4C — February 8 - 21, 2019 — Pennsylvania — M id A tlantic
Real Estate Journal
www.marejournal.com
Central PA
By Silas Chamberlin, PhD, at York County Economic Alliance How Opportunity Zones could impact Central PA real estate
O
pportunity Zones are being referred to as “real estate’s most
basis is lowered, taxes are then paid in 2026 (at the same nominal value as in 2018), and after 2028 the Opportunity Zone holding can be sold with no capital gains tax due. Better yet, there are very few restrictions on the proper- ties in which one can invest. It’s estimated that there are $2.3 trillion worth of unreal- ized capital gains in the U.S. Even if only 15 percent of this is invested in Opportunity Zones, this will exceed the 2017 corporate income tax revenue and almost match the Medicaid spend of that
same year. The potential benefits don’t stop there. Opportunity Zones can also provide a tax deferral on gain that investors invest in a fund, and the elimination of gain in the new Opportunity Zone investment if it is held for more than 10 years. This should paint a clearer picture as to why Opportunity Zones have real estate inves- tors abuzz. To answer the most essential questions related to Opportunity Zones, and specifically how they stand to impact Central Pennsylvania real estate, Omni Realty has
the tracts which encompass most of the city’s brownfield sites. Tracts in Hanover and Wrightsville were eligible for designation, but were not se- lected by the state. Omni: Specifically, how will this program benefit the Greater York Area and how soon do you expect to see an initial impact? SC: Opportunity Zones will attract additional investment to qualified projects in our five opportunity zones. The tax break should help draw investors’ attention to projects that have not benefited from private investment in the past. YCEA is a working partner to help identify viable projects within the zones to market to Qualified Opportunity Fund investors. We are also vet- ting the creation of local and regional funds focused on the city’s zones. In theory, we could see funds begin investing in qualified projects at any time. Oppor- tunity Zones are intentionally driven by the free market and individual investment deci- sions, so it is difficult to tell how much investment will end up in York. Observers at the national level have noted that there may be more pri- vate capital available than viable projects, so York should certainly position itself to take full advantage. Omni: Are the tax breaks provided through this program enough to incentivize private investors and spur activity? SC: The short answer is yes. But it would be inaccurate to view Opportunity Zones as a panacea that will turn vacant buildings into viable invest- ment opportunities overnight. The most competitive projects will be those that are already viable without Opportunity Zone funds, but would benefit from additional investment. Unlike New Markets Tax Credits or other popular pro- grams, Opportunity Fund investments are unlikely to subsidize a project because the project must be able to grow in value and return an in- vestment to the fund. YCEA’s strategy is to identify viable projects within Opportunity Zones and then use the des- ignation to attract investors’ attention. We see this as yet another tool in our economic development financing tool- box. continued on page 12C
asked Silas Chamberlin to share his expertise and insight on this topic. Mike Kushner of Omni Re- alty and Silas Chamberlin jump right to the meat of things starting with the local impact of Opportunity Zones, using the Greater York Area as a sampling. Omni: How many census tracts in York County were approved for the Opportunity Zone program? And where? Silas Chamberlin: York County has five designated tracts. All tracts are located in the City of York and are
exciting new investment vehicle,” but w h a t a r e t h e y a n d can they re- ally live up to this title? How this type of in-
Silas Chamberlin
vestment works and why it stands to be so beneficial is essentially this: capital gains are invested in Opportunity Zones, taxes are deferred, the
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