Measuring Impact in Opportunity Zones, with USIIA’s OZ Framework

John Cochrane

Should the Treasury Department impose a community impact reporting requirement on Opportunity Zone investing? And what would a reporting framework even look like?

Earlier this year, the U.S. Impact Investing Alliance, in partnership with Georgetown University’s Beeck Center for Social Impact + Innovation, created the Opportunity Zones Reporting Framework — a guideline that defines best practices for Opportunity Zones investors and fund sponsors.

John Cochrane is senior associate at the U.S. Impact Investing Alliance, and he joins me on the podcast today to discuss the framework and how to measure the impact of the Opportunity Zones tax policy.

Click the play button below to listen to my conversation with John.

Episode Highlights

  • The purpose of the Opportunity Zones Reporting Framework, and what it measures.
  • Why the Treasury’s reporting mandate was originally part of the Investing in Opportunity Act, but eventually stripped out of the final Opportunity Zones legislation.
  • How the desire for data transparency and reporting has become more prevalent lately.
  • Who will use the OZ Framework and why.
  • The key players involved in the creation of the OZ Framework.
  • The importance of engaging local communities at the outset of any Opportunity Zones investment.
  • How local communities can adopt the OZ Framework and use it to the advantage of their residents.
  • How Opportunity Zones investing may change over time.

Featured on This Episode

Industry Spotlight: U.S. Impact Investing Alliance

U.S. Impact Investing Alliance

Under the support of the Ford Foundation, the U.S. Impact Investing Alliance is committed to raising awareness of impact investing in the United States by advocating for supportive policies, catalyzing investor action, and building the movement of impact investing broadly. In partnership with Georgetown University’s Beeck Center for Social Impact + Innovation, they created the Opportunity Zones Reporting Framework earlier this year.

Learn More About the U.S. Impact Investing Alliance and the OZ Framework

About the Opportunity Zones Podcast

Hosted by founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.


Show Transcript

Jimmy: Welcome to the Opportunity Zones podcast. I’m your host, Jimmy Atkinson.

The intent of the Opportunity Zones legislation is to spur capital investment in economically distressed or otherwise overlooked communities throughout the United States. The original Investing in Opportunity Act that was first introduced to Congress in February of 2017 included a mandate to the Treasury Department to submit an annual program effectiveness report to Congress. But this mandate was stripped out of the final version of the bill that became law in December 2017 when it was passed as part of the Tax Cuts & Jobs Act.

Now without any sort of reporting requirement in place, many worry that Opportunity Zones may lead to gentrification and resident displacement, as neither Congress nor the Treasury Department has offered any type of framework for measuring the program’s effectiveness.

To fill that void, the U.S. Impact Investing Alliance in partnership with Georgetown University’s Beeck Center for Social Impact + Innovation developed the Opportunity Zones Reporting Framework earlier this year.

Here to discuss the framework with me today is U.S. Impact Investing Alliance senior associate John Cochrane. He joins me from his office in Washington DC.

John, thanks for joining me. Welcome to the show.

John: Thanks so much for having me. It’s a pleasure to be here.

Jimmy: Great, yeah. I’m glad you’re here today. I think this is an important topic, so I’m glad you’re here to discuss it. So let’s get started. Right off the bat, I’m gonna ask you, what is the purpose of the Opportunity Zones Reporting Framework, and what does it measure, exactly?


John: Sure. So, as you laid out, we think it’s really clear that Congress always intended for this to be a program or a benefit that would really drive investment and transformative investment in these distressed communities around the country. But without the sort of core reporting, we really struggle to understand how we would be able to both make that case in the long term but also how we could sort of actively shape the market to try to drive capital to the places that need it most, the places that are most able to deploy it in these transformative ways. So we started a conversation in the summer of last year in July with a meeting at the New York Federal Reserve just to talk about what would a common standard for talking about the impact of Opportunity Zone investments look like and recognizing a couple of important points.

First, we at least hope the Opportunity Zone market is gonna be a really broad and diverse one, diverse in terms of the geographies and the types of zones that are receiving capital, but also diverse in terms of the types of investments that are being made. And that poses a problem because how do you measure sort of consistently across the nation when you have this diverse market? So really trying to distill down to across all opportunity funds, what are gonna be sort of the common metrics and measures that we can look to?

So that was the first challenge, and then the second was that this really was meant to create a market. This isn’t like New Market Tax Credit, even, it’s not like the CDFI Fund. This policy was meant to create a market and sort of let market forces take over. So we knew that when we constructed a common framework, it had to be done in a way that would be appealing to and useful to market actors. So that was really the sort of driving philosophy behind it, and what emerged out of that meeting was the Opportunity Zone Reporting Framework, and it really comes in two parts.

The first part is a set of guiding principles. So one of the first principles that investors, fund managers should be adopting in order to show that they’re really trying to be good actors in this space, and those core principles are community engagement, equity, transparency, measurement, and a commitment to long-term outcomes. And so we think that by signing onto those principles, it’s a really strong indication to folks in the community, to investors, to policymakers that you’re trying to live up to the promise of Opportunity Zones, that you’re trying to contribute to renewed prosperity and opportunity in these places that have sort of struggled for it for so long.

Then the second piece of the overall framework document is to set up these core metrics that we think can be applied to most, if not all, funds across the country. And we try to look across the life cycle of an investment, so starting with what are the things that you should be doing before you even moved capital? How are you engaging with the community to that first principle? How are you engaging with folks on the ground to understand their needs and their priorities, and how are you embedding that in your investment pieces?

Then, going on to sort of documenting the investments themselves, we don’t want Opportunity Zones to become a black box where we don’t really know what money went in and what projects came out. So a commitment to reporting on basic transaction data, how big are your deals, what types of projects are you doing, where are you doing them? And this is something that we’ve actually asked for federal reporting, but in the absence of federal reporting, we think that there could still be a voluntary standard. And here, we really think about how this can drive market formation.

So this kind of information is gonna be critical for local policymakers to understand, “Hey, why haven’t we gotten any investment into our Opportunity Zone when, you know, two counties over, they’re really bringing in a lot of deals, a lot of activity? Is there something that we can change to make our zone more accommodating or more attractive to this investment?” But it’s also important for investors to see what are the types of deals that can be done, where else should I be looking, and it’s obviously important to the overall evaluation of the policy.

Well, we go a step further in the Voluntary Framework and say, “Let’s also talk about the real outputs that Congress was seeking when they passed this law.” And, you know, it was clear from the start, they were talking about new businesses, they were talking about jobs, and to the extent that this is gonna be now in the real estate space, talking about creating things like affordable housing, sort of equitable development, inclusive development so that we’re not seeing the sort of bad outcomes that you talk to out of the top of gentrification and displacement without sort of compensating the folks who are living and working in the zones now.

And then the last piece of the reporting that we talk about is how are you thinking about exiting? So all of the benefit for the taxpayer gets captured when they exit, and they realize that generous capital gains incentive, or at least most of the incentive, is captured then. And so how are you thinking about what that exit looks like so that we’re not ripping assets out of communities in 10 to 40 years but instead really setting up these places to become strong economically and strong communities going forward? And we realize some of this is a tall ask, so we worked really carefully with a range of stakeholders, with investors, with traditional investors, and with impact investors. We worked with fund managers in wealth platforms, real estate developers, policymakers, academics to try to understand what the different pressures were and really try to hone in what we put into the framework to account for all of those different viewpoints. And so I think, yeah, that’s the sort of as-quick-as-we-can-make-it introduction to what we were trying to do with the framework.

Jimmy: That’s great. Yeah, there’s a lot you’re trying to do with it. It’s a lot to unpack there, and I wanna ask you a follow-up question about who were some of the people who lent their voices to the project a little further down the road here in our conversation. But, first, I want to follow up with you on those five core principles. You named them as community engagement, equity, transparency, measurement, and outcomes. Could you go into each one in detail for a moment?

John: Yeah, happy to. So the first being community engagement, we think it’s gonna be vital that investors and fund managers seek to understand the zone in the local context that they’re trying to invest in. Thinking that for many investors that are coming into this space, they don’t necessarily have experience in low-income communities. There are some institutions and investors with a tremendous long-term track record investing in these communities, but there’s a lot of folks who are coming in who just don’t know what it looks like on the ground yet. And so, as I was saying, look, even apart from the impact side, if you wanna make smart investments, you should engage with the community from the start to understand their needs, their priorities, and how your dollars, your capital coming in can benefit the community as a whole.

When we think about equity, we’re trying to just get this upfront commitment that you are, indeed, trying to create community benefits. So we know that the sin businesses are excluded by the statute, so no liquor stores and strip clubs, but are you also looking to see, gee, is there a need for affordable housing? Is there a need for education facilities? And can we deliver some of those through our investment? Transparency gets to this fear that we just won’t know what happens in Opportunity Zones. You know, you or I could self-certify a fund tomorrow and start making investments, and, potentially, no one would ever be the wiser, but we just don’t think that’s a healthy way to create a market. No markets function well in the dark, and the policy, again, wants to create an active and successful market, so a level of transparency is necessary for that, and then, furthermore, for helping communities to understand how they can really leverage this piece of policy to advance their long-term objectives.

Measurement is related to that, and so saying that it falls to the fund manager to make the commitment that they’re going to track and measure the impact of the investments that they’re making. That was one of the issues with the initial statutory language around reporting that it was unclear who is actually gonna take those measurements to inform Treasury’s report to Congress, and maybe it could’ve been an unfunded mandate on the states or we weren’t sure. So we wanted to be really clear upfront that what we’re talking about is commitment from the fund manager because they’re really the ones sitting at the center of the deals, and they’ll be the ones able to track it. And, sure, maybe some of it rolls down to the projects or up to investors, but the fund managers are the central node in all of this.

And then outcomes, you know, ultimately, this isn’t about, you know, just the number of dollars that move or just the number of projects that get done, it’s what we do to actually change outcomes in these places. And this isn’t necessarily a role for the fund manager. It’s gonna require academic analysis, it’s gonna require the Federal Reserve and the Council of Economic Advisors to weigh in, you know, experts who have the capacity to make these judgments. But we want fund managers and investors to come in at the outset to working with those evaluators, to understanding the policy so that we can inform future efforts to do…whether we end up talking about renewal of Opportunity Zones or something that comes next. We really need that intentionality of the outset from everyone involved to work with new evaluators and commit to trying to understand what the outcomes are.

Jimmy: Well, that’s great. It’s definitely a lot that you’re asking for there. It is a big ask, as you mentioned before. Before we dive in a little bit more, John, I wanted to get a background on you. How did you get to where you are today in your career, and where did your passion for impact investing come from?

John: Yeah. So it really spurred out of in 2008 and ’09, I was on a sort of traditional Wall Street path or hoped to be, and that was a rough time to be looking at that, you know? You look around at the world from…I was at Smith Barney and it wasn’t necessarily a pretty picture of what was going on in the world.

Jimmy: Not the best time to get into that profession, probably.

John: Exactly. But I was fortunate enough to have some clients come and ask us about social funds, and then there weren’t that many, some Domini funds, some Pax funds. But they wanted to get some of these social SRI funds into their portfolio for the personal investments, and it gave me a chance to just research these but never really been exposed to it before. And, actually, what I saw was, wait, some of these are performing really well, and it was sort of that lightbulb moment that doesn’t all have to be about, you know, sort of red-blooded, you know, return first and always capitals when you could do good work through your investments.

That ended up taking me down the road to international development. I did some work with the State Department, would-be Inter-American Development Bank, sort of tortured path through the last 10 years, but connected me to philanthropy where a lot more foundations were starting to think this way about how they can leverage endowments to have positive impact and to advance their charitable purposes, community foundations that are trying to spur Main Street investing and, you know, invest in Main Street not Wall Street, connecting with their donors, you know, a high number of folks in small towns around the country, successful businesspeople who have been sending their investments away and realizing that there’s another way.

And all of that, I got into sort of a lens of how public policy can enable this, and that’s what brings me to the U.S. Impact Investing Alliance where our mission is to catalyze the flow of impact investing in the United States, defined broadly across asset classes, across impact themes, but how can we get more investors thinking about the impact of their investment decisions, and looking specifically at public policy to enable it, looking at working directly with investors to help them understand the tools that they have, and then building a broader movement around impact investing. So how do we understand what impact investing means in our day-to-day lives either as individual investors or as just folks in the community who can benefit from this type of work? So it’s been, yeah, a little bit of a tortured path, but a lot of fun and really inspiring the folks that we get to work with on a day-to-day basis.

Jimmy: I’m sure it must be. And so your colleague, Fran Seegull, she’s the executive director of the U.S. Impact Investing Alliance, and she testified at the IRS hearing last month, February 2019. In your view, how did that hearing go? How was her testimony received? Were the regulators receptive to her ask, or did it mostly fall on deaf ears? What’s your take on how her testimony went?

John: So since the regulatory process started, we’ve been banging the drum on reporting. And at the outset, there wasn’t much interest, and folks at IRS going so far as to say they weren’t that interested in collecting data. They didn’t see that as their role. We have seen tremendous movements since then, including some indication in the first round of regulations that they were gonna look at reporting. And now, we expect a clear indication in the second traunch that there will, indeed, be some reporting requirements down the road, and we really credit that to the fact that the regulators have been listening to the market and to market actors. We credit it to folks in the administration at the White House who have understood the importance of measuring what’s happening in this Opportunity Zones market.

We credit it to lawmakers who have written, now, several times to Treasury to say, “We always intended for this measurement to take place, and we really think it’s critical to the success of the policy.” So no one moment to point to, but I think the hearing as a whole is a success. We saw others picking up the same idea of there needs to be reporting in this market, there needs to be a way of understanding the impact of the policy. So we are really pleased, and we continue to work with folks in D.C. to try to understand how we can move forward, and we’re offering up this reporting framework that we’ve put out as, you know, something that complements. And as I mentioned, we worked with this range of stakeholders to really get some buy-in from the market, and we think that that’s appealing to folks in D.C. But this isn’t just coming down from Washington, it’s actually based on what investors and fund managers in communities need and practice.

Jimmy: Yeah. I was surprised, actually, when I was looking through the testimony. Fran was not the only one who brought up this topic. There were several speakers who brought up this topic of data transparency and reporting. Do you think that the IRS will impose some sort of requirement to use maybe not your framework, but at least provide some sort of data transparency and reporting?

John: Yeah. I think that’s our latest indication and, you know, I’m gonna be putting my foot in my mouth if we end up wrong, but the latest that we’ve heard is that there will be a third round of regulations by the end of the year and that this would be a topic addressed there, and we’re hopeful that there will be a process for folks in the field to provide input on that so that we get it right not quite at the outset but from as early as possible.

Jimmy: Sure, sure. The Opportunity Zones Framework that you developed, who is going to use it ultimately and why?

John: Yeah. So we see it as being useful for a range of folks. So, certainly, if you’re an investor and you’re looking to have positive impact through this policy, this is something that you can take to the fund managers that you’re working with and ask for them to bake this into their process. And we’ve seen a lot of the investors who are coming into this space are sort of just defacto even if they haven’t been impact investors. They’re thinking about this as an impact play. That’s something that we’ve heard from a lot of the wealth platforms is that the phones are ringing off the hook at the impact shop when it might have just as easily all of that income and gone to the real estate side or just traditional wealth management.

So investors are interested in understanding impact through this, especially those that are investing in places that they care about. We see a lot of these sort of ongoing stories, you know, folks who are investing in their hometowns, and they wanna do that the right way. We see it as fund managers being able to say that they are being good actors and it’s not just them saying so but there’s some national credibility behind it. We see it as important for local communities and stakeholders, whether it’s the mayor or the economic development corporation is trying to understand, you know, what developers they might want to partner with on a specific Opportunity Zone investment.

Again, they can look to this national framework, and so it’s not just we came up with this on our own and decided that this was a good deal for the community, but they’ve actually taken steps to really align with national best practices. So we really try to think about how there could be multiple touch points across the market. We’re in sort of active dialog with a lot of these types of folks to understand what they need now to take what is a fairly conceptual framework and turn it into the tools, the resources, the toolkits that they need to be able to put it into practice.

Jimmy: And who are some of the key people who helped shape the reporting framework? I know that the U.S. Impact Investing Alliance and the Beeck Center at Georgetown drove the framework, but I know you had a lot of other partners lend their voices as well. Who were some of the key players in this?

John: Yeah. So I mentioned earlier that this all started with a meeting at the New York Federal Reserve with their Community Development Finance Initiative team, and they’ve been really just truly excellent and critical partners throughout. They’re not listed as co-authors, but they have been deeply involved since the start, and they continue to work and develop tools for communities and really put this into practice. And at that meeting, we had Eric Belsky from the Board of Governors. So them, first and foremost.

I would mention Jim Sorenson has been a really important advocate and champion for us in the space. Jim is on the Alliances Board, but he was also the first person to introduce us to the Investing in Opportunity Act back in Spring of 2017 and has been really instrumental in driving a conversation both in his home state of Utah but nationally about what we can achieve through Opportunity Zones. Most recently, the Sorenson Impact Center at the University of Utah announced that they’d be doing an Opportunity Zones catalyst challenge, so a prize competition to really lift up those fund managers that are doing the best work with this new tool to try to incentivize those managers to adopt some best practices above and beyond what they might be required to do in the regulations. So that’s been really fantastic development, and it’s one of the ways that we’re thinking about driving adoption and encouraging adoption of the framework.

And then I would also mention the Kresge and Rockefeller Foundations, both because they funded our work with the Beeck Center to create this framework. And we’re very grateful for that, but they’ve also…over the summer, they did their own request for letters of interest from fund managers and said, “If we put up some guarantees in first-loss capital, what could you do with that to create impactful funds?” And they got an overwhelming response from over 100, well over 100, I think, fund managers that were interested in doing that, and they’ve worked it down to a couple of cohorts that they’re gonna work with. And most recently, they just announced three that they’re going to directly support with this first-loss capital, and one of the conditions, again, is alignment with this framework.

So I mentioned these in particular, we had over 36 contributors that are listed on our website, and we’re grateful to each and every one of them. We continue to get feedback and advice and add to that list of contributors. But I mentioned those handful of really deeper partners because it points to how we’re trying to solicit adoption to incentivize adoption by fund managers, because we do realize that some of what we’re asking for isn’t asked, and so we need to make it a compelling argument to the investors and the fund managers that this is something they wanna do.

Jimmy: Right. And, you know, hopefully, this is what investors want at the end of the day and the private market can kind of compel these fund managers to adopt it. You also mentioned that local communities can adopt this framework as well and maybe require some sort of reporting at the local level, I suppose. Can you discuss the importance of investors engaging local communities at the very outset when they’re making their Opportunity Zone investments?

John: Yeah. So I think one of the really important things to keep in mind is just the tremendous time pressure that fund managers and investors are under in Opportunity Zones, you know, 180 days to get your money into a fund and 180 days to get it deployed. And, of course, some of that will get defined or shake out in the regulation, but it’s clear that there’s gonna be a time pressure, and it just doesn’t seem like there’s any way that you’re going to be able to invest in these communities, especially those that are more deeply distressed without having local champions in place. So whether that’s mayors and such making sure that the zoning process runs smoothly or local groups really buying off on the project and endorsing, “This is meeting our priorities, this is meeting our needs,” we think that’s gonna be really important.

But, as I mentioned earlier, to sort of finding good deals that sort of are responsive to the demand of residents and providing them services and products that they want but also just to facilitating sort of smooth transactions considering there’s not a lot of room for error. And so we’re looking at whether…and we’ve seen a lot of these local organizing efforts take shape, so whether it’s Opportunity Alabama or the Governor’s Office in Colorado, there’s groups in Northeast Ohio and Erie, Pennsylvania. They’re all coming to a similar set of tools that they can use to try to attract and drive Opportunity Zone capital to their communities and towards their communities’ priorities, and those are…

You know, they’re creating prospectuses, whether it’s with the Accelerator for America or on their own, they’re looking up what additional incentives they have, whether it’s Historic Tax Credits or workforce dollars that they can use to try to make…you know, help these deals pencil. And what we’re hopeful for is that as they’re looking at aligning these different levers, karats that they have to try to attract capital, they can use the framework to help screen who they wanna be getting into business with and who might be a fund manager not really prepared to take community priorities seriously, so one more way that we’re trying to create sort of positive incentive in many ways to embrace best practices from the start.

Jimmy: Now, I don’t know if you noticed, but a week or two ago, news came out that Boulder, Colorado had recently placed a moratorium on most new construction within their Opportunity Zones. They just seemed a little wary of any potential unintended negative consequences of new development. They don’t want to hurt the existing community there. It seems like they would be perfect as an example of a local community to use this framework to their advantage to help, as you say, screen out, you know, who are they gonna be taking capital from. Have you been in communication with them? Are you aware of what’s going on there? I just wanna get your thoughts on that.

John: Yeah. We haven’t been in touch with them directly, and we have to be a little careful because I’m an employee of the Ford Foundation, so I don’t lobby governments to do one thing or the other. But we definitely want local communities to be aware that this tool is out there and it’s something that they could use to try to, again, as I said, understand who’s a good actor, who’s coming in the right way. You know, obviously, the case in Boulder is a bit extreme to put an absolute moratorium on construction, but we see a lot of places that are trying to figure this out. You know, Maryland’s looking at what incentives they could array. The State of California is debating whether they wanna do state conformity, but the Federal Tax Treatment has big budget implications for them, and so they’re not gonna take that decision lightly.

So I do think, you know, Boulder may be at one end of the spectrum, but it’s indicative of what we’re seeing in a lot of places where they’re trying to balance sort of how they can engage with this capital in a way that is, you know, sort of reasonable, that keeps the community’s interests front-and-center, and to the extent that we’re talking about communities that are really eager to bring in capital is still sort of responsive to the needs of capital to help make these deals work. So it’s an interesting case, but we haven’t specifically worked with that city, though we certainly hope they’re aware of the framework.

Jimmy: Yeah. Well, maybe they’ll become aware of it soon after this podcast. You never know. You mentioned the State of Colorado, Northeast Ohio, and Erie, Pennsylvania as some local communities that have shown early success at taking charge of their Opportunity Zones. Are there any other examples you’d like to cite as, you know, some communities that are doing things the right way and how are they doing so?

John: Yeah. Almost so many at this point, which has been really heartening, is that we’ve seen a sort of wellspring of activity at the local level and, often, sort of hyperlocal levels of folks thinking sort of captured by the promise of Opportunity Zones and thinking about how they can do community development. I think that could be a good long-term outcome even regardless of how much money flows in this one policy. So you look at places like Stockton, California where Mayor Michael Tubbs is really planting a flag that he wants Stockton to be a poster child for success with Opportunity Zones. And he actually was at the Winter Innovation Summit that Sorenson Impact Center hosted. He was on the stage as we announced the framework, and we were eager to continue working with him to understand what the needs of a sort of smaller city mayor looked like.

Really interesting work in Washington bringing together…Washington State bringing together their tribal communities with the rural communities, the economic developers, and the county commissioners to understand, you know, how they can work together across sort of jurisdictional boundaries to pull together really interesting deals that could attract national attention. Opportunity Alabama that I mentioned where they are already even before we had the framework out, Alex Flachsbart there was talking about, you know, “We can offer technical assistance and pipeline development,” and all of this great, you know, useful stuff, and one of the conditions of it is gonna be a commitment to transparency and reporting.

So, yeah, there’s just so many great examples around the country, and we really hope that we can capture this energy and maintain it and, you know, justify it because cities are sort of using limited capacity right now and, as we all know, there’s no promise that any of them are gonna get Opportunity Zone dollars in, so how do we make this useful for sort of long-term conversations about creating economic opportunity in these places?

Jimmy: I wanna talk with you now about real estate investment versus business investment. A lot of the funds that have been set up so far have been focused around real estate primarily because the regulations haven’t clearly laid out which businesses are gonna be eligible. I think that’s gonna become much more clear here in the next few weeks as the second traunch of guidelines is released. What do you suspect will be the differences in how real estate projects will use the Opportunity Zones Reporting Framework versus how it will be used by venture capitalists and operating business investors?

John: Yeah. I think, yeah, as you say, a lot of this is gonna shake out just in the next round of regulations when we see even sort of what will be possible in the operating business side. I think there might be some more interesting opportunities on sort of the venture side for how to use a framework like this. I think there will be more opportunities to think about creative, responsible exits, so how can we invest in these startup businesses in a place that doesn’t have that kind of activity today and not just succeed and return to our investors but could we actually eventually have, you know, local ownership of that business when we exit, employee ownership of that business when we exit.

The City of New York submitted comments to try to enable, through the regulation, ESOP conversions under Opportunity Zones, which is something that we’re really keeping an eye on because we think that would be a really interesting way to ensure that some of the wealth that’s created remains in place in the community and that we really are creating sort of long-term opportunity for the people who are living there today.

So I think there’s just gonna be some sort of different opportunities, but certainly, on the real estate side, we’re seeing folks come to us really seriously wanting to talk about impact, wanting to talk about placemaking. So how are we investing not just in my apartment building bust investing in a community that tenants are gonna wanna live in, and stay in, and thrive in? So I think there will still be really great conversations on the real estate side, it’s just it’s gonna be a different set of opportunities compared to venture.

Jimmy: Oh, absolutely. I think it’ll be interesting to see how those guidelines shake out here over the next few weeks and months as we wait for some more regulations from the IRS.

John: Any day now.

Jimmy: Yeah, any day now, exactly. What are some of the biggest mistakes that you’re seeing being made by Opportunity Zones participants in these early days?

John: Yeah. I think the biggest thing that we are worried about across the policy as a whole, and I do think it’s a mistake, is if too many other zones get overlooked. And, you know, there’s obviously a ton of interest and sort of excitement around the sort of coastal cities that you would expect that have Opportunity Zones, New York and L.A. and San Francisco. But I think that, you know, there are 8,700 zones across the country, and we believe that in pretty much all of them, there are gonna be good opportunities to be had. They might look different, they might take a little more work and we wanna understand, you know, if there sort of tools or sort of templates that need to be put in place, training that needs to be put in place to sort of ensure that it’s easy for capital to flow into those deals. But the things that we don’t wanna see is just funds completely writing off 90% of the zones because they don’t think there’s gonna be any opportunity there.

I think that’s wrongheaded and I think part of what we start with this is a conversation about how you go into some of those, you know, honestly, more difficult markets, but ones where there could still be promising investable opportunities and, you know, what does it look like to go into those places if you don’t have experience? Who are the partners who do have experience? Can you find a CDFI that’s been operating in this place for decades that can really guide you through it? Can you find a local government partner or a local investor who really cares about the place?

So I think that’s the biggest thing we see, and that would be a real shame for the program as a whole if, you know, 10, 20, 30 years hence we just saw money go to the hottest markets that we already knew could support investment. And all of these innovative communities, places like Stockton, like Alabama, Louisville, Oklahoma City that are really doing amazing work to lay the groundwork for investors to come in, if we saw those places get passed over just because investors didn’t even think there was a chance, that would be a real disappointment all around.

Jimmy: Yeah. We don’t wanna see change only among the lowest-hanging fruit, so to speak. We really would like to see this effect a very large portion of the 8,700 in change Opportunity Zones throughout the country. Absolutely. How do you expect Opportunity Zones investing to change over time? Get out your crystal ball now and predict the future a little bit. How do you think this is gonna change over the next few years? I think, right now, we’re in kind of an initial phase where people are just really learning about what it means to invest in Opportunity Zones, but that’ll change over the coming years, and we just wanna get your take on how you think it’s gonna progress.

John: Yeah. I think we’re gonna have sort of the rush of a little bit of low-hanging fruit and a little bit just easier to square with the regulations and the financials. So, you know, big multi-family real estate, commercial real estate, the big funds that we see lining up now. So there will be that wave. I think what’s gonna be interesting is what comes in the second wave or if there is a second wave. So in the first round of regulations, Treasury obviously gave a lot of latitude. Now, 40 years that these investments can be held, so it takes some of the time pressure off. You know, at first, we were talking about 2019 was gonna be the year of the Opportunity Zones because after that benefit starts to perish, I think, with that certainty that you can at least pursue the 10-year benefit, we’ll have a little more breathing room to sort out some of the more complex structures and transactions.

So I think our hope is that there will be a second wave and that that will have some of the more…not to be derogative to the real estate investors who are lining up now, but that will be some of the more interesting stuff, more creative work done. And I think we hope that we’ll see communities figuring out new and interesting ways they can array sort of existing assets or additional incentives that they could offer communities figuring out how they could smartly leverage Opportunity Zones around city-owned land or paired out with, you know, local incubators and startup development programs. So that’s the hope.

It’s a little bit of an optimistic crystal ball that we’ll see with the benefit of time, folks sort of solving some of the tougher types of transactions to structure. And we’ll get what I think a lot of people envisioned out of the policy when it was first being discussed and passed, which is new businesses forming, operating businesses forming, jobs being created, good jobs being created and being sustained in these places. But I do think that’ll take a little bit more time to develop and, you know, it’s on us as advocates to not let that first wave sort of wash away the interest in doing the sort of second-order set of work that could ultimately be incredibly transformative.

Jimmy: Oh, I agree, and I hope you’re right. I’m looking forward to seeing what that second wave will ultimately look like just as you are as well. John, we’re getting toward the end of our discussion here today, but to ask you a retrospective question now that I post to most of my guests, what has been the most memorable investment that you’ve made or that you’ve been involved with through the course of your career? Is there anything that stands out?

John: Yeah. So I have the benefit of never having to actually touch the money in my career, so I just get to watch other people’s really cool work, and I’ve gotten to work with so many fantastic investors over the years. One that really stands out is the work of the Southwest Initiative Foundation in Southwest Minnesota, a public charity, public foundation that was set up in the ’90s very deliberately to do economic development in, you know, rural Minnesota seeded by the McKnight Foundation. And they’ve just done some really fantastic work sort of across the spectrum of capital from their grantmaking through to how they’re actually investing their endowment. Things like how they can keep the ownership of farmland in the hands of local residents as you go through generational transfers, things like seeding small businesses but doing so in ways that really leverage their assets in place, and builds clusters around agriculture and the anchor institutions of the universities that they have.

Just really inspiring stuff. Bringing in sort of new residents that got refugee communities and diaspora communities, how they can be responsive to the unique needs of those groups and create economic opportunity for them so they can, you know, integrate and thrive in place, so just really cool work. If folks haven’t seen the Southwest Initiative Foundation, I encourage them to check them out because I think they’ve really…I won’t, you know, overstate for them and say they’ve figured it out, but they’ve done so much to figure out what it means to invest in rural communities, and that’s such an important question for our country as a whole. How do we invest in these places that so often are shrinking or facing a brain drain so that we can sustain them for the long term?

Jimmy: Oh, that’s great. That sounds like a neat foundation. I’ll have to check that one out. Well, John, thanks for joining me today. But before we go, can you let my listeners know where they can go to learn more about you and about the Opportunity Zones Reporting Framework?

John: Yeah. So, is the website for the framework, and that’s also got information about us and the Beeck Center, about all the contributors to the framework document. You can hit download and then you can contact us to let us know what we got wrong, what you wanna see in the next iteration, and we’re really eager to keep getting that feedback.

Jimmy: That sounds great. I’m sure you’ve gotten a lot of feedback already. Well…

John: Yeah, tremendous.

Jimmy: Oh, I’m sure. Yeah. Well, for my listeners out there, I’ll have links to all of the resources that John and I discussed on today’s show on the Show Notes page on the Opportunity Zones Database website at I’ll have links to, and to the Southwest Initiative Foundation, and everything else that John and I discussed on today’s show. Again, the URL there is Well, John, thanks for joining me today. I appreciate your time, and I hope to chat with you again soon.

John: Thanks so much for having me.

Jimmy: You bet. Thank you.