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Opportunity Zones Podcast
Inside Treasury's $112 Billion Opportunity Zone Report (Episode 390)
00:43:37
With Catherine Lyons
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- [00:00]
A
$112 billion. That's how much private capital Opportunity Zones pulled into more than 6,000 census tracts through the end of 2024. And we know that now because the Treasury Department just released the most authoritative data we've ever had on this program. We'll cover this and more next. You're listening to the Opportunity Zones Podcast, the number one show on Opportunity Zone investing, brought to you by opportunityzones.com and now, here's your host, Jimmy Atkinson. Welcome to the Opportunity Zones Podcast. I'm Jimmy Atkinson, and as many of you may know, we are currently in the middle of one of the most consequential stretches in the Opportunity Zone Program's history. The nomination window is now officially open as of July 1. Governors now have until late September or in some cases, late October to decide which census tracts become Opportunity Zones for the next 10 years. And into this moment, the Treasury Department just dropped a working paper with the fullest picture of Opportunity Zone investment we have ever had, built straight from IRS filings. My guest today has a unique vantage point on all of it. Katherine Lyons is Senior Director of Policy and Coalitions at the Economic Innovation Group. Eig, as many of you may know, is the organization that first introduced the OZ concept back in 2015. And Catherine and her colleagues just published a detailed analysis of what this new treasury data actually tells us. So I don't think there's anyone better to help us unpack the numbers and what they mean for the map being drawn right now. Catherine, it's great to see you. Welcome to the show. How are you?
- [01:38]
B
Thank you. I'm great. Thanks for having me.
- [01:41]
A
Absolutely. Well, always a pleasure to be speaking with somebody from eig. For those of our guests or our audience, I should say, who aren't familiar with you and eig. Can you give us a quick rundown who are you, who is eig, and maybe brag a little bit about eig, his role as one of the original architects of the OZ concept, because you've been in the space for longer than anyone. Your organization.
- [02:06]
B
Yes, happy to. So I'm Katherine Lyons, the senior, as you said, the Senior Director of Policy and Coalitions at eig. So essentially what that means is I help lead the policy team and our work with Congress and with the administration and with others to help implement some of the ideas that we have based on the research that we also do here. So we are a research and policy organization. We are dedicated to creating a more dynamic and inclusive US Economy. That is our mission. So as Jimmy mentioned, in 2015, we put out a white paper that is authored by Kevin Hassett, who is the director of the National Economic Council at the White House, and Jared Bernstein, who was former President Biden's lead of the Council of Economic Advisors. Obviously folks from two different sides of this of the aisle, but coming together to look at the kind of toolkit of community development tools and economic development policies that are already on the books and decided that there was some areas for improvement and kind of ways that we could really boost the toolkit through something called Opportunity Zones. So that led us down the path of working with, we all know now very well as the congressional champions of Opportunity zones, Senators Tim Scott and Cory Booker at the time. You know, unfortunately, these members are now out of Congress, but Representative Pat Teaberry and Ron Kind that they introduced, you know, the Investing and Opportunity act, which of course was then rolled into the Tax Cuts and Jobs act and passed at the end of 2017. I joined the organization two weeks after the bill passed into law. So it was a very dynamic time here at eig. And so really been on this wild ride really ever since Opportunity Zones came into law. So we've been working very hard really since then and through our Opportunity Zones Coalition to work with treasury on the implementation of OZ 1.0. We've worked on drafting with those same congressional sponsors and leaders, you know, improvements and legislation to kind of further enhance the policy. And then we were very involved in the Oz 2.0 reconciliation push last summer, though it was of course successful because that's why we're sitting here today. We got it made a permanent. We helped get it made a permanent policy and that has kicked off, you know, the next round of designations.
- [04:42]
A
I think we'd still be sitting here today, but we'd be having a much different conversation. You might be looking back on. Hey, that Opportunity Zones thing was great, wasn't it, Closing down in a few months.
- [04:51]
B
Yes. Luckily we were able to avoid that conversation and have a much more positive one to share today.
- [04:57]
A
So definitely. And yeah, you mentioned you joined EIG at a very dynamic time a couple of weeks after the, the, the law was passed back at the end of 2017 and in the, in the first half of 2018 is when the Opportunity Zones were initially designated. We're going through another dynamic period in time right now where the OZ 2.0 census tracts are currently being designated by governors all around the country. And we're transitioning from Oz 1.0 into this new unchartered Oz 2.0 era. We're going to talk about that a little bit later in the podcast. But first I want to focus our attention on the treasury report that was just released very recently. And talk to me first about the treasury report just at a very high level. You and your team wrote up an analysis@eig.org we'll make sure we link to it in the show notes for this episode. But the treasury headline number first of all, $112 billion that qualified opportunity Funds have deployed into qualified opportunities owned property through the end of 2024. And that deployment hits over 6,000 of the 8,700 plus census tracts. So walk us through those numbers a little bit. Walk us through the report at a high level. And also why does the timing matter so much for governors right now? It's really interesting time that they chose to release this report, right?
- [06:29]
B
Yes. And I think very intentional. Treasury wanted to make sure that governors were equipped with the latest available information and data based on electronic filings from the IRS as they are embarking on this very important foundational part of the process to set the zones in the next map, which will of course be good for the next 10 years. So through 2036. It's a really important exercise and obviously one that is very long lasting. So want to make sure that governors get it right. And I think part of getting it right is having access to the best available data that we do have. So treasury has issued reports like these before working papers from their Office of Tax Analysis. The most recent one we had was from 2023. So we have waited a few years for some updated data and very much welcome kind of the, you know, new report here which does show that, you know, as, as we've seen from previous reports that they've released, the last one was with data through 2022 that showed $89 billion had been invested by Opportunity Funds through the end of that year. And now we can say with confidence that, that, you know, that $100 billion number that we had always estimated. But you know, with, with a fair degree of confidence that we had kind of reached that milestone within the market, we can now say that with 100% confidence and, and that indeed it's even surpassed that, you know, again the $112 billion kind of in invested OZ property through 2024. And I think the reach of this is really, you know, something that's extremely notable. The fact that 77% of all opportunity zones, you know, in the, of all 50 states in D.C. so again, as you mentioned, more than 6,000 communities have received investment that's that's pretty remarkable. And, and certainly up from kind of other touch points where we had seen, I think the initial kind of reports after a couple of years of the policy's life was about 48% of all opportunities. And since the investment and then that report through 2022 was about 2/3 or sorry, 3/4. And now we're, or I think it was 2/3 and then now we're at that surpassing that 3/4 mark. So really, really great to see that, that kind of broad take up across all types of communities. I think what's also really notable because we've talked a lot at various pitch days and, and you've had other guests on these, on this podcast talk about the rural component and the real interest in rural investments because Congress made some notable changes to the structure of the incentive in the package that passed last year to really boost the benefit for rural communities. What we have interestingly seen is that actually rural places, rural Oz, saw the same amount of, or the saw the same reach of investment. So 77% of rural places also received OZ investment. That is notable. But I think Congress's kind of impetus to put more of an emphasis on rural is still possibly a good thing here. Even though a lot of rural communities saw investment, the investment was typically a lot smaller than urban places. So and that, that makes some sense, right? The 300 unit multifamily mixed use residential, you know, that's going to be a bigger project is more likely going to go into an urban place than a rural place. And so, you know, you're, you're probably seeing smaller scale investments and developments, you know, in these rural places. That accounts for the, the difference in sort of the amounts that that treasury reported out. So still, you know, smaller investments in rural places, but still the same sort of overall reach across the urban rural time.
- [10:30]
A
Yeah, the same number of rural tracts received investment as urban tracks, or I should say what you said better a moment ago, the same percentage of rural tracks receive investment as urban tracks, roughly about 77, 78% for both types of tracks. I found that interesting as well. You guys called it a bombshell in your report. You use the term bombshell, but yeah, you're right to point out that the amount per tract, I think the amount per capita also was, was much lower than in urban areas, which may not be too unexpected, but yeah, I wouldn't have even expected that it received tract for tract, the same reach.
- [11:12]
B
I think Congress didn't either. Right. That's why they wanted to put such an emphasis on doing what they can to, you know, sort of level the playing field for rural versus urban. So again, I think, you know, the, the reach is there but the, the policy changes could still very well be warranted because of that sort of change in the actual amount. So we'll, we'll see how it all shakes out. But, but yeah, very interesting to see that, you know, there was essentially parity between rural and urban places.
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A
Do you get the sense that the new rural incentives will boost investments into rural opportunity zones going forward?
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B
That's, I mean that's what I'm hearing. Obviously a lot of this is anecdotal, but I, and I know you conducted a survey to kind of asking questions about the structure, the you know, structural changes of oz 2.0 and what's most exciting or interesting or sort of potentially changing investor behavior. And from the states that we've talked to as well, I think they are getting a lot more interest in rural investments and thinking through how to make those work. What are the possible opportunities there? Because that 30% step up in basis really is so attractive. Not to mention of course are often paired with the ability to have that lowered substantial improvement threshold as well. And of course that's critical for rehabs which are often a well, kind of used use case within rural places. Yeah, I do think that there will be at least an interest, an uptick in the interest in kind of pursuing possibilities or opportunities in these places.
- [12:56]
A
Yeah, we'll see. We'll keep an eye on that. So I mentioned that we're recording this episode in late July. We're a few weeks into the nomination window, having opened for governor's office to submit their nominations officially to the U.S. treasury Department. As of this point in time right now, according to what I've seen, only two states have submitted their nominations officially so far. Correct me if I'm wrong, Catherine, I think it's just Arizona submitted a week or so ago and then Nebraska I think just yesterday.
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B
Okay, great.
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A
Is that right? Has anybody else do you know of?
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B
Not that I'm aware of, I don't. Yeah, I've not heard of that many states submitting as quickly. And part of that is because treasury made it clear in sort of their notice that I believe they published in April that actually listed out all of the eligible places that they were going to wait until the end of the nomination period to actually take a look at every one submissions. There's a couple benefits to that. I mean one, states can actually make changes but you know, in that 90 day window. So if they publish Them and I think Arizona has done this. They published all of their, what they've submitted. And I think many states have, have or will do, you know, their, at least publish their draft submissions and then they can kind of continue to get some feedback. Which we noted in our guidance for governors is a really helpful part of the process to have that transparency. We know from lessons learned in 1.0 that states that did do that ultimately ended up with much better selections. You know, especially states that initially relied only on the quantitative data and then put it out for feedback. Got a lot of really helpful feedback from on the ground members of the community saying this actually doesn't make any sense sense. And then, you know, kind of retooling their submissions from there. So that will, that, that process is very much going to be allowed because, you know, treasury will allow states to modify, you know, their submissions even so even if you submit on July 5, you know, as I think some people, some states did, you know, you. They can, they can continue to make changes if they want to before September 28th. Yeah.
- [15:06]
A
All the way up until that deadline. Right. So the process is meant to be iterative. So if a state.
- [15:12]
B
Right.
- [15:12]
A
Changes their mind or if they, if they hear some more feedback from their communities, then they can go back and revise their list or, or add to their list. So I'm, I'm just kind of looking at my resource over here that says that, yeah, two states have submitted their nominations already. Thirty states have already closed their window for receiving recommendations from their different communities. Seven states have their windows open right now as of when we're recording this on July 23rd. And then there's a handful of states that are just kind of still getting the ball rolling or haven't issued a lot of guidance yet. But that brings me to my question, which is. Well, it almost brings me to a question. First, I want to state that the treasury report did a really nice job basically scoring Every state's OZ 1.0 selections by reach or by hit rate. You might say a handful of states were in the, were in the 90s, like 90s. I think it topped out at 96%. A few states got 96% of their tracts, had some investment dollars go into their tracts. Illinois, on the other hand, bottom of the barrel. Only 23% of their tracts received OZ investment dollars. So what separates a state that picked well from one that didn't? And do you think states can learn from the lessons of 1.0 or any of the data from this treasury report as we're in this nomination window where they are submitting their 2.0 designations.
- [16:44]
B
I definitely do. I mean I think of many states first we just benefit from so much more time. I think as you noted earlier, states had the same window of time, 90 days, but immediately following kind of the passage of the bill at the end of the year in 2017. It was a massive bill. Opportunity zones were nine pages of it. So there was a lot to pass through and many states had no idea what this was. So we were all operating or states were operating with a real lack of understanding and education about this brand new tax policy. Of course also there were no regs yet. I mean everything was just getting stood up. So they had to make a lot of these decisions very quickly and without a whole lot of, you know, sort of that. That understanding that comes with a tax policy or an economic development provision that's been on the books for a decade now. We are that tax policy, economic development provision that's been on the books for a decade. And we are all benefiting from, you know, having that learned experience, having this new data and having a much better understanding of where this works well, but also where it doesn't work as well and sort of what to avoid. So I do think that states have really, many states have really taken that on. I'll give credit to Illinois where it's due here. They are really trying to learn from their 1.0 selections. Kind of do a bit of an analysis and an evaluation there. Why are they kind of, you know, what the opposite of leading the path? Why are they at the bottom, you know, and in last place here? And they are actually working with the university in the state to sort of develop a data and mapping tool so that hopefully their 2.0 selections will be, you know, much better, will. Will ultimately yield a better hit rate. So I think many states are sort of looking at their previous performance what didn't go well. Why were those, you know, why did those. Those zones not attractive investment? What could we do in the future? You know, there's states like Colorado, which we kind of categorize as a serious Oz year, but also is for 2.0 in their process, but also was one of the states with that 96% hit rate for 1.0. And we often lift up Colorado as a really excellent example of a state that did their selections very well in 1.0. The state very much had a kind of vision for what they wanted to accomplish with this. They actually specific even well before the extra rural benefits chose a map that was decidedly rural that didn't focus on the kind of major metro areas. And because they also understood that that was going to have capacity challenges in those rural places, they put a lot of supports in place, technical assistance, grants, et cetera, to make sure that those places that were chosen, you know, were able to kind of understand this and take advantage of it. And many of those rural places did. Obviously with UC, 96% of the zones received investment. And so I think that's a really good kind of case study and example of, you know, having that sort of state vision, executing that at the local level. You know, I know, especially for 2.0. And so I know that they did a version of this for 1.0, but they've had multiple webinars, rounds and rounds of kind of, of, you know, submissions for recommendations from local leaders, you know, been very transparent within that pro, you know, throughout that process. And you know, I think also have some real local leaders on the ground that have helped make this very kind of popular and shown how this can be success successful, while also pairing that with kind of state programs and sort of resources to help communities really understand how to attract investment. So, you know, that's an example of a state that's done it well. But I think all of those things can be broadly applied to other states to I think hopefully see some of the similar successes.
- [20:45]
A
I'd love to see other states lend the same level of support as, as some of the leading states like Colorado. That'd be great to see and it's great that you point out that Illinois is working hard to learn from the lessons of 1.0 and they'll do a much better job with these OZ 2.0 designations. I have no doubt about that. One of the other interesting things in the report, and your analysis at EIG goes into this a little bit too, is the trajectory story, right, because we had these cliffs built into the incentive in Oz 1.0 where the seven year benefit, allowing for a 15% basis step up, expired effectively for any investments that came in after 2019. And we had the five year step up of 10% expire at the end of 2021. So we kind of had this trajectory going up and down to the right like this and then it kind of just leveled off right at that point where it just, it's ticked up just incrementally since 2021, both in terms of the amount of new investors into the program and the dollars raised and deployed by qualified opportunity funds. So that cliff really impacted the trajectory of fundraising and fund deployment. In the first round of the program, that cliff is gone. For Oz 2.0, it's a permanent rolling five year deferral. Everybody gets a 10% basis step up whenever you come into the program. It doesn't matter which year, 30% if you're doing a rural deal. So explain that to us a little bit more what you make of that and how do you think the rolling deferral is going to fix that, that cliff issue from 1.0?
- [22:34]
B
Yeah, I thought that was something that was really interesting to us too, especially the investor count and the fact that only 3,000 kind of new, unique kind of investors came into the market between 2021 and 2024. Of course, you know, there was a lot of repeat investors who were already in the market, but kind of only 3,000 new investors have joined, joined the marketplace kind of in those three years post step up and basis benefits expiring. So that was really interesting to us too. I mean, this is precisely why one of our kind of core recommendations, you know, back in 2024, when we were first thinking about what would we love to see done differently if we're able to make this a permanent policy, was this idea of kind of getting rid of some of those, those cliffs and smoothing out the flow of capital by having a rolling deferral. You know, we always candidly thought that was a bit more pie in the sky because it is a more costly way of structuring the incentive. But very grateful to the leadership of especially Senator Scott for ultimately getting that included in the final package. I think this will be a really impactful change that essentially, yes, we'll get rid of those cliffs, I think will really change the trajectory of some of those line graphs that we're seeing in this 2024 data and hopefully see a much more kind of linear, steady increase over the life of the policy. And that's the whole reason why, you know, we wanted to see that change in the first place is to really smooth out that flow of capital, you know, really create a bit more of that stability in the fundraising and capital deployment within, you know, so both on the Opportunity Fund side, you know, trying to get that capital in the door, but also then the ability to deploy that, that kind of steady state of capital into communities as well. So, yeah, we're excited to see sort of how this trend line changes with the future treasury reports, which of course now will be annual eventually. Not sure exactly when that will start, but we will hopefully have these reports on an annual basis now per the new statute that was passed last year.
- [24:42]
A
I am very much looking forward to having more data come through and yeah, we need that graph to look more like this where it's just a hockey stick up into the left. Less like less of a rounded off type of.
- [24:53]
B
Much more of a chance of that I think with the way that it's and structured now.
- [24:57]
A
Yeah, for sure. Okay, one, one more bit about the treasury report. Real estate and, and other asset classes. Operating business primarily. But the data shows that roughly 77% of OZ investment classified as real estate according to Treasury. I'm always getting questions Catherine, about hey, why isn't there more operating business investment? Do you know of any operating businesses doing, you know, raising OZ capital or anywhere I can invest where it's not just a apart, you know. So it seems like the, the, the asset class darling of opportunities on investment to date has been real estate within real estate. It's been multifamily. Right, right. But what does your analysis suggest is happening there? What, what do you view the mix as, as likely being right now and do you expect that might change as we transition to Oz 2.0 at all?
- [25:55]
B
Yeah, well, a few things on that. And so we, you know, we Note that while 77 real estate as noted in the report, you know, that could mask kind of, you know, that doesn't necessarily just mean residential. It could also mean warehousing facilities, manufacturing facilities, all of which of course house operating businesses. So it's a, it's a little bit of a kind of an umbrella term of course without a whole lot of more granular information below that to really understand how much of that is that sort of median use case that we know Aussies are used for, which is that mixed use or multifamily residential rental properties. And how much of that is actually, you know again more real estate in service of operating business invest, you know, or housing operating businesses. So wish we had a little bit more data and understanding of how that breaks down kind of under the broader real estate umbrella. But still we all kind of know from anecdotal information from you know, the Novogradic Opportunity Fund survey that the modal kind of use is definitely that, that residential rental properties and our own research shows that, you know, Ozzies have caused the creation of more than 416,000 new housing units in designated community through Q1 of 2025. And that's you know, just the number of units that would be created without the presence of or that that wouldn't have been created without the presence of the incentive. So we know it's been a really, you know, I mean, quite frankly a fantastic driver of housing supply. And that's something that is obviously very much needed in many of these communities. So all good things. But we would still love to see more investment into operating businesses. I think that, you know, we will still need to see some policy changes in order to unlock operating business investments at scale. The bill was not able to kind of, you know, address some of the core challenges that we've experienced, I think in the market that has hindered again, operating business, business investments from happening at scale. That's not to say that they're not happening. They certainly are. We know many, many funds that have pursued very successful operating business investments that, you know, that are really great case studies. We have many of those on our website. So they're happening, but it's a very small overall percentage of the market. And a lot of that is because the regulations kind of were more tailored, you know, to real estate throughout that process. You know, that ended in 2019. Also. Many communities just need the real estate first. You know, that that has to happen first before you can then see the kind of follow on investments in businesses and job creating entities. Entities. And also, you know, the real estate market, quite frankly, is very. They know how to, how to work with these incentives. Right. They have a lot of experience working with new markets or Litec or other types of tax credit incentives or tax, you know, tax programs. So there's a, there's kind of a quick mobilization that can happen I think within real estate as well. But I think the core issue is the fact that we just that right now, as currently structured, we cannot recycle capital successfully and preserve the investor benefits for those 10 years. Even if you recycle that capital, you know, into another qualifying investment. You know, for most operating business investments or operating businesses that want the, the Uzi capital, they want to be able to do what's best and what's right for their investment or for their company. And so that might mean that they sell their company within, you know, five years or seven years or, you know, they get acquired or whatever it may be. And so being limited or kind of, you know, reined in by that 10 year holding period for many are, you know, is concerning. Right. And so the, if we had the ability to recycle those interim gains, that that would be extremely beneficial, I think for seeing and unlocking a lot more investment into operating businesses. So that remains a big priority of ours. It's something we included to treasury in our Opportunity Zones Coalition letter that we submitted earlier this month. It's also something that, you know, we'd love to see potentially passed in, in Congress too. And we know that's something that, that Senator Scott cares very deeply about and wanting to, to make sure ultimately gets gets across the finish line as well.
- [30:28]
A
And if that were to come to fruition, would that be considered Oz 3.0, do you think? Or would we call it Oz 2.5? Yeah, maybe Oz 2.5. Well, either way, I think that would be, that would be a huge game changer for opportunity zones and we'll be monitoring that and we'll continue to help you champion those changes to the policy that would bring more investment dollars into operating businesses. I think that would be very welcome by investors and by stakeholders in the program. Yeah, I don't know, Oz 2.5 or Oz 3.0. I might leave it up to you guys to figure that one out. But I'm looking forward to it one way or another. Hopefully that comes to pass before too much longer. Let's transition now to the transition. The transition being from oz 1.0 to oz 2.0. Want to get your thoughts on a couple of things. One of the other most common questions I've been getting for the last, I guess six months or so really since the calendar turned to 2026 is hey Jimmy, wait a second. I'm raising capital for an Oz 1.0 deal. Oz 2.0 is coming online in January of 2027. Can I take Ozzy 2.0 dollars from investors and put them into old tracts that don't get redesignated? And I've had to say I think so, maybe, but we're waiting for further guidance. Well, we just did get some of that guidance or at least not official guidance. Right? Not official regulations, but notice of forthcoming regulations. So all of this is subject to change, which is why I don't want to dwell on it for too long. But a few weeks back the IRS did issue notice 2026-40 and there was some good language in there. There were some confirmations of some things that we were expecting, which was great. But one new little bit of information, I think it was section 5 of that notice put some restrictions on new money in OZ 2.0, money raised after the end of 2026 going into old zones that don't get redesignated. Give us the high level overview of what that is and how. How permanent is this rule? Is it still kind of in flux, what the final regulation might say and what is the coalition focused on with treasury right now? What Is your group focused on right now with Treasury?
- [32:47]
B
Yeah, sure. So the notice, and I appreciate that treasury was trying to put things out and more quickly knowing, and I'm sure they've been hearing from stakeholders that, you know, transition guidance is needed, immediate, because people are, of course, trying to make these decisions now. And so putting out formal regulations is a much lengthier process. And so they were not circumventing, but I think trying to provide, you know, some guidance and some help, you know, for those in the market, you know, earlier than. Right. You know, putting forth regulations would, would allow. So the goal and what they've said is that, you know, they anticipate that the regulations, the formal regulations that will come out on this issue will look very similar, you know, to what's in the notice. But, you know, they wanted to just get it out to the market as quickly as possible and so did it this way. So we do anticipate that there will be, you know, actual notice of public, you know, of proposed rulemaking that will come out, you know, perhaps towards the end of this year. But we hope that that will have some changes. And so we've submitted to Treasury a letter from our coalition with a few issues. But the major one is the one that you mentioned, which is that, you know, any kind of investments, you know, taking place after 2026, you know, will or will be subject to kind of having a working capital place safe harbor plan in place by the end of 2026, that they'll have to raise 10% of the money kind of, you know, that's, that's within that working capital safe harbor and then deploy 5% of that. All on the whole, that, that criteria doesn't give us heartburn. That's actually very similar to sort of the criteria that, that we outlined. Actually, you know, first in Senator Scott and Booker's Opportunity Zones Transparency Extension and Improvement Act. So a lot of this goes way back in terms of the types of criteria that we felt, you know, investments should have in order to sort of be grandfathered in or kind of, you know, allowed to continue. But the, but our biggest concern is actually the timeframe, the fact that you have to have all these pieces in place by the end of this year. The Opportunity Zone 1.0 zones are good through the end of 2028, full stop. Right. I mean, and that's actually one of the very helpful things that treasury confirmed, you know, in their notice was that you can have the two overlapping maps at the same time. There could have been, there was a close read of the Statute that, that could have read a little bit ambiguous as to whether, you know, you could only have 25% of zones at a time. And does that mean in this kind of awkward two year period that we have, as we transition from 1.0 to 2.0, would that affect kind of the number of zones you could designate in 2.0 or would that affect the 1.0 zones? So we did get confirmation that no, you know, you can have these two existing maps for this two year overlapping period. We expected that. We were grateful to treasury for confirming it. We also know that Congress very much intended to keep the existing zones through 2028. There was a House version of the reconciliation bill that actually cut the zones off at 2026. The, the existing current zones. The Senate removed that provision and ultimately passed a bill without it and which the House also passed, you know, without that, that provision. So to us that sort of indicates that there's clear statutory kind of intent here to not mess with the current zones. That the, you know, everyone is relying on these zones through 2028. Communities are relying on them. Certainly investors and project sponsors and fund managers are too. And so to sort of not allow for investment to continue to take place in current zones through the length of their statutory designation period feels to us, you know, sort of not at odds with the intent here. And so we, we really just are asking for a very simple change essentially for all those requirements to sort of still to just, to just kind of come into effect after December 31, 2028, instead of December 21, 31st, 2026. So that's kind of our main recommendation, you know, and, and I think the biggest issue that we're most concerned about, there are a few other things, you know, in terms of especially going back to operating businesses. I think the only other one I'll highlight is, you know, they also confirm that, you know, investments into sort of improvements, you know, of existing real estate or with within the sort of normal course of business is okay, so those can continue, but you can't expand or, you know, kind of expand the line of business, expand the property. That all makes sense from a real estate perspective, I think, but we do have concerns about limiting non real estate operating business businesses in that same way. And the fact that I think, I don't think this was intentional, but I do think that the end result of keeping that limitation in place will actually disproportionately really hurt investments into operating businesses again because, you know, why are you limiting a business not be able to expand at all? Or not be able to go into a different line of business, you know, that, that again, I think makes some sense with real estate. And if that was what was in mind, then that, that I think there's justification for it. But if thinking about operating businesses really hinders, you know, what an operating business is able to do and how they're just able to, to kind of run, run their business, you know, if they're limited in such a fashion.
- [38:46]
A
So lot, lots a lot to keep tracking here with, with, with the proposed rulemaking maybe coming. I, I appreciate everything that, that your coalition is attempting to do in the dialogue that you have ongoing with the Treasury Department and hopefully we get some of these differences resolved before too long because yeah, I think I agree with you. The 10% and 5% numbers needing to show that you've made a good faith effort to do something regarding funding of these Oz 1.0 projects, or I should say projects located in Oz 1.0 tracts. That makes sense totally. Let's just push the date back by to match when the, when the tract actually expires. I think will also be important for the next round in 2036 when we're thinking about this again in 10.
- [39:34]
B
Yeah, it's basically just allowing the existing zones to operate for their full 10 years, just as we're going to allow all future maps to operate for their full 10 years too. So you know, just kind of giving communities that sense of certainty that many of them are kind of still banking on, you know, those zones being good for the next couple of years. So.
- [39:54]
A
Except for Puerto Rico only gets through the end of 27. They got cut off due to, due to, due to a obscure technicality. But we'll leave, we'll leave that alone. That's, that's another topic of conversation for another day. Catherine, I really appreciate you joining me on the podcast today. Always a pleasure hearing from you. Before I let you go, can you tell our audience where they can go if they want to learn more about the Economic Innovation Group and also tell us a little bit about the EIG Opportunity Zones Coalition?
- [40:20]
B
Sure. So go to eig.org and that we have there lots of resources on OZs. We also have an OZ 2.0 kind of resource hub as well. It includes our, the eligibility map, it includes our guidance for governors and mayors, our coalition letters, this analysis and webinars, etc. So what's something that we keep regularly updated? It also has a map of the states and links to where they haven't published their sites for Oz 2.0 and the process that they're running to for their kind of submissions and nominations. So all that is there, all that's regularly updated. The Aussie Coalition. Yes, we have a coalition of stakeholders within the market ranging from kind of investors, financial institutions, fund managers, philanthropic organizations, CDFIs, kind of those community organizations on the ground like Opportunity Alabama and other folks like that. So it's a great group of kind of cross sectional market stakeholders within the OC space. We have been, have been, will continue to be very focused, you know, on the regulatory efforts here to make sure Oz 2.0 is kind of implemented, you know, very successfully. But we'll also continue to engage with Congress as no, the beauty of having a permanent incentive is now we have sort of more Runway to continue to figure out ways to further enhance it further supercharge it. And we have great, you know, leaders in Congress who are eager to continue to do that. So our OZ Coalition helps us kind of source ideas for what should be those priorities, both in the regulations and the legislative space and and work with us to accomplish this.
- [42:08]
A
So please do consider joining EIG's Oz coalition if you are a stakeholder and you want to get more involved, especially on the policy side and efforts with Capitol Hill. So Catherine, thanks again for our audience today. If you enjoyed today's show, I'd really appreciate if you hit that like button, give us a thumbs up. We'll have show notes available on our website. If you'd like to learn more about today's show, you can Visit us@oddortunityzones.com podcast Also, make sure I have resource links to all the resources that Katherine and I discussed on today's show. And please be sure to subscribe to us on YouTube or your favorite podcast listening app to always get the latest episodes. Katherine, again, thanks so much for joining me today. It's been a pleasure.
- [42:49]
B
Thank you so much for having me. It was great. Thanks.
- [42:53]
A
That's it for today's show. Thanks for listening. The Opportunity Zones Podcast is produced by OpportunityZones.com the world's leading authority on Opportunity Zone investing. This podcast is available on YouTube, Apple, Spotify and all other podcast listening platforms. Just hit that subscribe or follow button to get all of our new episodes as we release them and we'll be back soon with another exciting episode.
- [43:28]
B
Sam.