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City of Oakland Releases Opportunity Zone Prospectus

On June 11, 2019, the City of Oakland released an Opportunity Zone prospectus. The 37-page document is intended to describe Oakland’s goals for the federal tax incentive program, highlight the city’s eligible neighborhoods and promote City Hall’s support for the plan, including permitting priority and the availability of workforce training funds.  The prospectus is available here: Oakland O-Zone prospectus.

Congress created Opportunity Zones (O-zones) as part of the 2017 Tax Cuts and Jobs Act. The law gives investors federal tax breaks when they transfer capital gains from one asset into a fund that invests in properties or businesses in designated low-income census tracts.

To be eligible for the program, one who sells an asset must reinvest into a qualified Opportunity Zone fund within 180 days of the sale. The investor can defer federal tax payments on the reinvested profit until December 31, 2026, or whenever they sell the O-zone investment, whichever comes first.

At the time of sale, 10 or 15 percent of the O-zone investor’s profit is exempt from federal tax if they hold onto the investment for at least five or seven years, respectively. If an investor waits at least 10 years before selling, their O-zone profit is entirely exempt from federal taxes.

Investments are facilitated by Qualified Opportunity Funds, structured as partnerships or corporations for the purpose of investing in properties and/or businesses located in O-zones.

The tax incentive is intended to generate economic activity in areas that are struggling financially. There are 879 O-zones in California – 30 in Oakland. Oakland’s O-zones are concentrated in four areas the City has identified as follows: West Oakland, Central Oakland/Lake Merritt, East Oakland and Coliseum.

Oakland has experienced a building boom and low commercial vacancy rates during the past several years, but not all neighborhoods have benefited. The per capita income in Oakland’s Opportunity Zones is $21,057. Citywide, that number is $35,847.

The City’s prospectus describes the City’s Opportunity Zone goals as follows:  “reduce racial wealth disparities through investment that lifts up our long-standing residents and businesses.” More specifically, the document lists the following priorities:

  • New affordable and workforce housing production;
  • Acquisition and rehabilitation of existing affordable housing;
  • Investment in businesses or organizations owned or led by people of color and women;
  • New neighborhood-serving businesses and revitalization of existing commercial districts;
  • Projects that support Oakland’s arts and culture communities; and
  • High-density commercial and residential projects at transit hubs.

The prospectus notes that investments aligned with Oakland’s priorities will receive permit review priority and will be assigned a single staff point of contact to support the permit review process. Investments in businesses may be eligible for job training funds and programs.

The document also notes that Oakland has “citywide guardrails for community benefits.” Those include community outreach reporting requirements for large real estate development projects, development impact fees for affordable housing, transportation and capital projects, and rent protections for current tenants.

The City underscores that there are numerous advantages to investing in Oakland, including specific plans for parts of West and East Oakland that help streamline development, high returns on recent real estate investments, and of course, Oakland’s oft-mentioned diversity, arts and culture, restaurants, mild climate and abundant transportation.

“Oakland’s dynamic culture and relative affordability have drawn historic investment levels in the last five years,” the prospectus notes.

The City hopes that the Opportunity Zone tax incentive program will direct more investment into the City’s financially distressed communities.

 

 

Attorneys

Selna, Robert W.

Practice Areas

Land Use