionaire philanthropist later in life, was a great mentor to you, and I’m sure had a lot to do with you setting up those organizations. Can you tell us a little bit more about yourself and your foundation and your impact investments?

Jim: Sure. Well, first of all, I really appreciate this opportunity, Jimmy, to join the show. As you mentioned, I had a successful father who was a great example as an entrepreneur, one that was very innovative and very successful in the community and motivation. I think less known is I had a mother that was very empathetic and always, you know, championing causes. And she had a great love for people and service. And so for me, as I grew up, this was a great combination. I wanted to be an entrepreneur, I wanted to succeed on the business stage and had the opportunity to do so. But I gravitated towards businesses and ultimately in my philanthropy and using the experience that I had as an entrepreneur to essentially either invest in or establish businesses that could generate a social impact alongside a financial return.

And this is something that’s happened before the term impact investing was actually coined. And I found myself in line with that and have been promoting impact investing and pretty much involved as an impact investor ever since having formed the Sorenson Impact Foundation, which is very much involved in helping to build the field, helping to fund new impactful businesses as well as intermediaries in helping to establish impact investing. And it was really through that experience that I became aware of this legislation, the Opportunity Zone Legislation, and saw that it had a great potential for motivating more traditionally oriented investors to become impact investors and align myself in trying to help the passage and become involved.

Jimmy: Yeah, that’s great. And I will talk a lot about impact investing on today’s episode, but first, let’s bring on our other guests today. Patrick, you are one of Catalyst’s other co-founders. And like Jim, you’re an entrepreneur yourself who has since become a venture capital investor. Can you tell us a little bit more about yourself though?

Patrick: Sure. And again, I’d like to echo Jim’s sentiments, how much we appreciate you bringing this valuable information to the Opportunity Zone market. I think we’re all getting educated on the pros and cons and opportunities here and with the pun. But the more we can get out and reach people who are interested in this market, the better. You know, I come to this from an entrepreneur perspective. I’ve started four companies, two based in Silicon Valley, successfully exited those two companies, and two companies I founded outside of Silicon Valley, one in Portland, Maine and one in Baltimore, Maryland.

And in doing that, I saw just the high-quality talent all across the country. I also saw the opportunity to bring more capital and more networks to more people around the country. And as I kind of moved on beyond being an entrepreneur solely, I started directing my investing towards these places and have been investing from Milwaukee to Baltimore, from Pittsburgh to Atlanta and have really seen the huge impact of a business perspective. If we can keep more young people and more talented people in places around the country, the more those communities will thrive. And so there’s a lot of ways to define impact. And I really see the entrepreneur backed by sophisticated capital as a huge way to achieve those goals.

Jimmy: Good. So let’s start talking a little more about impact. Now, Jim, I’ll turn to you. Catalyst, your Opportunity Zone fund, is impact-driven. Can you give our listeners an overview of Catalyst’s mission? And also I’d like you to discuss the Catalyst Impact Scorecard Measurement tool that you’ve developed as well.

Jim: Sure. Well, I think our mission really is to be a double bottom line investment firm focused on pretty transformative community development. And the scorecard I think is something that we devised at Catalyst to help us to be able to define what the needs were and in the communities what was lacking, what were the reasons may be behind the distress in communities, and then look for the type of investment or programming that would be able to address those needs and to have a very quantitative way of assessing that in our due diligence process.

So the scorecard basically has already three different steps to it. The first is an assessment that assesses what the needs are. We look at about 30 different databases in that regard to come up with this assessment. The second step really is looking at the investment, looking at the developer, looking at what’s planned, what synergies there might be that we might bring to the table to the developer, how they’re working with the local community, how other partnerships might come to play in the community. It could be philanthropy, it could be service providers, it could be, you know, nonprofit entities as well as the local community in addressing the needs. And then because of the framework we’ve set up with the data that we employ, we can track over time the outcomes of social impact as it relates to the community development that takes place in our investments.

Jimmy: Is this based on the OZ framework or any similar type of framework that’s been developed by a few of the other organizations out there?

Jim: Yeah, and I’m a member of the U.S. Impact Investing Alliance. So I’m pretty familiar with the framework that was established by the Alliance and Beck Center. And it’s similar in terms of the types of things that we look at. It may be a little more comprehensive but I think the important thing here is there’s a very methodical and intentional process that we undergo in Catalyst in assessing the investments that we make and the impact that’s generated and making sure that we have good partnerships with developers and the other stakeholders that are involved in the community to really be able to accomplish truly transformative community development.

Jimmy: Not just developing for the sake of developing or for the sake of generating a return, but also making sure that it fits the needs of the community.

Jim: That’s right. And it’s really part of our investment premise and that is if we can be good actors in a community and help it to become more sustainable and develop an ecosystem for economic growth and vibrancy over the long-term. And remember, these are long-term investments. They’re gonna be good investments, they’re going to retain their value, and they’re going to grow.

Jimmy: Good. Very good. Patrick, I’m gonna turn to you now. I’ve brought upon this podcast a number of times in the past, this concept of there being a geographic economic divide in this country. And it was one of the theses of EIG’s work when they first started developing the Opportunity Zones concept several years back. The vast majority of wealth and investment is concentrated in a select few locations, located primarily on the coast, you know, New York, Boston, Los Angeles, San Francisco, a lot of VC capital goes to these cities almost exclusively. What are your thoughts on this issue and how can the Opportunity Zone incentive help to address it?

Patrick: You’ve really put your finger on such an important aspect of the Opportunity Zone potential, the program potential. When I first heard about Opportunity Zone, this is the program, I was thinking in the context of venture capitalists where I was putting seed money to work in cities across the country. And the question was would there be more capital to grow and sustain these companies in the places I was investing in? And when I first heard about this program, I thought, wow, this is exactly the type of incentive we need is to move the capital from where it’s sitting in kind of unrealized gains in very successful communities on the coast, which let’s be honest, in San Francisco and in New York, Los Angeles, Seattle had done very well, but how do we create an incentive to move that capital to places that have high potential and have that talent? And I thought this program would be a perfect catalyst for bringing that capital.

Let’s be honest about the problem. You mentioned it. 80% of venture capital goes to three States, Massachusetts, New York, and the vast majority of it in California. That’s a problem. And it’s creating this huge institutional geographic divide between places that have high potential, like places that we’re looking to invest with Catalyst. You know, in Ohio and Utah and Kentucky and in Montana, we can use this as incentive to bring more capital to these places that have this talent and this potential. We think we can make a huge impact.

Let’s also hit another piece of data. Brookings recently released some very shocking data that showed that 90% of new tech jobs over the last 10 years have been created in just 5 cities. This is creating a, this is a huge problem for the future of the country. If all of the tech jobs are being created in only five cities, that means that people are moving out of, they go to the University of Michigan or they go to the University of Utah or they go to Carnegie Mellon University and the jobs are out on the coast. It reinforces this divide.

And what we think that we can do with Catalyst is one of our impact priorities is to find that superior return. Because remember, the program doesn’t work if you don’t have a return, but then add the measurable impact. Like how does it impact the community? How does it impact jobs? What are the things that are missing in these communities that then whether it’s, you know, the built infrastructure for growth, is it affordable housing for workforce, all of these aspects that can then lead to that seeding of the next level of investment. And so yes, the geographic divide is one of the biggest problems we’re facing as a country. The Opportunity Zone program is really well aligned to it, in that we believe that with our approach to the returns and the impact, we have a terrific formula for identifying the opportunities but then measuring ourselves to see them through to that impact.

Jimmy: And your investment opportunities, are you looking primarily at real estate investments at this point? Or are you looking at businesses or a combination of the two?

Patrick: So we’ve kind of seeded in a couple of different stages. The immediate stage would be on the real estate side. That’s what’s most ready. That’s what’s most understood by the investor group who’d be looking to invest. And those are the things that we’ve identified. Those would be both classic commercial space, modular workspace to support startups, but also tech workforce housing in places that don’t otherwise have the housing to support this workforce.

Phase two of this is where we, both Jim and I are really highly committed as entrepreneurs, would be to create an investment fund that would invest in the qualified Opportunity Zone businesses that would be in these, the same thesis. So we think that also would be a separate investor class potentially. And also a little bit a different thesis, but the same geographies.

Jimmy: Okay. I got you. So you’re kind of in stage one right now, which is laying the infrastructure, the real estate infrastructure. Stage two would be then to invest in QOZBs Qualified Opportunity Zone Businesses that are moving into your infrastructure that you’re developing. Is that right? Is that fair to say?

Patrick: Whether we develop it or other investors are developing it around these areas, yes. But we think that there’s definitely a huge opportunity for funding qualified businesses in these Opportunity Zones and we definitely see that as our kind of phase two of our fund.

Jim: I would also say that we’re really trying to look at an ecosystem that supports entrepreneurs and new businesses. And a lot of that goes to the programming that was in the real estate. So they’re very synergistic in that regard.

Jimmy: And Jim, how many investments has Catalyst made so far and can you describe the impact that those investments intend to have?

Jim: Sure. We’ve made four investments thus far. We’ve made an investment in a project here in Salt Lake that’s referred to as Industry. The industry is the developer and it’s an adaptive reuse of an old iron forge that dates back to the early 1900s that encompasses roughly about 340,000 square feet. And this will create a creative office campus for entrepreneurs and a community and event space. There’ll be shared amenities and I think really a lot of support for local businesses that will ultimately we hope locate here and we find are interested in this space. And then it’s coupled with other phases where there is residential workforce housing and potentially housing for low income as well.

Another part of another investment that’s also an Industry investment is in historical two buildings, the Pickle and Hide buildings here in Salt Lake City. And these will also provide affordable housing units for low to moderate-income residents, as well as creative office and retail space. We have invested in Bozeman in an affordable workforce housing there that meets the need for a very pent up demand for affordable housing in the 65% of AMI price range. So it is very much gonna have impact there. There are about 60 units there.

And then we’ve invested in SoLa, which is a developer and impact fund in the inner city areas of South and Central Los Angeles that’s focused on about a 98% Black and Latinx community thereof which almost a third are homeless. So it’s a very innovative investment that is really touching the very bottom of the economic pyramid in that distressed area.

Jimmy: It’s a foreign investment made so far. A lot of mixed-use, it sounds like, particularly in your Salt Lake City investments, but also a fair degree or a large component of affordable housing or low income.

Jim: So affordability is really important. I think clearly creating an ecosystem for economic growth and development in SoLa. There is also adaptive reuse of the old Goodyear plant that will be also creative office and a tech hub space right in the middle of this distressed community. And we’re working with developers that control significant amount of ground and have projects that are multifaceted that can address the various needs within the community rather than just one-off projects.

Jimmy: That’s great. It’s clear to me that your investment thesis goes hand in hand with the spirit of this incentive, which is as we mentioned at the top of the show impact investing in economically-downtrodden communities that have typically lacked the investment that they need. At the same time, there’s been a lot of negativity surrounding the Opportunity Zone Incentive in some of the mainstream media over the past several months. Patrick, I wanna turn to you now. How can Catalyst help to serve as a counter-example does some of this negativity and possibly become a model for other OZ funds to follow?

Patrick: I think it’s such an important question and topic. And we find it very unfortunate that a lot of the early press on projects have been negative. And to be expected, there will always be some examples of abuse or programs of projects that are outside of the spirit and theme of the program. But what we believe that we can do in this is to create literally the counter-example. I mean, the two fundamentals of Catalyst, and I think for the program, is superior returns because the whole incentive is brokered around this idea that you have a return on your investment. No return, no incentive. And the other is the impact. And we take it very seriously by holding ourselves accountable to measuring that impact over the course of time. Those are the two foundations of our fund that we put right in the first page of each one of our memorandums is what does the return profile look like and what does the impact look like?

And I think as we showing that example that those two can live together, some people may have questions and say, are you gonna do, if you do impact investing, you can’t have a great return and if you do, you get great returns, you can’t have the impact. I think that we can lead by example by showing that you can do both. That there are enough projects all around this country that are high-potential, have value, that is undercapitalized. They’re overlooked. And if we then using, you know, Jim and I and Jeremy and Krishna, the other two partners, experience on how to identify, how to underwrite, and how to gather resources around these, we can show a new model that says, yeah, there is impact and there is a return.

The last thing I wanna say about the way we really also think about this impact is it’s about the community. It’s not always about what we think is the impact, and this is the highest of our list is what did the people in Bozeman need? What do the people in Salt Lake need? What do the people in South Central need? What do the people in Columbus need? Their view of their need is at the top of the list of whether this is impactful or not because we have a view but it needs to match what those communities are saying they need so we can support them in their future. Because remember, these are long-term investments. We are in these investments for at least 10 years, probably more like 10 or 12 or 13 years. And our ability to operate within that longer-term need, gather allies, continuing to invest around it, is gonna be the most positive for our investment. So this is the question that we’re answering, can Catalyst be the example that others can follow?

Jimmy: Right. And I hope the answer is yes. You mentioned that you, you know, these are long-term investments, 10, 12, 13 years. Can you talk about your exit strategy a little bit? Because at the end of the day, in order for the investors to achieve that tax benefit of not paying capital gains, there needs to be a divestment or sale of the assets or equity interests in the fund. Did you have an exit strategy that you’d be willing to share?

Jim: I mean, certainly each one of the projects that we invest in has its own expectation of exit, you know, whether it’s a housing for, you know, in one of these projects or if it’s a commercial space. I mean, each one of these communities, each one of these projects has its own set of exit potentials, whether it’s, you know, after the qualified 10 or 12 years selling or refinancing or some other way. I mean, we pretty much have each one of these is kind of a separate example of how to exit. I will say that the rules have clarified how we can do this in more flexible ways, which has been a big help, which will allow us to invest in different projects, which will help us over the long term.

Jimmy: Yeah. That was welcome news that benefited multi-asset funds quite a bit, the new regulatory language that came out in December of last year. Definitely welcome news there. So we’ve talked about impact investing a little bit. I want to talk about capital raising just a little bit if we could. You already have a headstart on having an investor network of high net worth individuals and family offices focused on impact investing. So this may not be that tough of a sell for you to get, you know, your network of investors interested or excited about the Opportunity Zone Program. Is that fair to say? And what advice do you have for, if any, do you have for other Opportunity Zone fund sponsors who may not have the same type of network that you guys already have built-in?

Jim: We are differentiated, Jimmy, from many of the funds in that we do have a very intentional impact focus. And there is a big market we think and we’re finding for that amongst many of the, you know, family offices, the high net worth individuals. And I think even there’ll be institutional interest because clients want this type of investing in their portfolios. And we’re naturally aligned because our networks work well. My suggestion for others would be to really learn from what we’re doing and become more familiar with the impact investing community and start developing their approaches and intentionality and focus on true impact investing.

I think this program, this legislation is really a moonshot when I became aware of it for impact investing because it really provides a very natural incentive and on-ramp for investors that would not typically be interested in investing in distressed communities to start looking at the investments in the communities. And as they become aware, as they become aware of the good that can be done and the benefit to those living in these communities, they will develop a sense of empathy and interest that I think will get them looking beyond just the financial return to the social impact.

And we’ve seen that in our own prospecting of investors where an investor is initially looking at the tax arbitrage, but after really relating to the conditions in some of these communities, maybe that community that they came from and understanding what these investments can do, it becomes a whole different conversation and interest. And I’m convinced that we have traditional investors that have invested in our fund because of becoming aware of the impact and the good that can be done alongside the financial return. And truly that is, I hope the message that other funds pick up on. I’d like it to be a competitive advantage. But as a true impact investor, I wanna see this scale and others come on board and utilize this ready for impact investing and the potential it has for good in the distressed communities.

Patrick: Yeah. And if I could add just two layers on top of that, Jimmy, because Jim nailed that answer, is like, there’s just a general growth in the category of impact investing. So if you’re an asset manager or an RIA and you’re looking for, you know, impact product for your clients, a well-run Opportunity Zone fund is an impact product that you can bring to your investors. And it’s gonna shake out and find out who can deliver that impact. We believe that we’re a leader in that. And the other is for us specifically is the geographic diversification.

So a lot of coastal investors are looking for a way to diversify out of their geo, particularly in our real estate fund where they’re heavily invested in, you know, San Francisco or New York or LA. And if they can find a growth opportunity in one of these other markets, they can quickly see how they can get both the impact as well as the diversification. And so those are two big trends that when it comes to us, our thesis of raising money and others who are looking to raise funds for this should probably keep in mind.

Jimmy: No, that’s tremendous. So just kind of to summarize that last topic of discussion, there is an impact investment community or an impact investor community that OZ fund sponsors may wanna tap into. But at the same time, there’s also…that community is also growing because of this Opportunity Zone Incentive Program. The carrot that’s getting dangled in front of these investors obviously is the huge tax benefit. But I think that turns the investor onto impact investing in a way that nothing else really ever has.

And then Patrick, to summarize your main points, the benefit of an Opportunity Zone investment if you’re an RIA who has clients who need to place capital, there are two factors there. There’s the impact factor, the impact component, but there’s also the geographic diversification component, which is an interesting point. I agree with that. Jim, I want you to talk to me now if you could about your impact investing process. And how has the Opportunity Zone program challenged you to modify your approach to impact investing?

Jim: Well, I don’t know that it’s really modified my approach. I mean, when I invest for impact, the basic fundamentals for due diligence on the financial side are essentially the same. I’m looking at the management team, I’m looking at really the markets and the fundamental business plan and value proposition that’s brought to that investment. And then alongside that, I’m assessing what the social impact is, how committed the management team is to the social impact, and how related it is to the success of the financial investment because they need to be interrelated. And then ultimately make a decision to invest based on the outcome of those bottom lines, one financial and the other one social impact, according to the merits of the investment. And the approach that we’ve taken with the scorecard, and have really institutionalized in Catalyst in our due diligence process, basically does go through that very same process.

And so right from the get-go, we’re very interested in the development teams that we’re working with. Do they have successful track records? Have they delivered? Are the community-focused? Are they committed to the community? And do they have an appreciation for impact? And those are the type of developers or management teams that we want to focus on. And then we look at all of the other relevant, important factors that are needed for a successful financial investment alongside, you know, what the community’s needs are and how the impact is generated. And then ultimately how that impact makes that investment more sustainable.

I mean, if we have new businesses, if we have incomes that are rising within the community and then it just drives demand for housing, it drives demand for other services. I mean, it becomes an ecosystem of economic vibrancy that builds upon itself. And it’s a kind of a reverse of what’s happened in these communities that have seen financial investment that’s gone to other areas or that’s been left behind. So it really is trying to develop a synergy between the impact and the financial returns.

Jimmy: That’s great. Great. Jim, what are some of the biggest Opportunity Zone specific challenges that you faced so far?

Jim: Well, I think out the gate, the legislation was really ambiguous, incomplete, a lot of questions. And on top of that then needing to educate the investor and the investment community, I think that was certainly a challenge. I think there have been misperceptions and we’ve talked a little bit about the negative press. And I think there needs to be, I think, really good examples and view of successful projects that are generating what was intended in the legislation. And I think much of the press is focused on a fairly few sensationalized and politicized examples that have not really accurately portrayed what’s going on in communities and in many of these investments. And that’s I think helped to create some confusion and concern in the investment community.

I think that’s largely getting worked out. I think there will be more and more good examples. And I mean, that’s one of the reasons why I threw my hat into the ring in joining with Patrick and the others to form Catalyst was to really, you know, demonstrate that the true impactful investing that could incur to double bottom-line returns. I think that having said that, you know, I’m encouraged with the momentum that I’ve seen from the last quarter. I think clearly investments are up. I think with the last round of regs that have come out, they’ve helped to clarify and I think to streamline and make it more convenient for fund investing as Patrick mentioned. And I see a lot of good momentum going into the new year.

Jimmy: I agree with you. It seems like the momentum is definitely trending in a positive direction. Patrick, what are your thoughts on the momentum and Opportunity Zone trends for this year and beyond? And what do you expect to see from the program?

Patrick: I’ll put two thoughts on the table for this. So I think 2020 is going to be a very big breakthrough year for the program. I mean, we’ve just gotten clarity, the rules have just been finished. But a lot of really good actors, a lot of very high intention funds and project developers, have been putting things together over the last year. And we’re gonna start to see the fruits of that labor in 2020. Some great projects with high impact, with terrific investors creating these models, we believe we’re part of that trend. And that’s really gonna be 2020 where we’re gonna have very serious examples of what’s possible with this program.

Looking forward beyond 2020, it’s even more exciting because there’s a whole cohort of entrepreneurs and communities that are now thinking, they just got started thinking about what could they do, what types of projects could they get funded in their communities that kind of meet these criteria of return and impact, that they’re gonna start pitching these projects to investors like Catalyst. And so I’m really excited to see the pipeline develop over 2020 for new projects going into 2020, 2021 where we’re gonna even have a higher level of quality. And so I think the sustainability of this project is going to come together in 2020 and then this, the version two of these projects that are just starting to get imagined today will start to be revealed in the marketplace in 2021.

Jimmy: And do you anticipate any new laws from Congress or increased regulations from the government? And what do you think the impact will be on that front?

Patrick: I mean, I’ll speak for one that I think is really important that we support as a fund is more transparency and more impact scoring. I think it’s really important for players in this market who are getting this incentive to be transparent about what they’re doing and the impacts that they’re creating. We’re taking the lead on that regardless of regulations. So we’re setting up for that. But I think it would be good for the entire program if there was more measurement of what good was happening and got some conformity around what those measures of success would look like. I expect that we will see some movement there that’s pretty bipartisan. And but we’ll keep our eyes on it.

Jim: And I would just add I’m encouraged to see CRA reform that incorporates Opportunity Zone into the permitted uses for CRA money. I think that there is a great opportunity for collaboration with banks and blended capital stack that can be innovative in Opportunity Zone investments.

Jimmy: Yeah, I agree with you there. That’s the Community Reinvestment Act, a new regulation that you’re referring to, the FDIC and the Office of the Comptroller of the currency just released proposed regulations on that within the last few weeks I believe. Might be a while before those regulations get passed through, but that is encouraging as well. I agree with you, Jim, and certainly a lot of new legislative bills hit the floors of Congress the last few months of 2019 regarding the Opportunity Zone Incentive. Whether those get passed or not this year or in the future is I guess only time will tell, but we’ll see what happens on that front. Well, I think we’re just about out of time, gentlemen. Thank you both for joining me today. This has been great. Jim, before we go, can you tell us where our listeners can go to learn more about you and the Sorenson Impact Foundation and Catalyst Opportunity Funds?

Jim: You bet. SorensonImpactFoundation.org, certainly all about the Sorenson Impact Foundation. I also endowed the Sorenson Impact Center at the University of Utah. And so there’s a lot of combined work there and Opportunity Zone related data. You know, a lot of student interaction. SorensonImpactCenter.org would be another great place to learn more about the work that we’re doing.

Jimmy: And Catalyst Opportunity Funds has a website as well?

Patrick: CatalystOZ.com

Jimmy: Perfect. And for our listeners out there today, I’ll have show notes for today’s episode on the Opportunity Zones database website. You can find those show notes at opportunitydb.com/podcast and there you’ll find links to all of the resources that Jim, Patrick, and I discussed on today’s show. Jim and Patrick, again, I appreciate your time. Thanks for joining me today.

Jim: Thank you. Great to be with you.

“It’s all working”: Trump lauds Opportunity Zones during State of the Union

President Trump delivered his second State of the Union address Tuesday. House Speaker Nancy Pelosi, D-Calif., is over his left shoulder, as Vice President Pence stands and applauds.


Comments come weeks after the Treasury Department launched an inquiry into the controversial tax incentive program.

President Donald Trump hailed the troubled Opportunity Zones as an unqualified success during his State of the Union address on Tuesday.

“Jobs and investments are pouring into 9,000 previously neglected neighborhoods thanks to Opportunity zones,” Trump said during the joint session of Congress on Capitol Hill. “Wealthy people and companies are pouring money into poor neighborhoods or areas that haven’t seen investment in many decades.”

President Trump delivered his second State of the Union address Tuesday. House Speaker Nancy Pelosi, D-Calif., is over his left shoulder, as Vice President Pence stands and applauds. (Credit: Doug Mills/Pool | Getty Images)

He added: “This is the first time that these deserving communities have seen anything like this. It’s all working.”

The program, launched in 2017 as part of the Republican tax overhaul, was introduced with bipartisan support. It provides tax incentives to developers and businesses who deploy capital and build in 8,700 “zones” across the U.S. that are determined to be low-income. The program allows investors to defer or forgo paying capital gains taxes on developments in designated areas.

But Trump’s comments ignored the issues surrounding the tax incentive program, including allegations that it has provided a windfall for wealthy developers looking to build luxury real estate projects. An investigation was launched by the Treasury Department’s internal watchdog last month to determine whether some census tracts were selected improperly after allegations of intervention from politically-connected developers.

Some of the president’s close advisors have been scrutinized for benefitting from the program. Jared Kushner, the president’s son-in-law, and a senior advisor have financial stakes in multiple companies that are reaping the tax benefits offered by the program.

For most of its lifespan, the program – which was championed by the president’s daughter and Kushner’s wife Ivanka Trump as well as Tim Scott, a Republican senator from South Carolina – has been met with limited enthusiasm from institutional investors and banks. In October, accounting firm Novogradac found that 103 Opportunity Zone funds had raised just 15 percent of what fund managers expected.

But in late December, the Treasury Department finalized regulations for the program to provide a runway for investor capital. At least $2.3 billion was put into Opportunity Zone funds between early December and early January, according to a survey from Novogradac, a 51 percent increase over the prior month.

During his wide-ranging speech in Washington D.C. Tuesday evening, Trump claimed the “end of American decline” under his presidency, and spoke of a “great American comeback.” Each point was amplified by Republicans cheering and clapping, while Democrats mostly remained quiet and seated.

The bitterness between the two parties was illustrated by slights between Trump and Nancy Pelosi, the Democratic Speaker of the House, who was seated behind him. Trump refused to shake Pelosi’s hand as he handed her a transcript of the speech, which she ripped up at the end of the event.

To point out the Opportunity Zone program’s benefits for the downtrodden, Trump introduced Army veteran Tony Rankins of Cincinnati, Ohio who had got his life back on track after being hired by R Investments, a real estate development company that benefited from an Opportunity Zone tax break.

“He is now a top tradesman, drug-free, reunited with his family, and he is here tonight,” Trump said to a standing ovation. “Tony, keep up the great work.”

The obscure reason banks will finally embrace Opportunity Zones



Looming changes to 1970s-era law could open the lending floodgates.

Banks may soon have the incentive they need to sink huge amounts of money into Opportunity Zones, the controversial Trump administration tax abatement program that has seen tepid investment levels to date.

The federal government plans to give commercial banks credit for issuing loans in low-income communities as part of a larger reform to a 1970s-era law called the Community Reinvestment Act. This is the first direct regulatory incentive for banks to lend in Opportunity Zones and could be a game-changer for the program, according to some experts.

(Shutterstock | Image: 614911946)

“CRA is a big motivator for inter-activities at banks,” said Steve Glickman, one of the architects of the Opportunity Zone initiative, which gives massive tax deferments and tax breaks to those who invest in projects in designated low-income neighborhoods across the country. “They are going to have an institutional interest in all of this.”


Glickman, who founded and runs Opportunity Zone consultancy firm Develop LLC, said that the reformation of the CRA and the recent finalization of the program’s rules should spur banks to direct investor money into qualifying projects. Banks’ own asset management arms could begin to deploy more money into Opportunity Zones as well, he said.

For banks, lending in Opportunity Zones would allow them to fulfill elements of a government mandate that they lend in poor communities.

Although many bankers and developers believe the combination of expected CRA reforms and finalized Opportunity Zone regulations could lead to substantial investment in poor communities, finance watchdogs are wary about the types of projects that qualify.

What the CRA is and why it matters

The CRA was crafted in 1977 under President Jimmy Carter and was designed to incentivize banks to lend in low-income communities and prevent redlining, or the practice of not lending to minority communities.

A poor rating on the CRA can prevent a bank from opening new branches or completing a merger. It also invites heavier scrutiny from regulators if a bank has a bad rating.

But some bankers argue the law is out of date, especially in the age of digital banking and the lack of brick and mortar branches. Under a more banker-friendly Trump administration, two regulators, the Office of the Comptroller of the Currency and the FDIC, are now looking to revamp the rule and change how the CRA looks at geographic areas where the banks take in deposits. The regulators are also looking to combine Opportunity Zones into the CRA rules under a proposal released by the OCC and the FDIC.

This inclusion of Opportunity Zones in the revamp, however, has also drawn the most criticism from those who are skeptical of the proposed CRA changes.

One section of the proposed regulation mentions that banks can receive credit for lending to athletic facilities in Opportunity Zones. In other words, a bank could potentially receive credit on their CRA exam for financing the proposal to build the Tampa Bay Rays stadium in Ybor City, Florida, that was estimated to cost nearly $900 million.

“The Baltimore Ravens Stadium would qualify as a credit. We have got to look at the large scale projects that might not have localized community impact,” said Nikitra Bailey, the executive vice president of the Center for Responsible Lending.

Giving credit to sports stadiums in Opportunity Zone projects amplifies the argument of critics who claim that the program is effectively a tax break for wealthy developers masquerading as a benefit for the poor. Critics have pointed to Richard LeFrak’s $4 billion mixed-use projects Sole Mia in an Opportunity Zone in North Miami, as well as Kushner Companies, plans to build a 1,100 unit-luxury apartment building in Miami’s Edgewater neighborhood.

Opportunity Zones developers have largely focused on building projects in gentrifying areas and in projects that were already planned before the Opportunity Zone legislation was released. The Department of Housing and Urban Development under Sec. Ben Carson said the agency is giving preferences on certain credits for developers who build affordable housing in Opportunity Zones. But so far, large-scale investment in affordable development in these areas has yet to materialize.

Lending in the land of OZ

The Opportunity Zone program became the arguably most talked about the program in the real estate world over the last two years. Tucked away in President Trump’s tax plan, it offers developers and investors the ability to defer or forgo paying capital gains taxes for investment in one of the more than 8,700 federal Opportunity Zones across the country. Treasury Secretary Steven Mnuchin even said it could result in $100 billion in private investment.

Despite the hype, investor interest hasn’t quite materialized.

Many funds have had trouble raising capital. Of a sampling of 103 Opportunity Zone funds that sought to raise $22.7 billion, only $3 billion was raised, according to an October report by accounting firm Novogradac & Co. One notable pullback is Anthony Scaramucci’s SkyBridge Capital, which first sought to raise $3 billion, but is now seeking just $300 million.

But there are signs that the finalization of program rules has already contributed to an uptick in investment. At least $2.3 billion was put into Opportunity Zone Funds between early December through early January, according to a survey from Novogradac, a 51 percent increase over the prior month. (It should be noted that investors had to commit their capital by the end of 2019 to receive the full benefit of the program, which is likely a bigger reason for the increase in investment.)

Brett Forman of Trez Forman, a nonbank lender based out of Boynton Beach, said he is skeptical of some of the proposed projects in Opportunity Zones. So far, some of the borrowers that have approached him are less experienced in real estate development and are sometimes ones that wouldn’t be able to land bank financing.

“They think that a nonbank lender will jump on it,” said Forman.

Avra Jain, a Miami-based Opportunity Zone developer, however, has previously told The Real Deal that the program makes financing for certain projects more accessible, such as her group’s 15-story office building in Miami’s Midtown neighborhood.

Shane Neman, who purchased a cold-storage facility in an Opportunity Zone in Miami’s Allapattah neighborhood, said he is now considering refinancing the property. Neman said the property’s position in an Opportunity Zone makes it more attractive for getting financing from lenders.

“I even have private lenders and funds that are coming to me with loans that are beating the terms of regional banks, which usually give the best deals,” said Neman.

Some banks have already started investing in Opportunity Zones themselves, such as PNC Bank which has established an Opportunity Zone fund to invest in affordable housing, economic development, and revitalization projects. In July, the bank provided $15 million in funding to repurpose a vacant, nearly century-old office building into workforce housing in downtown Birmingham, Alabama.

There’s also Woodforest National Bank, of Woodlands, Texas, partnered with a Community Development Financial Institution (CDFI) and a commercial real estate group to create a $20 million Opportunity Zone fund.

John Hope Bryant, an entrepreneur and the founder of the economic empowerment nonprofit Operation HOPE has been pushing for CRA reform. He recently went on a five-city tour over the summer with Comptroller of the Currency Joseph Otting to discuss potential changes. Bryant said that adding Opportunity Zones to the CRA modernization can only help encourage lending in low-income communities.

“You are creating a magnet and pointing capital and equity there and saying, ‘Go and invest there.’”

Have something to say about Opportunity Zones? You can reach our information center at info@vissmedia.com Share on Facebook Share on Twitter Share on Linkedin Share via Email Share via Shortlink

How Technology Can Enable Opportunity Zone Deal-Making


Opportunity Zones are one of the hottest topics in commercial real estate right now.

This isn’t surprising considering the market is estimated to be as large as $6.1 Trillion with over 9,000 designated Opportunity Zones throughout the US and including territories, potentially one of the largest economic development initiatives in US history. In fact, the United States Department of Housing and Urban Development estimates that this program could stimulate as much as $100 billion in investments and has the potential to transform communities nationwide.

3D composite illustrations, representing financial data charts, stock market data, and financial technology.

So, with all of this excitement—and opportunity—why aren’t more people buying in? While the reasons to invest are clear, the specific rules and policies are still somewhat ambiguous. There is uncertainty around the potential outcomes of Opportunity Zones, particularly since they are a long-term strategy. In today’s on-demand, instant gratification culture, data, and insights are increasingly important, and being able to build trust with investors is more critical than ever before. The answer? Commercial real estate technology that enables you to provide investors with the accessibility and transparency to alleviate their concerns.

What is the Opportunity Zones Program?

Created by the 2017 Tax Cuts and Jobs Act, Opportunity Zones are an economic development tool. The intent of the program is, at its most basic, to drive community restoration, infrastructure development, and job creation in distressed areas by providing tax benefits to investors. These zones, which must meet specific criteria and be designated and certified as such, can range in size from a few blocks to an entire zone, and they can be urban or rural. Opportunity Funds are the vehicle for investing in eligible property located in an Opportunity Zone. With Opportunity Funds, investors can reinvest their gains from a prior investment and in return receive tax benefits including deferrals, exclusions, and deductions. The longer they use the funds, the more rewards they receive, and the strongest benefits go to those who stay invested at least 10 years.

Areas of Concern Around Opportunity Zones


The Opportunity Zone program offers willing investors tax advantages that are only available through this program, which are instead of tax credits or other traditional subsidies. While the benefits are certainly enticing (Deferrals! Exclusions! Deductions!), many investors are still somewhat hesitant to participate due to risks and uncertainty associated with the program. For example, investing in Opportunity Zones is a long-term strategy, the longer you wait, the more benefits you will accrue…but that also means limited liquidity. There is no cap on the amount that can be invested to benefit from these tax credits or the amount of gains deferred and forgiven. And there are no requirements for investors to ensure a specific outcome, such as job creation.

Even with the benefits as outlined above, investing in Opportunity Zones still carries some risks. These areas were designated as places in need of investment due to their historical underperformance economically, which trickles down into the value of the properties within them. Understanding which of these 9,000+ zones, and which properties in particular, have the most growth potential requires thorough due diligence on the property and other related factors like wealth growth or local economic development programs.

One of the biggest frustrations investors have with the Opportunity Zones program is the ambiguity surrounding the rules, policies, and guidance. There are still many questions around how exactly Opportunity Zones work, one of which has to do with the vague language around when the timeline for tax deferrals starts. Currently, the federal government says that they need to see “substantial improvements” to a property if there is a planned use change. This improvement must be larger than the original tax basis of the property. But, what if the proposed improvements get caught up in a drawn-out permitting process? This unforeseen event could result in a different schedule than promised and could make for some rather unhappy investors. Also remember that local governments did not designate these zones and so may not have the same desires and expectations as the federal legislators who did. Investors have to trust that their sponsor is accurately representing what kinds of benefits will actually come from an Opp Zone investment.

Addressing and Alleviating Concerns

Investors are eager and excited about Opportunity Zones, but many are waiting for guidance and solutions that can address their concerns. Recent regulations certainly provide some of that clarity, but sponsors can take it a step further by providing investors with transparency, accessibility, and insights. Investors want to feel confident that they are making an informed decision about choosing a sponsor and making an investment.

At its simplest, transparency just means giving investors easy access to information — not just in the investments that have been made but of the deal pipeline and the investment thesis in general. This practice allows sponsors to build credibility with their investors and enables an open exchange of information, which can ultimately facilitate a smoother transactional process. Today’s investors don’t only expect firms to be transparent, they demand it. In fact, two-thirds of investors cite transparency as being an important consideration when making an investment.

Along with transparency, investors expect insights into how their money is performing and where it’s going, as well as easy, on-demand access to their investment, project progress, and key documents. With the ambiguity around Opportunity Zones, it will be increasingly important to communicate frequently and effectively with your investors. That means more than a short quarterly or even monthly email. Even if there is no major news to report, investors will be happy to know that you are taking the time to engage them. No one has ever pulled out of an investment due to over-communication. The more engaged and connected investors and sponsors can be, the more benefit both parties will receive from the relationship.

As more information becomes available, the excitement generated by the Opportunity Zones program is expected to rise. Soon we will see more of these projects coming to fruition. While some challenges lay ahead with these new initiatives, there is no doubt that Opportunity Zones are an attractive investment option. However, it will be critical that investors have the accessibility and transparency that makes them feel confident about their investment. And by using reporting technologies, real estate professionals can better navigate the shifts in investor expectations. As investors become more aware of these enhanced communication techniques, this kind of tech will transition from “nice-to-have” to necessity.

Can the Mooch turn institutional investors on to Opportunity Zones?



Anthony Scaramucci’s SkyBridge Capital and EJF Capital are first major institutional investors to dive into the tax incentive program with a planned $3B fund.

UPDATE Dec. 13, 4:20 p.m.: Anthony Scaramucci was still joking around with his partners when the microphones went live during a Tuesday afternoon conference call meant to draw in investors for his hedge fund SkyBridge Capital’s plan to raise a $3 billion Opportunity Zone fund.

Indistinct male voices cajoled one another: “Come on!” said one man. “If you can’t take it nobody can take it,” said another, as classical hold music played on. Then Scaramucci got down to business.

BEVERLY HILLS, CALIFORNIA – OCTOBER 22: (L-R) Anthony Scaramucci, Founder of SkyBridge Capital and Vanity Fair correspondent Gabriel Sherman speak onstage during ‘The Impeachment Will Be Televised’ at Vanity Fair’s 6th Annual New Establishment Summit at Wallis Annenberg Center for the Performing Arts on October 22, 2019, in Beverly Hills, California. (Credit: Matt Winkelmeyer | Getty Images for Vanity Fair)

SkyBridge Captial and EJF Capital started raising funds on Dec. 1 through a private entity known as SkyBridge-EJF Opportunity Zone Real Estate Investment Trust. The fund, SOZ REIT, has been soliciting capital from “a small batch” of clients and friends, Scaramucci said. Now, it’s “open to everybody” who wants in, he added.

SOZ REIT is the highest-profile entity to tap into the Opportunity Zone program using the structure of a REIT. The Opportunity Zones program, created as part of last year’s tax overhaul plan, offers tax deferrals and benefits to investors who park their money in assets located within designated low-income neighborhoods. There are more than 8,700 designated zones nationwide. Despite the interest, the program has already stirred among developers and investors, final regulations have yet to be released.

On Tuesday’s conference call — which came a day before President Trump was scheduled to discuss Opportunity Zones at the White House — Scaramucci and the REIT’s sub-adviser, EJF Capital’s Manny Friedman, explained their decision to structure the fund as a REIT.

“I suspect our competitors … once they understand our structure … [will] start copying it,” Scaramucci said. He added they opted for the REIT structure in order to make investments across states and sectors with a variety of developers.

And it’s a feat that New York-based tax attorney Roger Lorence said is not easy.

That’s mostly because “REIT rules are not forgiving,” he said. Under the U.S. Securities and Exchange Commission’s rules, SOZ REIT must be a “passive vehicle,” with at least 100 accredited investors but no more than 500. Any more than that and it would have to be a public company.

“I understand that combining the two sets of rules is a grand slam,” said Lorence. The tax incentives baked into the Opportunity Zones program, married with investor’s love for private REITs, should be a winning pair. But, he noted, because many questions are still outstanding about Opportunity Zone rules, combining the two from a legal standpoint is no “cake walk.”

“It will be interesting, no, it will be fascinating to see whether it can be pulled off,” he said.

Steve Glickman, who’s credited with creating the Opportunity Zones program and now runs a consultancy firm for investors, disagreed.

Pairing REITs and Opportunity Zones “should be totally doable,” he said. “There are a lot of synergies.”

However, because the entity is structured as a REIT, no more than five investors can own 50 percent of the company. Glickman said not many Opportunity Zone funds “have access to that class of investors.”

The hedge fund’s attempt to raise a $3 billion Opportunity Zone REIT comes as other funds have set a $500 million Opportunity Zones raise. Those funds have been among the largest initiated to date, and capital is being raised by real estate players “used to getting friends and family money,” Glickman said. “Reaching out to several thousand investors on a call like this is much different.”

It’s also different when Scaramucci is at the helm. The call on Tuesday afternoon was sprinkled with a taste of the exchanges that he became famous for during his brief stint as the White House Communications Director.

“Who the hell is EJF and their expertise as it relates to real estate?” Scaramucci demanded of Friedman, in an apparent bid to reassure investors of the sub-advisers credentials.

A few beats later he referred to Friedman as “one of the exemplary investors of his generation” and then joked: “how about thank you, Anthony, for saying all those nice things?” (Earlier in the call, Scaramucci had been gearing up to superlatively introduce Friedman before catching himself — “I’m going to rephrase this because it sounds a little bit Trumpian.”)

Friedman did not audibly acknowledge Scaramucci’s comments. Instead, the veteran investor focused on the business itself: “We have first-mover advantage,” he said.

To Lorence, the tax attorney, the REIT structure is an outlier compared to the limited partnerships that are currently favored by other Opportunity Zone funds.

For Glickman, SkyBridge and EJF are tapping into techniques and approaches reserved for institutional investors, which have yet to jump into the Opportunity Zone action.

Lavy Rosenthal, vice president of the Carlton Group, said he was working on two Opportunity Zone transactions and he’d “never heard of” fundraising by “pitching blind” via a conference call.

“By all means, if that works for someone, I can’t knock the hustle,” he said. “But [for us] it’s all relationship-based, [on] the rapport, your past transactions.”

Another source also involved in raising OZ funds said SkyBridge and EJF’s call sounded like “an odd mix of fundraising and PR.”

Their methods may be up for debate but, as Glickman said, “right now they’re the only game in town.”

EDITOR’S NOTE: The Carlton Group is working on two Opportunity Zone transactions, not raised two funds, as previously stated.

DealPlacement crowdfunding platform launches $5B Opportunity Zone fund



DealPlacement says it will focus on “up-and-coming metro areas.”

A crowdfunding platform is piling into Opportunity Zones.

DealPlacement.com is launching a $5 billion fund that will target new developments and redevelopments in small and mid-market designated Opportunity Zones, the Texas-based firm said Monday.

The firm has yet to specify which cities across the U.S. it is looking to place investor capital. However, the targets do appear to be major gateway markets.

Jean-Benoit Vieyra introduces DealPlacement.com – the first crowdfunding platform for the emerging OpportunityZone market.

“These markets are up-and-coming metro areas with population and job growth rates that, in many cases, are outpacing larger 24-hour cities such as New York and San Francisco,” said DealPlacement’s Founder, Jean-Benoit Vieyra.

The fund will be managed through Viss Advisory Trust, the company’s registered trust advisory service that administers real estate endowments for its clients.

A number of Opportunity Zone-related funds have launched over the last year and a half, seeking to capitalize on the program that provides long-term investors significant tax benefits for pouring capital into designated regions, most of which are distressed.

Vair Capital Holdings and Viss Ventures are among the firms that also launched massive Opportunity Zone funds for projects across the country.

DealPlacement said it also has raised equity on its marketplace for six projects located in Opportunity Zones. Since its launch in October 2019, the firm said it has originated over $11.6 billion in qualified Opportunity Zone real estate, energy, infrastructure, and community development projects across the country.