Opportunity zones could provide new incentives for Colorado investors, revitalization for communities

LOVELAND — While regulators are still trying to determine just how opportunity zones will function, proponents are making the case that the new tax incentive program could benefit both Colorado real estate investors as well as the local communities where the investments are made.

“All of this is about redeveloping and injecting capital into communities that need it,” Colorado Office of Economic Development and International Trade strategic initiatives manager Jana Persky said this week during a panel on opportunity zones at BizWest’s Northern Colorado Real Estate Summit.

The program, established as part of the 2017 tax reform and overseen in Colorado by OEDIT, seeks to serve the “dual goals of providing a tax incentive and making sure the capital is going into things that really benefit the community,” she said.

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There are more than 8,700 opportunity zones in the country and 126 in Colorado.

At its most basic, the opportunity zone program allows investors to defer or reduce certain federal capital gains taxes if they make long-term equity investments in business ventures or real estate development within census tracts determined to include economically distressed communities. In order to take advantage of opportunity zones, investors must first establish an opportunity fund, which is the vehicle used for funding the development projects within the zones.

In Northern Colorado and Boulder Valley there are designated opportunity zones in Fort Collins, Loveland, Greeley, Estes Park, Dacono, Longmont, Broomfield and Boulder.

“Wealth creation has been really centralized” around large, coastal metropolitan areas in the years since the great recession, Persky said. Opportunity zones, also known as o-zones, are meant to extend that wealth creation to areas that might ordinarily not otherwise receive it.

While these zones have been designated, regulators are still working out the kinks regarding how the program should actually work.

“This has been a little slow to get going, a little slow to emerge,” said Paul Mueller, managing partner of the accounting firm Mueller Pye & Associates.

The U.S. Internal Revenue Service held a hearing in February to solicit input on the program from tax experts.

“We are hoping that the hearing serves as a springboard for some definitive guidance for how these zones are going to be administered,” Mueller said.

One of the big questions swirling around relates to whether opportunity fund investors will be able to roll investments from one fund to another.

“Is there the opportunity to jump out of one fund and into another without creating a tax in the interim? We don’t know,” Mueller said.

Estes Park Economic Development Corp. president Jon Nicholas echoed Mueller’s point about the uncertainty surrounding aspects of the program, saying, “With the regulations not even defined yet, these projects are hesitant to move forward at this point.”

Even with some questions about opportunity zones still unanswered, the economic development community is bullish on the potential of the program.

“We are seeing areas now getting attention that may have been zoomed over in the past by investors,” Persky said. “We are really excited to draw this capital to Colorado and to the communities it will benefit.”

However, not everyone is as enthusiastic about opportunity zones.

Last month Boulder City Council voted to impose a moratorium on certain development within the city’s opportunity zone.

“The moratorium is intended to provide time for the city to help prepare for the potential of additional investment in the opportunity zone by completing a review of planning and zoning regulations to ensure that investment in the area will be consistent with community values, including those outlined in the Boulder Valley Comprehensive Plan,” according to the city’s website. “City Council intends to lift requirements of the ordinance as the analysis of each zoning district and planning area is completed.”

Concerns from Boulder leaders stemmed mostly from the perception that investors interested in opportunity zone projects would be more apt to develop office and commercial spaces, rather than much-needed housing or the redevelopment of aging shopping center Diagonal Plaza.

Persky said there are likely more effective ways to address these concerns than the implementation of a moratorium.

“I personally think the moratorium was a bit of a blunt instrument in terms of trying to address the particular challenges that Boulder faces,” she said. “But the reality is that from the state’s perspective we support communities using these zones in different ways.”