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Boston’s commercial real estate community is bullish on growth heading into 2019, but it isn’t sure opportunity zones are going to spark another development boom.
Parts of West Cambridge near the Alewife MBTA station, already a popular development spot, have been certified as a Massachusetts Opportunity Zone.
Massachusetts Gov. Charlie Baker’s administration designated 138 areas across Massachusetts in April as opportunity zones, a tax incentive created by the 2017 tax reform law. Aimed at spurring development in low-income neighborhoods, the plan gives deferment, and even exemption, of capital gains taxes to those investing in businesses and real estate, depending on how long the investor holds onto the asset.
Nearly half of Massachusetts’ opportunity zones are in lower-income “Gateway Cities” that were already attracting developers without the help of the new federal program.
But while accountants are still trying to make sense of the new tax code and how to navigate it, some say they feel more comfortable sticking to policies where they are already well-versed.
“Why would we insert ourselves in that when we know the state government increased the housing bond bill?” said Hackett Feinberg partner Kimberly Martin-Epstein, who is speaking at Bisnow’s Boston: 2019 Forecast and the Future of Opportunity Zones event. “I don’t think anyone wants to kill themselves on the uncertainty when you can get a lot done with what we have.”
Martin-Epstein’s practice is concentrated in commercial real estate with a focus on affordable housing and financing. She points to the $1.8B affordable housing bill Baker signed this spring as an easier-to-navigate economic development tool. There are also Gateway Cities incentives like the Housing Development Incentive Program that are in place to spur development in the parts of the state that aren’t booming like Boston’s urban core.
Provincetown, a popular Cape Cod town, has also been designated as an Opportunity Zone in Massachusetts.
With the industry already spending so much time trying to make sense of existing public-private partnership programs, Martin-Epstein said there is real estate fatigue trying to figure out another one. Rather than spurring another building boom, she expects the new program to be a shot in the arm to projects that were already in the works.
“To me, this is a way to keep projects that perhaps didn’t pencil out will now pencil out with a little bit of extra equity and attention,” she said.
Some of the Massachusetts opportunity zones certified by the U.S. Department of the Treasury have left locals scratching their heads over why an incentive is needed to build. While low-income parts of Fall River, Springfield and New Bedford made the cut, so did neighborhoods in places like the tourist-heavy Provincetown as well as Alewife in West Cambridge, which developers are already building up as a life science relief valve to Kendall Square.
“I think it's undetermined how much more construction opportunity zones are going to spur than what’s already going on,” Hickey said. “Did Alewife really need to be an opportunity one?”
Despite the uncertainty in what role opportunity zones will play among existing state programs and the ongoing building boom, Hickey, Martin-Epstein and others in the local real estate community welcome another tool in the economic toolkit. Colliers International co-Chairman Kevin Phelan calls them a “godsend for development” in the state.
At a time when construction and labor costs in Massachusetts are sky-high, one developer welcomes any additional help to solve the problem.
“The economics of ground-up development are increasingly challenging,” Federal Realty Investment Trust Vice President Bryan Furze said. “Opportunity zones will provide, in some cases, more than an incentive by laying a path to economic viability for some real estate projects.”
While he understands there can be a distrust in P3s from all parties involved, Furze said it is a disappointing reality he tries to avoid. Until landowners, the municipality and the community stakeholders see each other as partners in something like an opportunity zone, he expects continued hesitancy in partnerships that could spur community building.
But, he says, he advocates for the partnerships and thinks they should be utilized to check off a few glaring items on the state’s economic wish list.
“Real estate development has become so much more sophisticated over the past decade, and successful projects need to respond to and solve for community needs,” Furze said. “The creation of workforce housing will benefit everyone in Massachusetts, and investment in underserved communities, if done correctly, will incubate entrepreneurship and new business.”
Hear Hickey, Martin-Epstein, Phelan, Furze and others at Bisnow’s Boston: 2019 Forecast and the Future of Opportunity Zones event Dec. 18 at the Boston Marriott Long Wharf.