Opportunity Zone Still Open: No bites on the OZ that straddles portions of TC, Garfield Township
When opportunity knocks, sometimes it takes a while for someone to answer. While more than 53 projects have been announced in the Opportunity Zones across Michigan, there hasn’t been any action on the one which straddles portions of Traverse City and Garfield Township.
“It didn’t blow up. I expected more interest when it was first announced,” said Warren Call, CEO of the economic development agency Traverse Connect, parent of the Traverse City Area Chamber of Commerce.
In fact, interest has plummeted.
“A year ago I got a phone call every day, but I haven’t gotten much in the last six months,” he said.
Opportunity Zones (OZ) were created across the country as part of the federal Tax Cut and Jobs Act of 2017. Governors were required to designate a certain number of Opportunity Zones within three months following passage of the federal legislation. Michigan has 288 designated Opportunity Zones which are among the nearly 9,000 in the United States.
OZs are aimed at jump-starting development in low-income or blighted areas. A taxpayer invests capital gains into qualified OZ funds, which then are invested in businesses within the zone. There is no pre-approval process, no community benefit requirement and no requirement to provide governance rights to community representatives.
While the original intent was to focus on urban areas, Michigan opted for a more equitable approach. Given the parameters, the lion’s share were still centered on urban enclaves.
About three quarters of OZs in this state are in urban areas.
“It’s rooted in census data and has to have a minimum population in it,” said Matt McCauley, CEO of the regional planning, economic and workforce development agency Networks Northwest, which helped to set up the zones.
McCauley agreed with Call regarding the slow pace. He said it is taking some time for word to get out and for investors to understand how to utilize them.
“Even though it has been a couple years, we are just starting to understand how they can be used most effectively,” said McCauley, whose organization is looking to create a marketing and business plan for the eight Opportunity Zones that exist with the organization’s 10 counties..
“You’ve got to have a specific need and business plan and do it there,” he said. “There hasn’t been this mad rush.”
Dan Stiebel, a commercial Realtor with Coldwell Banker Schmidt, was part of a group of panelists at an Opportunity Zone seminar last year in Traverse City.
He champions the advantages of investing in OZ real estate and for starting a business in the OZ, too.
But he’s also cognizant of the challenges involved. For example, Stiebel is representing a strip mall on South Airport that includes Thai Kitchen and Big Apple Bagels. While it’s in the Opportunity Zone, he isn’t sure such status will benefit a buyer.
“You have to improve it by as much as the (current) value,” he explained.
That is why it pays to acquire property that needs work, he said.
“You have to put in renovations, like a fixer-upper or an addition, or it is vacant land,” said Stiebel. “That could happen here, but it takes a long time to get such a project.”
Casey Cowell, one of the principals at the merchant bank Cochran, Cowell & Gruman, said they are geared toward attracting outside investors who will receive tax advantages. However, the investor’s tax advantage is downstream, which can also make finding the right investors more difficult.
Stiebel said another challenge is the fact the zones don’t allow investors to borrow money as easily as for projects outside the zones.
“They’re not without difficulty. To really spur development on vacant land I think you’d have to allow borrowers,” he said.
Though the Traverse-area Opportunity Zone is a contiguous parcel, McCauley noted that the fact it is in both the city and Garfield Township make promoting it even more difficult.
“They are different markets, with different zoning,” he said.
McCauley said it’s challenging to both attract attention and explain how the process works.
“How do we promote the opportunity to those who may be looking to invest? It’s complex,” he said. “That’s part of why it’s taking longer.”