Lessons from The Forbes OZ 20 And the Path Ahead

Published by Grant Baskerville on Wednesday, February 3, 2021
Journal Cover Thumb February 2021

The Sorenson Impact Center was an early advocate of the opportunity zones (OZ) incentive and for good reason. Like many others, the Center saw it as a means to drive impact capital into historically underserved and overlooked communities.

With the onset of the COVID-19 pandemic, arguably, the OZ incentive took on a whole new level of significance in the drive to support and promote equitable economic recovery. Despite the uncertainty of the past 12 months, the OZ incentive has offered great cause for optimism. This comes with a significant caveat, however. There is currently no clear picture of the scale, scope, reach and impact of the OZ incentive.

The Forbes OZ 20: Top Opportunity Zone Catalysts

In 2019, the Center’s founder, Jim Sorenson, generated the concept of creating a national competition to highlight and showcase the best examples of where the OZ incentive is being applied by both communities and investors. This translated into the creation of the Forbes OZ 20: Top Opportunity Zone Catalysts, which attracted applications from 113 funds and community organizations across the nation during summer 2019. When the Center started this process, there was no centrally stored location where researchers could identify qualified opportunity funds (QOFs). The closest thing to this is Novogradac’s Opportunity Funds List, which features more than 200 QOFS (Novogradac also publishes aggregated data on nearly 1,000 QOFs). This meant the search for OZ fund activity was largely conducted online by trawling local news websites in an attempt to piece together who was doing what and where.

The Forbes OZ 20 gave the Center a firsthand look at how communities and QOFs have used the incentive to drive transformation and change, culminating in the recognition of 20 funds and communities, with four of them winning the competition’s grand prize. Trailblazers such as SOLA Impact built and refurbished affordable housing units for individuals and families experiencing material poverty and homelessness in South Los Angeles. In the Mountain West, Colorado’s Four Points Funding created a means to invest in small-to-medium scale housing, tourism and hospitality opportunities in rural communities that offer at- and above-market rate returns. Opportunity Alabama (OPAL) built deeply integrated networks throughout the state with an investment-ready pipeline of more than 30 projects valued in excess of $1 billion. In Erie, Pennsylvania, the Downtown Development Corporation (EDDC) and the Flagship Opportunity Zone prioritized community consultation and addressing local needs when developing their OZ project pipeline. This translated into the development of the city’s Flagship Food Hall, a project that will create local jobs, offer healthy food, and remove downtown Erie’s USDA Food Desert designation.

Best Practices Among Forbes OZ 20 Funds

Based on an analysis of the Forbes OZ 20 finalists, the Center identified the top three key traits of promising OZ funds. These included a track record of job creation and adding value to communities, a commitment to social impact monitoring and reporting, and a long-term investment horizon.

In terms of job creation and adding value to the local economy, we observed that many QOFs prioritized local hiring and sub-contracting during the development and construction of their projects. Aligned to this, many of the finalists prioritized impact monitoring and reporting on their projects, where they actively measured data related to job creation, housing affordability, environmental impact, race and gender, education outcomes and more. The theme among QOFs that actively tracked their impact was they viewed this as a competitive advantage as opposed to an inconvenience or added layer of bureaucracy. Last, 74% of all funds that applied to the Forbes OZ 20 indicated their intention to hold OZ investments for 10 years or more. This long-term view engenders a more impact-oriented approach to investment that prioritizes community needs and stable investor returns.

Innovations in The Marketplace

As the market has evolved and developed, so too have the tools and resources available to support more impact-oriented investment. To date, more than 500 projects have used the Urban Institute’s Community Impact Assessment Tool, a resource that allows developers, investors and communities to critically assess the impacts of proposed projects and offers proposed improvements. The District of Columbia has even gone as far to mandate that QOFs use the Urban Institute’s Assessment tool, alongside other measures. In addition to this, the Mastercard Center for Inclusive Growth developed its very own Inclusive Growth Scorecard. This resource uses myriad publicly available and proprietary data to help identify opportunities for equitable economic growth, such as Erie’s Flagship Food Hall. Other notable innovative tools include the Center for Rural Innovation’s Rural Opportunity Map and The Opportunity Exchange, an online platform which connects investors, economic development entities, and project sponsors to deliver place- and needs-based investment in underserved communities.

On the Horizon

The Forbes OZ 20 demonstrated that the OZ incentive can and is being applied to deliver meaningful change. In a similar fashion, the proliferation of other impact-oriented tools and resources is supporting investors and communities to deliver projects that support and meet community needs. However, the fundamental lack of understanding around the scale, scope and impact of the OZ marketplace remains problematic. At best there is only a snapshot of the scale of OZ activity taking place across the nation.

While the incoming Biden-Harris administration has indicated its intention to continue the OZ incentive, this is likely to come with possible regulatory and/or legislative intervention that enhances transparency and creates a range of new reporting requirements. As such, the OZ ecosystem stands somewhat at a crossroads. The OZ ecosystem can wait and see what might come, or, on a voluntary and proactive basis, QOFs and communities can take the dust off the OZ Reporting Framework–published almost two years ago–and, in partnership, chart a path with the greatest chance of driving equitable change and transformation.