Nashville’s public, private and nonprofit sectors converged recently to explore how the new Opportunity Zones incentive program could impact affordable housing in Nashville.
Tony Grappone of Novogradac and Bass, Berry & Sims tax attorney Robert Guth kicked things off by presenting an overview of how the program works, while Sarah Bianchi of The Governance Project provided a national perspective for how other cities are utilizing the program to further affordable housing initiatives. Bass, Berry & Sims public finance attorney Jordana Nelson facilitated a panel discussion bringing together a variety of perspectives — Audra Ladd of Metro Nashville’s Mayor’s Office was joined by Carr Hagan of LHP Development, Hank Helton of Pathway Lending and Rick Neal of Pinnacle Financial Partners to share current viewpoints, as well as hear from each other and those in the audience.
While no one claimed to have the answers (too early for that), this forum helped lay the groundwork and create momentum for a conversation that is clearly just beginning. Outlined below are a few key takeaways from the discussion.
Opportunity Zones CAN Be Used to Support Affordable Housing
Opportunity Zones allow for the reinvestment of prior capital gains into low-income communities through investments with incentives of deferred and reduced taxation on invested gains. Affordable housing initiatives and developers should look at Opportunity Zones as a tool, as there are many different ways to combine traditional affordable housing funding sources and Opportunity Zones.
Anchor institutions – including universities, hospitals, nonprofit organizations, local government and churches – could be key partners with real estate developers to create affordable housing in Opportunity Zones by offering complimentary incentives or resources, such as grants, support services, or land.
Communities seeking to attract and/or support affordable housing development can offer incentives or resources to affordable housing developers to encourage the development of affordable housing in Opportunity Zones.
Challenge for Affordable Housing: Competition for Opportunity Zones
The greatest challenge is competition. Opportunity Zone incentives can be used for more than just affordable housing. If you’re trying to attract Opportunity Zone investment for an affordable housing project, you may need to compete with traditionally more profitable investments such as market-rate housing, commercial real estate, or other businesses. Another challenge is that the typical Opportunity Zones and affordable housing investment models are not always a natural fit.
While these and other challenges can be significant, the Opportunity Zones program is flexible enough to allow for creative solutions. Notably, Opportunity Zones are not associated with income restrictions, which are associated with more traditional sources of funding for affordable housing. For example, Opportunity Zone funds could be a source of funding to develop mixed-income housing, combining affordable housing with workforce housing and/or market-rate units to create a project that is attractive to both Opportunity Zone investors and traditional affordable housing developers and lenders.
Further Regulations on Opportunity Zones Are Coming from the IRS
Be on the lookout for further guidance from the U.S Treasury Department and IRS. Although there is no official release date as of this writing, many experts believe additional guidance may be released as soon as this month. In the meantime, please contact Robert Guth with questions on how to make Opportunity Zones work best for your affordable housing initiatives.
About Bass, Berry & Sims’ Opportunity Zones Experience
Our cross-disciplinary team of real estate, tax and corporate attorneys are positioned to help investors, developers and fund managers determine the right approach to take tactical advantage of this program, optimize tax benefits, and comply with legal requirements. From structuring long-term real estate and business investments, to fund formation, to pairing this new tax benefit with other economic development incentives, our team is able to help clients realize the full benefits of the Opportunity Zones program.