Barry County Explores The Land Of OZ

2019-03-14 | The Hastings Banner

"This is a very real opportunity. It's my directive to work with the Barry Community Foundation and the City of Hastings to figure out how best to utilize this opportunity in Barry County to see some very nice developments happening in the community," Travis Alden, president of the Barry County Chamber of Commerce and Economic Development, said.

Several Barry County business owners, local government officials, representatives from non-profit organizations and private developers were present at an Opportunity Zone informational session Tuesday. The presentation was given by Tim Mroz, vice president of strategic planning for The Right Place located in Grand Rapids.

The Right Place is a private, non-profit economic development organization working for the economic growth of West Michigan for more than 30 years. It aids businesses by helping with start-up or development projects including the search for site location, connections to services and product supply chains needed, business tours and consultation on state and local business incentives. There is no fee for their services.

Opportunity Zones are areas designated as being eligible locations for investors to receive federal incentives for funding development projects. In Michigan, every county but one that was not named has an Opportunity Zone.

The qualifying tract of land in Barry County is in the City of Hastings and Hastings Township. The parcel is outlined by North Broadway Street to approximately Campground Road, runs along Sager Road to the east boundary, approximately one-mile past Charlton Park Road. The east boundary runs south past M-79 Highway to Coats Grove Road, and then back to North Broadway Street.

The zones are low-income census tracts as determined with the New Markets Tax Credits legislation. The tracts are designated by the governor of the state or territory in which it is located. The designations stay in place for 10 years, beginning in 2018. Governors had 90 days from its enactment in January to submit nominations in writing to the United States treasury secretary.

Governors were given broad discretion when choosing their designations, but were advised by Congress to select a tract within, or adjacent to, a low-income community. In an adjacent tract to a low-income community, the median family income cannot exceed 125 percent of the median income within the community.

In Michigan, the Michigan State Housing Development Authority operates the Opportunity Zone program; 1,152 census tracts were eligible. However, only 25 percent could be chosen for certification, which meant 288 tracts qualifying, per program rules.

"This is a financial investment tool – a private business deal between two parties where one invests in the other's development project with the expectation of a return," Mroz said. "This program is strictly for investors, and not one awarded to companies or communities."

The Opportunity Zone program offers investors three incentives for putting their money to work rebuilding economically distressed communities:

A temporary deferral where an investor can defer capital gains taxes until 2026 by putting and keeping unrealized gains in an Opportunity Fund.

A reduction where the original amount of capital gains that an investor has to pay deferred taxes is reduced by 10 percent if the Opportunity Fund investment is held for five years and another five percent if held for seven years.

An exemption where any capital gains on investments made through the Opportunity Fund accrue tax-free as long as the investor holds them for at least 10 years.

According to Mroz, the entire program is about capital gain.

"You cannot take private dollars you already have in a bank account and use it to invest. It is only about money that qualifies as capital gain," Mroz said.

An example he gave was the sale of stock purchased at $10 per share which is then sold at $100 per share. The profit is capital gain. Capital gain must have been earned before 2018 to qualify. From the day the capital gain is received, there is a six-month window to choose a project and invest the gain, meaning, the money must be placed in an Opportunity Fund and actively working.

Opportunity Funds are investment vehicles organized as corporations or partnerships for the purpose of investing in a qualified Opportunity Zone property and geared toward new development and business projects. Funds must hold at least 90 percent of their assets in the chosen property and will be audited twice yearly.

If a private owner or public developer already owns a building, obtaining funding through the program becomes more difficult.

"If it's a brand new purchase, you don't own it yet, and you're looking to purchase something, you're in the best spot you can be," Mroz said. "If you've owned the building for 10 years, to possibly be eligible for funding, the project must be substantial improvement. If you go one or two steps beyond completely gutting the building, you need to seek legal counsel because some things qualify, and some don't."

Opportunity Funds are not dispersed as grants. They are considered an investment loan. Fund accounts can be created by anyone. Working with an attorney, qualifying capital gain can be placed in an Opportunity Fund and documented with the Internal Revenue Service. Fund owners may choose to invest on their own or invest in a larger fund.

Developments qualifying for investment loans fall within a wide range of potential projects, such as high-growth startups, main street businesses, real estate, manufacturing facilities, brownfield redevelopment, entrepreneurship incubators and accelerators, rental housing and affordable housing.

Details about Opportunity Zones, rules and regulations are available at the MSHDA website at https://www.michigan.gov/mshda.