The Trump administration’s final guidance on Opportunities Zones is out, and perhaps the biggest takeaway for the Lowcountry, specifically the Neck Area, is that the rules will make it easier for investors to develop vacant land and “brownfields,” or polluted properties.
Broadly speaking, the idea behind Opportunity Zones — Sen. Tim Scott cosponsored the legislation folded into the 2017 tax bill — is to offer investors breaks on capital gains taxes for plowing money into poor, blighted or underused areas. Opportunity Zones enable qualified investors to defer and reduce capital gains taxes for up to 10 years, and avoid them altogether on any gains if the investment is held at least 10 years — starting Dec. 31.
The 544-page rule book is generally good news for real estate investors, developers and fund managers. For instance, instead of having to deploy capital in 31 months, the new rules give fund managers 62 months. That should buy developers more time for permitting and coordinating projects.
In some cases, a lot would have to be cleaned up to be built on, but the rule should add an extra incentive for redeveloping some former industrial sites in the Neck Area — the largest Opportunity Zone in the metro area. It stretches from the terminus of I-26 in downtown Charleston north along the Ashley and Cooper Rivers into North Charleston, encompassing the North Morrison district, the old Navy hospital, all the largely unused waterfront from Drum Island to Shipyard Creek to the under-construction Hugh Leatherman shipping terminal. It is the biggest chunk of land in the area that is the most in need of redevelopment.
Among the Neck’s brownfields are the roughly 100-acre former Koppers Co. site that was polluted by a wood treatment plant and the 125-acre former Macalloy site fronting Shipyard Creek. Both are Superfund sites, but the Koppers site has been designated for redevelopment by the Environmental Protection Agency, and the new rules could help jump-start the long-stalled Magnolia housing development.
Another plus is that “green” investments such as solar arrays, energy storage facilities, urban farms or anti-flooding projects also will be eligible for Opportunity Zone investments.
While the changes could help spur development in the Neck Area, it is disappointing that the guidance doesn’t add reporting requirements that would verify Opportunity Zones were indeed creating jobs or affordable housing or alleviating poverty. Pending legislation could change that, and there are anti-abuse provisions that prevent investors from reaping benefits without benefitting the wider community.
Opportunity Zone fund managers and investors should seize on the program’s potential to transform the Neck Area, and local governments should be eager to approve projects that clean up contaminated sites and create jobs.