From Far Rockaway, Queens to Coop City in the Bronx, more than 300 economically vulnerable New York City communities have been chosen to be tax havens for wealthy investors.
Last week, the Empire State Development Corporation nominated 514 census tracts throughout the state for the federal Opportunity Zones program.
A creation of last year’s Tax Cuts and Jobs Act, the initiative allows investors to avoid taxes by rolling capital gains into so-called Opportunity Funds, which must keep 90 percent of their holdings in the designated zones.
The program aims to funnel money into impoverished areas while also freeing up capital that has long been tied up assets by providing a basis reduction of up to 15 percent on capital gains.
“It’s about creating economic flow, getting jobs and investment into areas that are often overlooked from sources that aren’t normally available,” Pravina Raghavan, head of ESD’s small business and technology division, said. “It’s a great way to tap potential investment that’s never been in play before.”
Raghavan has been spearheading New York’s Opportunity Zone push since the program was created at the end of last year. She worked with the state’s regional economic development councils, local stakeholders and developers to identify the areas where the money could be best used.
Under the program, all 50 states could nominate one quarter of their eligible census tracts — areas with a poverty rate of at least 20 percent and a median family income of no more than 80 percent of the area average — to become Opportunity Zones.
Since 60 percent of New York State’s more than 2,000 eligible tracts are in the five boroughs, the city’s share is 306.
The U.S. Treasury Department must approve the nominations, but since states started filing their lists at the end of March, so far no proposed zone has been rejected.
Brooklyn, the most populous borough, took the lion’s share of designations, with 125 zones. They include swaths of land in long-troubled areas such as Brownsville, East New York and Flatbush as well as up and coming districts such as Downtown Brooklyn, Gowanus and Sunset Park.
Raghavan said ESD wanted to spread the designation between areas where there was little to no investment taking place as well as areas where some activity is already underway to have a diverse set of offerings.
“They all offer different opportunities,” she said. “New York City runs the gambit and we wanted to make sure that was represented so we could make sure investments are put to the best use possible.”
The Brooklyn Navy Yard is also included in the designated area, allowing Opportunity Funds the chance to purchase equity in rising startups while still adhering to program guidelines.
Elsewhere in the city, all of the South Bronx has been designated an Opportunity Zone, including the area around Yankee Stadium, as well as Coop City and much of the borough’s east side. With 75 designated tracts, the Bronx had the second most opportunity zones followed by Queens with 63, Manhattan with 35 and Staten Island with eight.
The first Opportunity Funds will be operational by the end of this year as investors rush to get their investments in place quickly to capitalize on the full seven-year vesting period before the program sunsets in 2026.
However, John Gahan, a partner at the law firm Sullivan & Worcester who has been tracking the Opportunity Zone program closely, expects to see some initial hesitancy as investors and fund managers wait for more guidance from the feds.
As it stands, any corporation can declare itself an Opportunity Fund, which Gahan said could have unintended consequences.
“Any corporation or partnership could sit there and say ‘I’m an opportunity fund, give me your money’ and there’s a risk for bad actors, people who are going to accumulate money and not do the right things with it, not follow the rules of the program,” he said. “I’m hoping there are some guardrails put in place.”