Opportunity Zone Investing Is A Race, And Baltimore Is In It To Win It

With decades of post-industrial malaise and a national reputation attached to crime and poverty, Baltimore has long looked for a selling point to hang its hat on. With opportunity zones, Mayor Catherine Pugh thinks the city might have finally found it.

“[In spring of last year,] I pulled together my team and I said, ‘We need to really get up on this, because we want to be the opportunity zone city of the nation,’” Pugh said during her keynote address at Bisnow’s Baltimore Opportunity Zones event last week. “We want to be first in, getting the most investment of anyone.”

With Prudential Financial Impact Investments buying into the Yard 56 project in Greektown, Baltimore was the first city to land an investment from an opportunity fund. With the city and state contributing as much in resources as they can to incentivize investment and close deals, the urgency is palpable to capitalize on the opportunity (no pun intended).

Pugh outlined all the efforts her office has undertaken to raise enough capital to help deals work for private investors, such as the $35M grant from the Department of Housing and Urban Development for the ambitious East Baltimore redevelopment and her Neighborhood Investment Fund. The NIF started with $52M in city money and is already up to $80M in private contributions while still in its embryonic stage, Pugh said.

Baltimore Development Corp. Opportunity Zone Coordinator Ben Seigel and Maryland Department of Housing & Community Development Strategic Business Initiatives Director Frank Dickson are working on the city and state levels, respectively, to establish information exchanges that can quickly educate outside investors on where their capital can both produce acceptable returns and make a social impact.

A common refrain at the event was the opportunity zones’ unique status as a tool for impact investment without significant regulatory restrictions. While that opens up some concern that they could be used as a gentrification tool, affordable housing developers have seen it as a positive.

“For us, this is about returning back to basic principles to leverage private tools for doing good in communities,” Enterprise Community Partners Impact Investing Director Rachel Reilly said. “We saw it as an opportunity [to] take everything we had already been doing and to do it in a really differentiated way.”

Enterprise has already set up a regional opportunity fund with Rivermont Capital and Beekman Advisors, which will start making deals in North Carolina and Southern Virginia once further clarification is issued by the Department of Treasury and the IRS on how investors can exit those funds without sacrificing their capital gains tax benefits.

Enterprise is also exploring a national opportunity fund, as well as the possibility of serving as a manager for funds formed by private investors and family offices in search of community impact expertise. Though it is a national company, Enterprise’s “core DNA is in Baltimore,” Reilly said.

For years, Baltimore has been passed over by a wide swath of capital because its struggles added risk to investments and its sluggish population growth put a cap on potential yield. Opportunity zones mitigate those downsides, and the low-income status of many inner Baltimore neighborhoods all of a sudden give them a leg up on their counterparts in other cities.

“One of the biggest advantages for Baltimore is that, unlike a lot of cities around the country, there is a huge number of opportunity zones right in the middle of the city, which makes it much easier to invest across the city than it would be in Washington, D.C., or New York,” said Develop LLC founder and CEO Steve Glickman, who helped devise the opportunity zones program.

“Obviously, these are investments and they need to make money, but it’s a community program,” Pugh said. “I don’t think there are communities more ready for investment than around here.”

One of the areas best positioned to take advantage of opportunity zones is Port Covington, where Under Armour is planning a glittering tech neighborhood on what used to be a rail yard and former industrial site. Most of Port Covington sits within opportunity zones, which could supercharge investment, according to Weller Development partner Demian Costa.

Under Armour founder Kevin Plank’s real estate firm, Sagamore Development, along with Weller, have been pounding the pavement to bring in businesses from outside the city so that Port Covington doesn’t just siphon revenue away from other parts of the city, Costa said.

Trying to lure businesses based on location, rather than massive public subsidies, “doesn’t really work unless you’re New York, San Francisco or Boston,” Costa said “Now, we’ve got this really interesting tool that makes [our] geography attractive.”

Opportunity zone investment can apply to either real estate or businesses located within the zones, but only real estate is a simple enough investment to commit to ahead of regulatory certainty. When business investing is more set in stone, it might make up the lion’s share of opportunity zone activity, Glickman said.

Baltimore’s strongest industry is life sciences, thanks to Johns Hopkins University and the University of Maryland BioPark, and that just so happens to be among the most popular industries for investment right now. The potential benefit is obvious, Costa said, and Port Covington’s technology orientation follows the same logic.

The gap between demand for investment in opportunity zones and the information needed to truly open the floodgates is sizable, according to nearly every panelist at the event. With some benefits on a seven-year timeline and the program due to expire in 2026, the end of the year is a major deadline that ramps up the urgency and explains Baltimore’s flurry of activity in preparation.

“You haven’t seen anything yet,” Javelin 19 Investments President Jill Homan said of the level of opportunity zone discussion in the marketplace.

Javelin 19 has been operating as an investor, fund manager and consultant with other investment and development companies, adding to the growing list of companies and government departments trying to coordinate information and direct interest across Baltimore. The city’s struggles have created a sizable cohort of businesses well-versed in community impact investment, and they stand with the city and the state ready to seize the moment.

“When the next rules come out, I think you’ll see waves of capital coming in,” Glickman said. “Whoever gets in earliest will have a big advantage.”

CORRECTION, FEB. 1, 6 P.M. ET: A previous version of this story misstated the extent of Enterprise Community Partners' opportunity fund and its potential partnerships with other funds. This article has been updated.