Jan 08, 2019
By Jon Bell – Staff Reporter, Portland Business Journal
Jan 3, 2019, 10:09am EST
“These projects create lots of jobs as we move gently along on the edge of the longest expansion since World War II,” said Jean-Pierre Veillet, head of Siteworks Design Build and Northwest Sustainable Properties. “In the end, if we are continuing to manage the in-migration with thoughtful projects and this new Opportunity Zone (program) continues to encourage investors when they may otherwise pull back, then we are encouraging the entire economy to expand, even if a little bit.”
This year could be the year of opportunity for real estate in Portland — Opportunity Zones, that is.
For the past few years, the development scene in Portland has hummed right along.
But at the same time, market watchers and developers have wondered just how much longer this extended development cycle could possibly last. Some slowing — fueled in part by rising construction costs, a tight labor market and new affordable housing mandates — has caused some developers to ease off the gas.
Recently, however, the federal government added a little something to the tank that could keep development in Portland and elsewhere cruising right along into 2019 and beyond — Opportunity Zones.
A product of the Tax Cuts and Jobs Act of 2017, the Opportunity Zone program provides tax breaks on long-term investments in certain low-income census tracts. Through the program, investors can invest capital gains into a Qualified Opportunity Zone Fund and postpone capital gains taxes until 2026. The funds in a Qualified Opportunity Zone Fund can back new development projects and business improvements.
Originally unveiled in April 2018, the program kicked off in earnest in the fall after the government made a few tweaks and clarifications. In the Portland area, which counts 31 of Oregon’s 86 Opportunity Zones, its potential impacts are already surfacing.
“It’s pretty exciting in the real estate world,” said Vanessa Sturgeon of Portland-based Sturgeon Development Partners.
In December, SDP announced it had launched a $330 million Opportunity Zone Fund that could fuel a $285 million mixed-use tower in Portland and a $43 million hotel project in Salem. The partners want to raise that money by April.
A week before that announcement, word arrived that California private equity firm LLJ Ventures had acquired a Portland property using money from an Opportunity Zone Fund. The firm is exploring the possibility of developing that property, at Southeast Second Avenue and Ash Street, with a creative office building.
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LLJ also acquired a second property at 139 S.E. Martin Luther King Jr. Blvd. While it did not use Opportunity Zone funds for that one, it will instead get the site entitled and development-ready for an investor who could invest in an Opportunity Zone project and reap the tax savings.
Additionally, Portland real estate investor ScanlanKemperBard is planning a 140,000-square-foot office building in the Central Eastside that falls within an Opportunity Zone. Portland’s Sortis Financial has launched a $100 million Opportunity Zone Fund that could fuel multiple commercial real estate projects in the Northwest.
Some question whether the Opportunity Zone program really spurs investment in low-income areas, as the government has positioned. After all, the Opportunity Zones covering close-in Portland include areas like the Pearl District and the sought-after Central Eastside. But federal guidelines do qualify those areas as low income based on median income and employment levels.
And if, as many in the development world have suggested, the long and prosperous construction cycle that’s been underway since 2011 or so is about to take a plunge, maybe the Opportunity Zone program will help ease that descent in the year ahead.
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