Waterville promoting Opportunity Zone to keep momentum going
Photo / Maureen Milliken
Development officials are hoping the May designation of downtown Waterville as an Opportunity Zone will help keep the city's redevelopment rolling.
Development officials are hoping that the new Opportunity Zone program will help keep the momentum going on downtown Waterville development.
The city’s downtown was one of 32 zones designated in May as an Opportunity Zone, and many investors and development officials across the country are still trying to gauge how it will work.
The city is actively working with investors to take advantage of the program, said Garvan D. Donegan, director of planning and economic development at Central Maine Growth Council.
Donegan said in a news release the designation “comes at an exciting time for the city and its downtown, as participating in the program illustrates Waterville’s commitment to revitalize and develop the local community, which is a key component of our economic development strategy.”
More than $65.5 million dollars has been invested in 20 commercial properties downtown in the last few years, he said. “This now provides us another tool in our toolbox to incentivize businesses and individuals to partner in Waterville’s revitalization.”
The program, which is part of last December's federal tax overhaul, uses property sale capital gains, allowing them to be formed into an Opportunity Zone fund, of which at least 90% must be rolled into development of a property or business in the zone. Taxes are deferred for seven years, then paid with a 10% discount. If the property is held for 10 years, any money from the sale can be rolled back into that fund, with no taxes charged. The fund can be used to develop other projects within that same zone.
Chris Paszyc, partner and broker with CBRE | The Boulos Co., said that the program is a “game-changer” for designated communities.
“People looking to defer their gains on real estate sales already make up a sizable segment of our investment market base,: he said. “Given that the OZ program extends beyond the traditional 1031 Tax-Deferred Exchange program, we will see new and exciting business investment opportunities in the zones for investors looking to defer their gains.”
There is an estimated $2.3 trillion in unrealized capital gains in the United States. The 1031 program gives investors a tax break for gains from a property sale rolled into purchase of a similar property, but the Opportunity Zone takes the tax breaks further.
Still figuring it out
Winifred Tate, a Waterville city councilor, said she applauds the growth council for taking advantage of the program.
“We see more businesses opening in Waterville every day, and the designation of Waterville’s downtown as an Opportunity Zone is one more way we are encouraging growth that will bring prosperity to all residents,” she said in the news release.
The growth council is planning workshops in the coming weeks to provide information on the program, Donegan said.
Because the program is new, everyone from the Internal Revenue Service to developers are still trying to gauge how well it will work.
A downtown Augusta project — the redevelopment of 333 Water St. — may be the first active Opportunity Zone project in the country, Mainebiz was told in August.
Jason Richardson, director of research and evaluation for the National Community Reinvestment Coalition said that many who hope to take advantage of the program are still in the “How do we use this?” phase.
"A lot of our members are interested in this program as a way to spur investment in the hardest-hit parts of their communities,” he said. "The capital gains benefit only happens after 10 years, so the investor has to leave their cash in the fund for that long.”
Unrealized capital gains in the U.S. are valued at $61 trillion, according to Richardson’s organization, which supports about 600 members with policy analysis, training, organizing and research. The organization anticipates the zones will see investment in incubators and help fuel the growth of startups, bring employment gains and investment in job training, as well as the "more difficult" challenge of spurring investment in affordable housing, it said in a blog post on its website in June.
"At the heart of the program is the desire to address the unequal investment landscape in American communities," the post, cowritten by Richardson, said.
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