Understanding Opportunity Zones

Opportunity Zones were created by the Tax Cuts and Jobs Act of 2017 to provide tax incentives for investments in underdeveloped and lower income areas. The program allows investors to defer and reduce capital gains taxes that otherwise would be owed by reinvesting proceeds into businesses and real estate projects located in an Opportunity Zone. Because universities, especially those that are public, very rarely generate capital gains or associated tax obligations, it would be easy for university leaders to dismiss the opportunity zone incentive as something of questionable relevance. That would be a big strategic mistake.

Opportunity Zone investors are equity investors – they fit into the portion of the capital stack that requires a “return profile” to justify their investment. Opportunity Zone investors are unique in that, in addition to any return profile they get out of the project, they also get a series of powerful tax incentives that can make a project far more attractive. As a result, a project located in an Opportunity Zone might have an easier time attracting private investors (from P3 developers to interested alumni) than an identical project outside an Opportunity Zone. 

Here are the basic benefits that accrue to an Opportunity Zone investor:

01

Tax Deferral

On gains you roll into an Opportunity Fund (until 2026 at the latest).

02

Tax Reduction

Up to 15% on gains rolled into your Opportunity Fund.

03

No Tax on Appreciation

If you “cash out” of your Opportunity Fund after 10+ years.

Opportunity Zones are a highly place-based program. The legislation required governors across the US to nominate up to 25% of certain designated low-income Census tracts as “Opportunity Zones” back in early 2018. That map was finalized by the Treasury Department in summer 2018, and the designated Opportunity Zones will remain in place for the next decade. Check out this map of universities and OZs to find the closest one near you.

There are two main types of projects that fall into the parameter of eligible investment: real estate and active businesses. As a result, Opportunity Zones could equally be used to create a fund to invest in on-campus P3 opportunities, off-campus real estate developments, or even an alumni-backed startup fund to invest in commercialized technology coming out of university research programs. See more in our Opportunity Sponsor section.

While OZs are not a grant program or a tax credit program, the incentive can be used alongside grants and tax credits in your deals. Using other programs, such as New Markets Tax Credits,in combination with OZ incentives can make deals more attractive for investors and lower the cost of capital.

Your tax-exempt institution may become a direct beneficiary of the Opportunity Zone tax incentive in the event of experiencing an unrelated business taxable income (UBIT) capital gain that your institution decided to delay taxes due and employ it towards an OZ investment. Any trade or business, such as selling a building, that is not substantially related to your organization’s exempt purpose is considered UBIT.

For more on Opportunity Zones, see the Opportunity Alabama Resources Page.

Related Case Studies

Arizona State

Phoenix, AZ

Similarities: Understanding Opportunity Zones

Arizona State moved its schools of nursing and journalism and other programs into a once-blighted section of Phoenix in a project that includes student housing and private development. Part of the anchor institution model is to invest in a suite of different programs and initiatives meant to connect them with the community.

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Lehigh University

Bethlehem, PA

Similarities: Understanding Opportunity Zones

Opportunity Zone equity was paired with Historic Tax Credits to support the transformation of an underutilized 125-year-old building on Lehigh University’s campus into 30 apartments and new retail space in South Bethlehem. Reinventing this space is part of Lehigh’s strategy to demonstrate their commitment to community, revitalize South Bethlehem, and continue campus expansion as the university grows.

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Missouri State University

Springfield, MO

Similarities: Understanding Opportunity Zones

Using a $1.25M grant from the Economic Development Administration and matching local OZ funds, the University plans to expand its efactory business incubator in Springfield, MO. According to Missouri State, this investment is expected to create “360 jobs and spur $27 million in private investment.”

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Ohio University

Athens, OH

Similarities: Understanding Opportunity Zones

Ohio University is very active in community development throughout Appalachian Ohio. They work with a network of regional entrepreneurship partners including a business incubator they run, an Angel Fund, a public VC Fund, several non-profit development orgs, and are very engaged in OZ work in Southern Ohio.

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Stillman College

Tuscaloosa, AL

Similarities: Understanding Opportunity Zones

As soon as it became clear that Stillman would be located in a Opportunity Zone, the school’s president seized the opportunity to enlist the support of potential private equity partners, the City of Tuscaloosa, and consultants to develop investment projects for the school’s vacant and unused property holdings.

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Tulane

New Orleans, LA

Similarities: Understanding Opportunity Zones

The Warwick Hotel has been abandoned since Hurricane Katrina. The 154 room hotel, with its 1950s-era modernist architecture, opened in 1952. Tulane University signed a lease on Warwick and the structure will be completely renovated using opportunity zone money from the New Orleans Redevelopment Fund.

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University of Dayton

Dayton, OH

Similarities: Understanding Opportunity Zones

The university serves as an anchor in The Dayton Arcade project which restored a 9-building complex in downtown Dayton. The projectincludes affordable and market-rate units, University of Dayton and the Entrepreneurs Center’s Arcade Innovation Hub, leasable office and retail space, and event space. The Arcade is part of a larger plan by the City of Dayton to bring residents, jobs, and visitors back to the downtown.

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University of Utah / Sorenson Impact Center

Salt Lake City, UT

Similarities: Understanding Opportunity Zones

The Sorenson Impact Center partnered with the Utah Association of Counties to support communities throughout UT, launched the OZ Catalysts in partnership with Forbes, and is a thought leader in the Opportunity Zones.

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University of Virginia’s College at Wise

Wise, VA

Similarities: Understanding Opportunity Zones

UVA-Wise is the lead partner for an Opportunity Appalachia program in the State. They are a leader in Southwest Virginia in community and economic development, with tremendous connections to community leaders across the region and to state government. They have a strong track record in downtown development and rural entrepreneurship efforts in +20 communities.

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Western Colorado University

Gunnison, CO

Similarities: Understanding Opportunity Zones

Western Colorado University’s ICELab is a “community organization with a keen interest in mountain town sustainability and economic diversity in rural Western Colorado.” The lab provides startups and growing businesses affordable coworking/office space as well as an Incubator Program.

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