Baltimore Peninsula
Digital Aerial
A digital aerial rendering of the new Baltimore Peninsula, also known as Port Covington, due to open in spring 2023. (Rendering courtesy of DBOX.)
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Other Benefits of Opportunity Zone Investing
Tax advantages
The focus on QOZ investing has, correctly, been primarily on the tremendous, once-in-a-generation tax advantages available to investors who choose to commit to a qualified opportunity fund. Projects across the country have attracted capital from investors of all sizes, from individual retail investors to multibillion-dollar investment banks. The ability to defer capital gains from a current investment until December 2026, and perhaps eliminate such taxes entirely from a new QOZ investment by holding it for at least ten years, is compelling on its own terms.
Nevertheless, the very name of the legislation (the Tax Cuts and Jobs Act of 2017) points to the dual purpose of the establishment of qualified opportunity zones. They are not just tax benefits for investors, but also jobs and vigorous economic renewal for the communities so designated. Indeed, the 8,700+ U.S. Census tracts named as QOZs are mostly areas that have faced historical challenges and hardships attracting attention from businesses and investors alike.
Not just tax advantages
The purpose of the Act was the creation of jobs and long-term economic development, not in the usual places that have little difficulty attracting capital, like New York City or Silicon Valley, but rather in the decaying urban neighborhoods and sparsely populated rural areas that have not been historic magnets for venture capital. Analysis suggests that these opportunity zones are hampered by significantly higher unemployment rates and poverty rates, and lower life expectancies, than the national averages.
The potential for economic growth in neighborhoods that had long since been abandoned by businesses both large and small was an essential reason the TCJA received bipartisan support, and continues to be supported on both sides of the political aisle, a rare enough feat in American politics in 2023. And the overwhelming success of the program thus far has led legislators to seek the extension of QOZ investing past its current 2026 expiration.
No legislation has passed so far, but there is genuine optimism that a two-year extension, at the very least, may find traction in the 118th Congress. Regardless of whether Congress is able to extend the life cycle of QOZ investing, however, the program has already proven to be a demonstrable success, impacting neighborhoods across the country as well as those who have invested in them.
Case Study: Port Covington, Baltimore
The largest city in Maryland and the 30th-largest city in the United States, Baltimore provides an excellent example of what is possible through the establishment of Opportunity Zones.
Baltimore has historically struggled with high rates of both violent crime and poverty, lower per capita income, and lower life expectancies, compared to the national averages. But Baltimore is also no stranger to urban renewal, as demonstrated by the transformation of the neighborhood formerly known as “the Basin” into the “Inner Harbor,” an area that features the homes of two professional sports franchises, the National Aquarium, and multiple historic ships and other maritime attractions on display and open to the public.
Sensing an opportunity to replicate the successful development of the Inner Harbor, the Baltimore City Council approved a $660 million bond in 2016 for what was dubbed the Port Covington project, a waterfront development that would provide a new world headquarters for corporate citizen Under Armour, in addition to shops, housing units, office space, and new manufacturing spaces.
The project was foreseen as a multibillion-dollar boon to the city, and the source of 26,000+ potential new jobs. But the project stagnated for years, as its critics derided the deal as corporate welfare, and the onset of a recession and a pandemic threatened to derail the project for good.
When Port Covington was included in the list of census tracts designated as Opportunity Zones, however, the project not only survived, but expanded, attracting investments from investors including Goldman Sachs, Sagamore Ventures (owned by Under Armour CEO Kevin Plank), and institutional real estate titans MAG Partners and Macfarlane Partners.
Rebranding the area the “Baltimore Peninsula,” the surge of investments finally inspired the Baltimore Board of Estimates to release the first wave of promised bonds in June 2020, a full four years after their initial (pre-QOZ) approval.
And as the first phase of new construction neared completion at the end of 2022, the development team noted that more than one million square feet of new office, retail, and residential space—including a percentage of affordable units—would be available soon.
The project will take years to complete, but developers enthusiastically note that Baltimore Peninsula will ultimately include 14 million square feet of mixed-use development, including mixed-income housing; 2.5 miles of restored waterfront, including areas that will be curb-less, pedestrian-friendly, and accessible only to slow vehicle traffic; and at least 40 acres of parks and other green space, said to be a priority in the community.
Port Covington is one of the most ambitious development projects in the country, and a project that languished for years. Without the passage of the TCJA in 2017 and the resulting creation of qualified opportunity zones, it’s difficult to assess how or whether the project would have progressed. But the designation of the census tract as an opportunity zone saved the Port Covington project and brought the developers’ ambitious vision much closer to reality. Ultimately, the quality of life for Baltimore residents will be greatly enhanced by the development of an area that had been neglected for decades.
Tax-averse investors may come to the table for the tax incentives first and foremost, but as the example of Baltimore illustrates, a fair amount of capital is also drawn by the rare opportunity to both do good and do well through QOZ investing.
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