When Grey Dodge and Erin Gillespie were working in the Florida state government, it was their job to select which of the state’s census tracts would become opportunity zones, offering a series of tax breaks to investors who put their money into real estate or businesses within those zones.
As Governor Rick Scott’s time as governor wound down, Dodge and Gillespie noticed something.
“We spent the last half of the year, I guess, the last six or seven months advocating for zones, talking about local governments and how they can get engaged, kind of answering questions and being a resource to communities that were getting their understanding of it,” Dodge told Buyouts.
After leaving the government, Dodge and Gillespie formed Madison Street Strategies, an economic development consulting firm helping Florida communities link up with the right investors.
“We feel the most successful opportunity zones are going to be those where the investments and communities are partnered together to bring in what makes a community successful, and that’s different in every community,” Gillespie told Buyouts.
Among the firms they have worked with are OPZ Bernstein, which Buyouts covered before.
They are not alone. Across the U.S., organizations are popping up to help address one of the core concerns about opportunity zones–that they will do little more than supercharge gentrification.
Alexander Flachsbart started the non-profit Opportunity Alabama to help build community capacity to understand how the program could work for them. He told Buyouts he has been able to “bridge the gap” between developers and local projects quickly, and does not necessarily believe the split between investors and projects is all that stark in Alabama.
“I think maybe in really large urban areas where a lot of the thinking about this program goes on, in places like New York and Chicago and the Bay Area, I think maybe that’s a problem,” he said. “But I think in places like Alabama, communities know what’s happening in their back yard by and large, and it’s a lot easier to build consensus.”
Flachsbart told Buyouts the biggest disconnect seemed to be between the bigger national OZ funds and the more rural parts of Alabama, and that is where most of his work is happening. He encouraged family offices—whom he said “own” the OZ space, at least in Alabama—to work with organizations like his, which have also sprouted up in Baltimore, Colorado, Washington and Oregon, among other places.
Flachsbart said these organizations can save potential investors time due to their knowledge of the space in their local areas.
“The deal flow that we’re looking at is probably four dozen projects, and the ones we’re marketing are probably half of those,” he said. “Ultimately, it’s a good way to show that you’re trying to engage and give back…trying to accomplish the ultimate aims of the program.”
One of the family offices Flachsbart has worked with is McNally Capital. Managing partner Frank McGrew recently told Buyouts that McNally does try to work with local communities.
“I think the community has to be very much engaged as to what types of development will take place,” he said.
Avy Stein, co-founder and chairman of Cresset Capital, who is making its own big OZ push, agreed.
“There is nothing that we would ever do that wouldn’t involve understanding and commitment from the local communities,” he said.
Another way to ensure community buy-in is to seek out communities that have somehow codified what they are looking for from OZ investors. An organization called Accelerator for America has helped cities across the country develop their own OZ prospectuses. Houston, Texas, Louisville, Kentucky and South Bend, Indiana have theirs posted online for anyone to read.
You can also be more hands-on. Kamil Homsi, founder and chief executive officer of Global Realty Capital, the onshore arm of a Dubai-based family office, told Buyouts he requires anyone he invests with to be in touch with local communities.
“For the funds we are creating for our properties that we designated and we purchased, the sponsors have a guideline from me that they have to follow,” he said. “Have you spoken to the mayor? Have you been with the board of education? Have you spoken to the social workers?…The general involvement in the community.”
Kunal Merchant, who runs California-based CalOZ, which works with developers, communities and government officials, said he felt like all of this is necessary.
“Passing federal legislation, having some incentives here and there, that’s just not going to be enough, you really do have to stitch together an ecosystem to make this work,” he said.