In a recent Opportunity Zones webinar moderated by JTC Americas Chief Revenue Officer Reid Thomas, industry expert and panelist Rachel Reilly discussed the trends she is currently seeing in the maturation of the OZ marketplace, including the momentum heading into 2021.
Rachel, who is the Founder of Aces & Archers, is no stranger to the community development sector. As the former Director of Impact Strategy at EIG, Rachel was already aware of Opportunity Zones before they were officially enacted in 2017 as part of Tax Cuts and Jobs Act. She spoke more with us after the webinar to discuss in more detail why Opportunity Zones need innovation, collaboration, and partnerships on a local, community level below.
If you want to learn more and watch our OZ webinar, please click here to view.
Rachel Reilly: Opportunity Zones (OZ) stakeholders were able to maintain momentum through 2020 as they faced an ever-changing environment marked by economic uncertainty and the potential for future changes to the policy. As the OZ marketplace matures, investors, fund managers, and local leaders are establishing norms grounded in innovation, collaboration, and partnership. From a new online community of practice to a billion dollar initiative focused on integrating and measuring social impact, efforts to democratize information sharing and broaden engagement are serving to anchor investment activity around community-need, strengthen transactions, and accelerate the adoption of high-impact OZ strategies.
Increasingly, Opportunity Fund managers are working in partnership with local government, universities, nonprofit organizations, and business accelerators to responsibly deploy capital. These stakeholder groups add value through their expertise, local influence, and real estate assets; all of which have helped fund managers identify deals and mitigate risk exposure for investors.
In Columbus, OH the Opportunity Zone Development Group has partnered with local non-profit NISER to create supportive housing for those returning to their neighborhood following incarceration. In Chicago, Fifth Third Bank and NEF partnered with Volunteers of America to build supportive housing for homeless veterans, and a similar project in Aurora, CO is being financed by Bank of the West in partnership with the Colorado Coalition for the Homeless. Nonprofits can often access favorable financing to close gaps in a capital stack, and working in partnership with these organizations will ensure that OZ investments are serving high-need residents.
The same can be said for partnering with local governments. In Ohio, Cuyahoga County is bolstering Arctaris Impact Investors’ commitment to local OZs by seeding a multi-million dollar investment program. The city of Washington, D.C. partnered with an Opportunity Fund managed by a Community Development Financial Institution (CDFI), providing multiple sources of financing and executing a ground lease to support a development sponsored by two minority-led businesses. And RevOZ Capital has partnered with San Bernardino County on a build-to-suit medical office building for the Children’s Department of Behavioral Health. The property has been pre-leased by the county for 15 years and the OZ investment will allow the county to defer capital expenditures associated with building new operational space. Fund managers deploying capital through public-private partnerships can minimize risk by creatively structuring funds or transactions, all the while knowing that their local partners are equally vested in the success of their OZ investment.
Fund managers are also partnering with business accelerators and incubators in order to solve for risk while still achieving their desired impact. Startups and small businesses are strengthened by the peer exchange, coaching, and resource sharing often available within these ecosystems, and fund managers can partner with accelerators and incubators to build a long-term pipeline of investable businesses. Memphis-based accelerator Start Co. is a lead partner on a downtown revitalization initiative to expand access to high-speed broadband and provide capital and operating space to underrepresented entrepreneurs, among other local priorities. The CORI Innovation Fund is investing in high-growth businesses operating from innovation campuses within CORI’s Rural Innovation Network. The Pearl Fund partnered with the Center for Innovation Technology on a $3 million seed round for Micronic Technologies, a woman-led, clean tech small business which had early support from the University of Virginia at Wise.
The OZ ecosystem itself is a product of innovation guided by the entrepreneurial spirit. Organizations are addressing industry critiques in real-time by tapping into and building online platforms for crowdsourcing investment and expertise. For example, Mosaic Development Group has capitalized two OZ projects, in part, with small-dollar equity investments crowdfunded by OZ residents and businesses. And, in an effort to accelerate and expand the marketplace, OZ Pros has launched an online community that facilitates peer exchange and collective learning. These efforts unlock the type of wealth creation and entrepreneurial opportunities originally envisioned by policymakers.
In 2021, we will continue to see OZ leaders, including those mentioned here, push the boundaries of conventional investment strategies and market formation as we collectively iterate and adjust to an evolving landscape. As investors, fund managers, and community leaders pilot successful partnership models, I hope the value proposition of collaboration will become undeniable and investing to achieve measurable double-bottom returns will become the market norm.
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