To many people, nonprofit work might not seem to have much in common with Opportunity Zones and other sorts of federal development incentives.
But Rebecca Mitich, a partner at Husch Blackwell, sees plenty of similarities. And she’s in as good of a position as anyone to appreciate exactly where the overlap is.
After growing up in Los Angeles and then later moving to the Midwest, where she attended both high school and college, she found herself in Chicago teaching English as a second language and working for a nonprofit group specializing in local development. When she decided to attend law school at Marquette University, she wasn’t at all certain her newly chosen profession would allow her to do work similar to what she had been doing in the past.
But at her first full-time job, she found the two pursuits could dovetail quite nicely. Landing at Whyte Hirschboeck Dudek, which was merged into Husch Blackwell in 2016, she began working on land acquisitions and dispositions and then real estate finance. Not long after that, she was dealing with the federal incentives known as New Market Tax Credits.
The bulk of her work now involves government programs meant to encourage development in places where it wouldn’t occur otherwise. Most recently, this specialty has her dealing with Opportunity Zones. Passed as part of Congress’s tax overhaul in 2017, the program gives investors a tax break on capital-gains earnings if they agree to put their money into projects in specially designated zones.
“When I was working for a family-services organization on the west side of Chicago, they were really about building communities in the places where we live,” Mitich said. “By being the sort of attorney I am, not only is my work challenging and intellectually rigorous, but my efforts are also going toward community development.”
Wisconsin Law Journal: How do Opportunity Zones differ from the other sorts of federal development incentives?
Mitich: I think it’s quite different. One of the reasons is that it’s not competitive. With New Market Tax Credits, it’s a very competitive process. With housing tax credits, it can also be extremely competitive. But there is no cap and there is no maximum with Opportunity Zones. You just need to have investors with capital gains, if you don’t have capital gains yourself.
WLJ: Any other differences?
Mitich: With opportunity zones, you are dealing with equity, not debt. Equity is more expensive than debt. Your investors are generally going to expect a higher return than a lender. And equity is a different planet. It’s a different language and a different way of getting at a deal. A lot of developers have never raised equity before.
WLJ: Do you think people in Wisconsin are taking full advantage of Opportunity Zones?
Mitich: There is definitely slowness to enter the market. And that’s not just here. That’s nationwide. We are not on the coast. A lot of the deals with opportunity zones are being created in New York or L.A., where you have lots of projects worth hundreds of millions of dollars. And if you have an investor looking to do these projects, they are not looking to manage 500 $1 million projects. They are looking for five $100 million projects, or 10 $50 million projects. You don’t want to manage 50 projects. You want to manage five or 10. And we don’t have that many big projects.
WLJ: What might help make projects more common in Wisconsin?
Mitich: What I hope we will start seeing is more local and regional funds that people in the cities of Milwaukee or Racine or other places will start for impact investors who are interested in seeing social impact from their investments and fund smaller or mid-sized projects.
WLJ: What do you think of some of the criticism of Opportunity Zones?
Mitich: Well, it is meant to benefit low-income communities but those are based on census data that is 10 years old. And 5 % of opportunity zones can be in places that are contiguous to low-income communities. So you have the free market working. And you have investors saying, ‘I can build a $100 million skyscraper in Queens, and my investors are going to be very happy with that.’ And some people are saying that is not what the program was intended to do. Investment is already happening in those places. And that’s certainly a valid criticism. A lot of people will think the program will have failed if that’s the vast majority of the projects that are funded.
WLJ: What are the first steps that a developer interested in Opportunity Zones should take?
Mitich: I think you first need to have a project in an Opportunity Zone. If your project isn’t in a zone, you need to find another property or try to use another sort of development incentive. Then it’s about having access to people with capital gains. Or if a developer has his own capital gains from a property that’s been sold, that’s great. Or if a developer already uses private investors in real estate deals, you can create an opportunity fund and have the investors invest their capital gains.