Opportunity Knocks in Miami’s “Opportunity Zones”

Miami Dade County has 68 designated opportunity zones that offer tax incentives if developers hold onto them for 10+ years. Let’s take a look at this program and what the unintended consequences may be.

Enacted as part of the federal tax overhaul last year, opportunity zones offer tax incentives for investments in distressed urban and rural areas. This bipartisan effort, written by Senators Cory Booker (D) and Tim Scott (R), is meant to incentivize investment in areas that developers and institutions would not usually consider.

Essentially, if any property purchased in an opportunity zone is held for 10 years, the basis of that property is brought up to the market value at 10 years, essentially wiping out any capital gains liability.  This 10-year provision hopefully forces owners to make improvements, and not consider the asset a flip property. The writers of the bill hope that this will provide steady growth in the areas that need it, however, the risks of minimizing workforce housing units, rapid gentrification, or absent property owners must be considered as well.

Miami Dade County has 68 designated Zones for this investment. These neighborhoods include Cutler Bay, West Coconut Grove, Overtown, Lemon City, Opa Locka, North Maimi Beach etc. More rules are still being considered by the U.S. Treasury as to the types of projects that would be allowed, but as of now, the rules seem pretty broad. Experts say that income-based property, such as multi-family and storage facilities are the best strategic investments, but it will all be a matter of location. For example, multi-family would be a great investment in South Miami, but warehouse projects would be better suited in the East Doral area adjacent to the airport. Developers must consider their context when programming and designing these projects or their long-term success will come into question.

As with any government program, the unintended consequences must be examined. The program seems fit for areas that remain stagnant in growth, and are in search of revitalization. However, in certain areas, such as the West Grove, developers have been itching to get in and this may tip the scales from its steady gentrification into a more rapid, less sustainable one.

In addition, the 10-year hold rule on this property may disincentivize condo or housing sales by owners to people in the area. This may stifle efforts that seek to bring homeownership to lower to middle-income populations in neighborhoods such as Lemon City. Many economists agree that home ownership is a goal for middle-class families, however, if developers and institutions are holding assets for tax breaks, the stock that is for sale in those distressed areas will lessen over time.

There is also a threat of absentee ownership, adding more blight to the already dilapidated areas. Hopefully, the 10-year hold rule is an incentive to spend money improving and maintaining the property, but some will purchase assets simply as appreciation plays and sell them after 10 years.

There are risks to the program from a revitalization perspective, especially in Miami-Dade County, but hopefully, its best intentions prevail. It may be good for some neighborhoods, and detrimental to others. However, hopefully, the state government can watch and amend the maps over time as they learn new information, or as the neighborhoods themselves begin to show signs of change.

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Sources:

https://deolmsgis.maps.arcgis.com/apps/webappviewer/index.html?id=4e768ad410c84a32ac9aa91035cc2375

https://therealdeal.com/miami/2018/09/28/heres-everything-you-need-to-know-about-opportunity-zones/

https://www.beaconcouncil.com/new-opportunity-zones-could-be-a-new-beginning-for-miamis-inner-city/