Morris Davis (left), the Paul V. Profeta chair of Real Estate and academic director for the Rutgers Center for Real Estate, moderates a Q&A with U.S. Sen. Cory Booker during the center’s conference on federal Opportunity Zones. — Photo by Fred Stucker/Courtesy: Rutgers Center for Real Estate
By Joshua Burd
U.S. Sen. Cory Booker has never been shy about touting opportunities in Newark.
He did so during his early years as the city’s mayor, about a decade ago, after he had watched major shipping companies unload their vessels at Port Newark-Elizabeth and haul their cargo to warehouses at Exit 8A — only to return north with the goods when it was time to distribute them across the country. It was all too perplexing, he said, given the vacant land in the port district that could house Newark’s own large industrial buildings.
Unlocking that potential was a matter of spreading the word and offering support to the private-sector developers that could help the city achieve that goal.
“Now you see that reality,” Booker said. “So it was a partnership of local leaders understanding the dynamics of their community and the areas that needed investment — and finding great people to invest capital in those areas — that has created a dramatic, dramatic change in the city of Newark.
“That needs to be replicated a million times across America. Those kinds of partnerships are critical.”
The state’s junior senator wasn’t simply reliving the past on Monday as he spoke to more than 200 of New Jersey’s commercial real estate leaders. Instead, he was offering a playbook for making the most of the new highly touted federal Opportunity Zone program, which he co-authored and is now being rolled out across the country.
The program is far from perfect in its early stages, Booker said, but offers a powerful new incentive for the private and public sectors to steer economic development to low-income areas.
“These are the kinds of win-wins you can create when you create coalitions,” Booker told a sold-out crowd in New Brunswick, where the Rutgers Center for Real Estate hosted a wide-ranging conference on Opportunity Zones. “Not just public-private, but public-private-nonprofit partnerships that can really expand opportunities.”
Included as part of this year’s federal tax reform, the Opportunity Zone program seeks to drive long-term capital investments to low-income and distressed areas, in part by offering major tax incentives. The program allows investors to defer and potentially reduce capital gains taxes, depending on the hold period, by redeploying the proceeds into a fund that targets certain neighborhoods by the end of 2019.
Investors and so-called qualified opportunity funds also have the chance to exclude the gain on all appreciation if they hold the investment for at least 10 years.
The federal government has approved zones in 169 low-income census tracts across 75 municipalities in New Jersey, which have caught the attention of the state’s development community in recent months. State officials are now working on tools that will help steer investors to those neighborhoods, but as Booker noted, “the beauty of the bill” is that the choice ultimately rests with the private sector.
“Government has a light touch here,” said Booker, who co-authored the legislation with South Carolina Sen. Tim Scott. “It’s really the investors themselves now deciding where to invest. I don’t think government should be picking winners and losers.”
Booker spoke Monday during a Q&A with Morris Davis, the Paul V. Profeta chair of Real Estate and academic director for the Rutgers program, in a candid discussion about the implementation of the Opportunity Zone legislation. The offering has generated excitement and interest, he said, but the program has been uneven in its rollout and still faces hurdles going forward.
For instance, Booker said he hopes to address what may be “his biggest worry and concern” about the legislation — the lack of a reporting tool or mechanism for measuring the performance of Opportunity Zone investments nationwide. The original bill called for creating such a mechanism, he said, but was removed as it worked its way through Capitol Hill.
“We as government can’t design something like this and then five years later or 10 years later, have no way of measuring it,” he said. “So unfortunately that element of the bill was stripped out of it. It’s outrageous.”
Without “the tools to create transparency, I fear that the maximum impact of this legislation won’t get done,” Booker added. It’s why he and Scott are now weighing lame-duck legislation that would create those tools.
“We can learn lessons that make the next version of this bill even better or that I can take to colleagues and argue for extending it, expanding it or perfecting it,” he said.
Not to mention that measurement and transparency are “great for investors. When you can see that there’s a certain class of investment that is really working in these rural areas, that’s powerful information that can guide other investors to replicate those kinds of investments in other areas as well.”
Booker also said public officials and investors in some regions weren’t embracing or understanding the program as quickly as others. On the positive side, he pointed to places such as Los Angeles, where Mayor Eric Garcetti has jumped on board and was “creating exciting partnerships” with think tanks, foundations and private capital for Opportunity Zone projects.
Elsewhere, stakeholders “haven’t discovered these opportunities,” Booker said. Some are still in disbelief about whether the program actually exists after he explains the legislation.
“So far, implementation in some areas has been really good and really promising,” Booker said. “And in some areas, it’s been rough — which makes me realize that there are opportunities out there for savvy investors, especially people who have a heart and mind toward moral capitalism.”
While it may be years before stakeholders can gauge the program’s true impact, Booker said the recent momentum in Newark is an example of what’s possible through public-private cooperation. He credited the creation of financial incentives — namely, the state’s Urban Transit Hub tax credit program — with making projects feasible and supporting his efforts to “sell Newark” to companies across the country during his time as mayor from 2006 to 2013.
“Suddenly Newark is in its biggest economic development period since the 1960s,” Booker said. “And it’s having a multiplier effect on our community. From small businesses to job opportunities, to training to infrastructure investment, (there are) so many good things going on.”
With the help of Opportunity Zones, he said, he sees the chance to replicate that formula across the country.
“We have about 6 trillion dollars in unrealized capital gains sitting on the sidelines right now, so success for me is moving a significant amount of that money into nontraditionally invested areas — from the rural Appalachian Mountains to urban places like Camden,” Booker said.
Success also means that investors are working “in partnership with local communities — because I do believe that local communities should be designing their own destinies — and that the investment in things from businesses to infrastructure to real estate creates a multiplier effect of workforce development and expanding opportunities. That’s really what gets me excited.”
Editor’s note: Stay tuned for Real Estate NJ’s upcoming November issue for more coverage of the Opportunity Zone program in New Jersey and the Rutgers Center for Real Estate conference.