Vanessa Sturgeon and her team at Sturgeon Development Partners had eyeballed at least two sizable development projects in Portland and Salem that would total some $330 million even before the federal Opportunity Zone program kicked in earlier this year.
But once that program became official, the appeal of the projects — and the tax breaks that would come from their location within Opportunity Zones — ramped up even more.
“The projects that we’ve identified are ones that we were already working on before,” Sturgeon said. “It just so happened that this program came along. It’s pretty exciting in the real estate world.”
A product of the Tax Cuts and Jobs Act of 2017, Opportunity Zones provide tax breaks on long-term investments in certain low-income census tracts. Through the program, investors can invest capital gains into a Qualified Opportunity Fund and postpone capital gains taxes until 2026. According to Business Oregon, taxes can be similarly deferred for investors in businesses or projects within Opportunity Zones.
Oregon has 86 Opportunity Zones, including 31 in Portland. A cluster of them blanket the inner city, spanning from roughly:
- The Ross Island Bridge to the south
- The Fremont Bridge to the north
- I-405 to the west
- 20th Avenue to the east
Areas like the South Waterfront and the Pearl District fall within the Opportunity Zones, which might seem odd considering the program’s target of low-income areas. But those areas do fall under the “low-income” designation under federal guidelines.
This month, SDP launched a $330 million Opportunity Zone Fund that it hopes to lock up by April. With those funds, it’s planning a $285 million mixed-use tower in Portland and a $43 million hotel renovation in Salem.
Sturgeon said SDP is currently sizing up four different sites in Portland for the mixed-use project. The team is looking both in downtown and across the river on the eastside. One local broker speculated the Washington Center site at Southwest Fourth and Washington, which Menashe Properties owns, could be a candidate.
Sturgeon also said that, depending on how the fund fills up, the Portland project could become two separate efforts. Whether it’s one or two projects, SDP is planning a mix of residential, retail and office. The residential portion would include an amount of affordable housing, which would help meet the Opportunity Zone program goals.
“The point of Opportunity Zones is to help people lift out of poverty,” she said. “The good that is going to come from this is that more units are going to be built, which will help keep rents down. And each project has a requirement to have some affordable units as well.”
The Salem project would renovate a derelict parking structure at 195 Commercial St. SE into a hotel. Sturgeon said the owner of that property will sell it to SDP and roll his gain into the fund.
The Opportunity Zone program has also attracted California private equity firm LJ Ventures. Leonardo Simpser, LLJ’s managing partner, said the firm set up an Opportunity Zone Fund and used the funds to buy the property at the corner of Southeast Second Avenue and Southeast Ash Street. It hopes to develop a creative office building with on-site parking.
LLJ also purchased the property at 193 S.E. Martin Luther King Jr. Blvd., which is home to an old Salvation Army building. Whereas it didn’t use Opportunity Zone funds for that project, it instead plans to get the site entitled and development-ready for an investor who has a “large equity event” — the seller of a company or a large property, for example — and would invest in an Opportunity Zone project for the tax savings.
Sturgeon said the program is clearly making Portland even more attractive to investors in the near term.
“It’s taking off very quickly,” Sturgeon said of the program. “People are very interested because Portland’s Opportunity Zones are such sound investment areas.”
Originally Published on December 13, 2018 at 05:25PM
Article published originally via “opportunity zone” – Google News https://www.bizjournals.com/portland/news/2018/12/13/portland-developers-flock-to-a-new-tax-pportunity.html