With More Opportunity Zone Clarity, Massachusetts Grapples With Leveling The OZ Playing Field

Investors and developers realize it may seem like they are dragging their feet when it comes to Massachusetts opportunity zones. 

“Somebody said opportunity zones are a lot like high school sex: Everyone is talking about it, but nobody’s doing it,” RSM Real Estate Senior Analyst and partner Troy Merkel said jokingly at Bisnow’s Boston Opportunity Zones Summit Wednesday. 

“We’re seeing people using the program. Hopefully, they’re using it safely,” added MassDevelopment Executive Vice President Laura Canter, to laughter from a packed room.

For the most part, all has been quiet on the opportunity zone front in Massachusetts. 

While developers have indicated to Bisnow in the past they were working on deals, they also said it was taking time to figure how federal guidelines and how the program will fit with more familiar state development incentives. Panelists at Wednesday’s event all indicated that opportunity zone investment is expected to pick up more steam in the Bay State in the next few weeks. 

“We’re seeing a lot more activity on the capital formation side,” Normandy Real Estate Partners founder Jeff Gronning said. “Deals are ahead of the capital, but the capital is right at the beginning edge to flow in a meaningful way.”

While Gronning said big financial institutions like Bank of America and Morgan Stanley have also taken a wait-and-see approach with opportunity zones, he noted the lenders have gone through the process of hiring managers and are taking the time and money to better understand the risks involved.

Normandy Real Estate is raising a $250M fund to go toward some of the potential 20 deals it has in the pipeline. 

But it will still take time for investors to go to the parts of Massachusetts where deals have the potential to be the most transformative.

“If the program takes hold, goes on for a number of years and is successful, the policy objective of getting more capital across more zones across the country is going to happen, but there needs to be patience,” Gronning said. “The deal still has to underwrite.”

Framingham isn’t ready to accept that kind of investor mindset.

The southeast portion of the MetroWest city has struggled to recover from the decline of manufacturing in New England, and it was designated an opportunity zone in 2018. Framingham officials know they have their work cut out for them to stand out to investors who are drawn to opportunity zones in Worcester to the west and Boston to the east.  

While other opportunity zones like Alewife in West Cambridge have larger available properties attracting investors and developers, southeast Framingham’s OZ is mainly filled with smaller parcels that are difficult to pitch to bigger development groups, said Jacquetta Van Zandt, a senior adviser to Framingham Mayor Yvonne Spicer. 

She added Framingham aims to have the right balance with its opportunity zone, ideally pouring investment into the community without displacing residents of the southeastern section of the city.

“I can’t reiterate this enough: One of the things most municipalities are looking for is people who are invested in the community,” Van Zandt said.

For opportunity zones to have an impact in a place like Framingham, developers and municipalities will need to work together and pair projects with other existing incentives. State-level development tools could even enable governing bodies to serve as gatekeepers and promote more development in less-desirable opportunity zones. 

“There are ways we can use this program, when we combine it with other tools, to drive some of the impacts we are looking for,” Local Initiatives Support Corp. Boston Executive Director Karen Kelleher said. “It’s an exciting opportunity to bring different kinds of investors and developers into communities that matter to us.”

Massachusetts development incentives like the Historic Rehabilitation Tax Credit and the Housing Development Incentive Program in Gateway Cities can drive developers to pursue projects in opportunity zones beyond the most-desired tracts in Charlestown, Alewife and South Boston.

The rules of Massachusetts commercial real estate haven’t changed, and Canter expects developers will still want to utilize those programs in tandem with opportunity zone projects. 

“Those are subsidies the state really does control where they go,” she said. “We are in a position to continue programs we have that drive development to certain areas where we think need it.”