Opportunity Zones & Impact

I had an interesting discussion this week about Opportunity Zones and the challenges many communities have simply due to the compressed timing the legislation imposes. There are so many places where a given community hasn’t really thought about what they want and are just getting started, where the local skill and capacity is limited, technical assistance is needed, investors are reluctant to take a risk and there are few shovel ready projects that have already made it through community engagement. I fear without some changes (extension) to the legislation, many communities are going to miss out on the opportunity.

I got pulled in early into the O-Zone conversation in January last year when EIG reached out to get a perspective on the legislation might play in real estate. At the time I was the Chair of the Responsible Property Investment Council. Since then I’ve been working with investors/developers and cities in developing their O-Zone strategies and O-Funds. I’m presently working on 4 funds - 2 project specific (mixed-use - community library, housing, maker space; the other a multi-family project), one a local/regional fund for the Rocky Mountain West and the final one for our work with the Lotus Campaign - investing in workforce housing and making units available for people experiencing homelessness.

I’m working to integrate a series of metrics for investors that include a variety of social equity, community outcomes and environmental touch points so that when they make investment decisions, they have a sense of how the investment aligns with their values. However, that doesn't necessarily address how a community can ensure the incoming capital meets those same needs. Looking forward to having some further conversations with communities on how they can optimize their O-zones.

Navigating the Land of OZ: Understanding Opportunity Zones and Opportunity Funds

Flying under the radar in the 2017 tax reform package was a sleeper provision that authorized the designation of “opportunity zones” and the creation of “opportunity funds.” This versatile program has the potential to stabilize and revitalize distressed neighborhoods and surrounding communities by unlocking private investment capital through a series of tax benefits.

The provision allows individual and corporate investors to defer capital gains tax until 2026 if those gains are reinvested into new construction or major rehabilitation of projects in economically depressed areas via designated opportunity funds. If held for five years, the original amount of capital gains tax due is reduced by 10%; if held for seven years it is reduced by an additional 5%.  If the investment is held for at least ten years, gains on the invested amount accrue tax-free. 

Estimates suggest that $6.1 trillion of unrealized capital gains is held by American households ($3.8 trillion) and American corporations ($2.3 trillion). Getting to that capital will be a bit trickier. Much of the money is disaggregated across individual accounts managed across myriad institutions and platforms. 

At least 90 percent of the assets in such funds must be invested in government-designated low-income zones. The governor of each state was able to designate up to 25 percent of the state’s low-income communities (LIC) as opportunity zones. Up to 5 percent of the designated zones could be contiguous to LIC tracts. The zones are designed to be in areas that have a poverty rate of at least 20 percent or that have a median income that does not exceed 80 percent of the metropolitan area’s median income. The final designations were made in spring 2018. In total, 8,700 opportunity zones were chosen by state governors and approved by the U.S. Department of the Treasury. These zones range from a few blocks in large metro areas to entire municipalities in some rural states. The Treasury Department has indicated that no additional opportunity zones will be added. 

The expectation is that the added tax incentives will make investment in these disadvantaged areas just a little more enticing and add another option to the capital stack. Concerns exist that the investment capital that may come flooding in also has the potential to push out residents and achieve value primarily for investors. It is expected that states and local communities will provide guidelines to ensure that the objectives of affordable housing, strong neighborhoods, and vibrant, diverse, and sustainable communities are met. 

As of the third week in August 2018, final rules from the Treasury Department were still pending.

The Freshwater Trust - Streamside Series

Molly McCabe never saw herself in Montana. Neither did her friends and family. She grew up in the San Francisco Bay Area, studied business, and built a thriving career in finance. Bozeman wasn’t on her radar. But she fell in love with a fly-fisherman and moved to Big Sky Country. That was 20 years ago. McCabe now runs a strategic real estate advisory firm and serves on The Freshwater Trust’s board of directors. When we jumped on the phone one afternoon, she told me about the bluebird day they were having, the snow-covered mountains outside her window, how she planned to take a spin on her cross-country skis in the late afternoon, and why The Freshwater Trust is an organization she believes in.

What’s a day in the life of Molly look like?

There’s never really a day in the life. It’s looking out at the mountains and reviewing investment profiles and trying to incorporate sustainability and social equity into projects that I’m working on. Then when I’m on the road I might be working with investors, or doing a lot of advisory work with companies or communities to help make them healthier, stronger and more resilient. It’s a bit of intuition, a lot of creative problem solving, numbers and writing. I focus on making the business case for impact.

How do you make money while making sure the environment is healthy, that communities are strong, that everyone has a fair chance at life and that we are treating people well?

Is this what you always imagined yourself doing?

First, I didn’t have any idea what I wanted to do before I went to undergrad. I wanted to be a doctor, and then I realized blood was not my friend. Then I changed to business and still didn’t know what to do. Then, what do you do when you don’t know what to do? You go to grad school. I came out and got into real estate finance. I’ve always liked the tangibility of it. One of the first projects I worked on was a project to develop 30,000 acres of land in California. I thought at the time, this is pretty crazy. I never really asked myself: Should we be developing this kind of sprawl in southern California? I wish I could tell you from a young age that I was really sustainably minded, but I don’t think I was that aware of it. But I never really liked being motivated by profit without recognizing impacts.

So when I moved to Montana, I had to recreate myself and figure out how I would make a living with my finance background really being in the middle of nowhere. That’s when I ran across responsible property investment.

What’s a project you’re particularly proud of?

I’m happy when I’m able to go into communities to solve big, hairy problems. I got to go as part of a multi-disciplinary team into the Northern Colorado Range after they’d had a big flood and discuss what the community needed to be more resilient. You can’t be resilient if you’re having to helicopter in all your first responders. You cannot have a resilient community without having a diverse set of people in it, so a mix of affordable housing is a component of resilience. Right now, I, along with three colleagues, are developing a new private capital investment model to accelerate housing for homeless people. It’s marrying philanthropy with private money. We believe it could be a lever that changes the dynamic. It’s about having full awareness really and looking at things in a holistic way. By weaving together different threads you can create new opportunities for solutions that are not merely band-aids.



Molly and a guide on a trip to South Africa where she worked on a sustainable development project.

So how do you tie your work to a passion for the environment and in particular for The Freshwater Trust? 

What I love about TFT is that you are practical, pragmatic and visionary. It’s like you see in Technicolor what others see in black and white. What I like about TFT is really the same as what I like about my job. TFT takes a holistic view to create solutions for rivers and watersheds. You don’t settle for the obvious path.

You’re asking insightful questions and weaving a bunch of things together. You ask the same kinds of things I ask when working with the built environment. You work with a lot of different stakeholders and bring them all to the table around one solution. One challenge I have with a lot of conservation organizations is the notion that they should be supported just because it’s the right thing to do. Just saying it’s the right thing to do doesn’t get you there. We need to ask where we have common interests and we need to understand our impact. TFT gives people the tools to do that.

If you were going to be a fish, what fish would you be?

I’d probably pick rainbow trout because it swims in our little creek and is native here in Montana.

What’s a surprising fact that you learned about recently?

The two fastest growing segments of people moving into homelessness are teenagers and families, especially women with children. Frankly, this recovery feels like such a strong one if you read the stats. But there’s a huge contingent of our population that’s one major crisis away from homelessness. Oh, I recently learned there are something like 50,000 homeless people in LA; that’s up 75% in the last six years.

Is there a certain project or program that really resonates with you? 

I love the Streambank Toolkit and your ability to drill down and identify not only where to put something but also which action is going to be the most beneficial and cost-effective. We always tend to throw solutions at things and hope something sticks and you have actually refined that process. It’s far more effective. I also love that you’re working in California because that’s my home ground.

If we asked your friends to tell us something about you, what do you think they’d say?

I think they’d say they can’t believe I up and moved to Montana. Is that a great story? Probably not. But it’s mine. My husband would tell you the time we went camping in Idaho and the mosquitoes were so very unkind to me. He tells it frequently.

What’s your home river?

Wolf Creek runs through my property. It’s a spring creek which runs into the Swan River.

My Favorite Side Gig

“The transdisciplinary nature of the Advisory Services panels and partnering with the community bring forth solutions that may not be obvious or expected, but in the end are more meaningful and durable.”

How did you first get involved with ULI Advisory Services panels?

I think I was simply in the right place at the right time. I’m on the Center for Sustainability Advisory Board and am the chair of the Responsible Property Investment Council [RPIC]. A key focal point for the Center for Sustainability is urban resilience. RPIC focuses on the triple bottom line—the intersect between the environment, social networks, and profitable investment strategy. The first panel I participated on focused on increasing economic and environmental resilience in northern Colorado in the aftermath of devastating flooding and in the face of changing weather patterns that could put the region at future risk. The second had a similar focus in two urban neighborhoods in Seattle. I have a unique perspective because I live in the rural West in Montana and run a more urban-focused real estate advisory firm. There aren’t too many ULI members out here in the Wild West. I found that my work with RPIC provides a unique lens for problems facing not only the West but in communities worldwide.

[Community resilience and the impact of climate change are specific examples of some of the issues tackled by the Advisory Services panels I’ve worked on.]

How have Advisory Services panels had an impact on your work?

The panels have broadened my perspective and informed my work by exposing me to new ideas and new lenses that challenge my assumptions, allow me to see different perspectives, and help me think more creatively.

What I love about working on the advisory panels is that there is a conscious choice to be mindful and think holistically and systemically about the solutions. The transdisciplinary nature of the team and partnering with the community bring forth solutions that may not be obvious or expected, but in the end are more meaningful and durable. By sharing roles and crossing disciplines, we learn from and challenge each other, ultimately pooling and integrating a wealth of expertise.

Buildings and communities are deceptively complex. In their simplest form, buildings provide us with shelter and enable us to work productively. Communities link us together and provide the necessities of a civilized society: roads and schools, safety and security, systems of communication and infrastructure—energy, water, and waste disposal. But beyond that, they are also an ecosystem that reflects the culture and values of the people who live, work and play within them.

The advisory panel process mirrors this experience—a unique matrix of individual parts that when put together in a thoughtful and intentional way create harmony and enable each of us to bring our best selves to the mix.

I think today’s world requires a vastly different analysis—one that looks at the intricacy of resilience, connection, sustainability, and high performance. It includes the full range of economic, social, and environmental impacts. What the panels do is allow us to articulate the benefits within the context of this complexity and make this the primary source of inspiration and the lever for action.

What are some of the challenges you’ve faced while serving on a panel?

Practically speaking, because we have such a unique group of people who are willing to step up, we have a lot of strong opinions and great ideas. Sometimes, the biggest challenge is honing the list of ideas into something manageable. There is often robust debate; but rather than being divisive, it is really useful. Judging by the panels I’ve been on, this dialoguewhile challenging—has definitely brought us to a better understanding of the problems, and ultimately to more creative solutions.

What would you say to a ULI member who is considering participating in a panel for the first time? Any words of encouragement or advice?

Join in! Leave your ego at the door and jump on in. You’ll be with a great team, whoever the panelists are. Everybody I know who has been on a panel says they would absolutely do it again if asked.

It’s exhausting, challenging, and exhilarating to try to put something together in the short period of time we are given. We’ll get 75 percent through the week and say, “Oh my gosh, we’re never going to pull this together!” But it all comes together in the end and you will know that you’ve done something meaningful. You will leave knowing you’ve really made a difference for the community involved.

What is your favorite panel memory?

So many! How can I choose?

In Seattle, one of my favorite memories was a tour of Equinox Studios, an amazing art co-op in the heart of the industrial area of Georgetown. And, on a more personal level, meeting community members who fish and kayak in the Duwamish River alongside huge ships and “re-homed” furniture.

In Estes Park, Colorado, I was astounded by homes teetering on the [edge] of the river, seemingly ready to fall in. Stories of community resilience and ingenuity—volunteer ham radio operators acting as one of the first lines of communication during the floods and a “can do” attitude that got the one and only road in reopened in record time.

In Loveland, Colorado, the wonderful sculpture garden and, of course, in Fort Collins, touring New Belgium Beer.

I’m off to South Africa shortly and am looking forward to a great experience and more memories.

What are some of the rewards of serving on a panel?

It’s a unique opportunity. You’re able to look at a project or situation and think holistically and systemically about solutions. You’ll be part of a multidisciplinary team with no agenda other than coming up with the best possible recommendations. Looking at things from multiple viewpoints brings a much more robust and useful solution to problems.

There’s a ton of engaging dialogue, good conversation, healthy debate, and new perspectives always brought to the table. The solutions are not always obvious, and are often unexpectedly meaningful and durable over the long haul.

Working with my fellow panelists, chairs, and the ULI team, I’ve met interesting, dynamic, committed people. It is fun, and we have created long-lasting friendships and working relationships. We’ve seen cities and projects from rare and varied angles. It’s a great learning and growth experience.

What are your professional interests?

Responsible property investing. Creating vibrant, healthy communities. Making it a better place for people to live and work.

What was the last book you read?

The Nature of Investing by Katherine Collins. It’s about using biomimicry as a tool for investing. I’m recommending it to everybody! I also just read Switch: How to Change Things When Change Is Hard by Chip and Dan Heath.

What was your childhood dream job?

I really have no idea! I probably wanted to be a fashion designer.

What was the first concert you ever attended?

Jimmy Buffett! Any other parrot heads out there?

The Messy Complexity of Life

I’ve found  that buildings and communities are deceptively complex.  In their simplest form, buildings provide us with shelter and enable us to work productively. Communities link us together and provide the necessities of a civilized society - roads and schools, safety and security, systems of communication and infrastructure - energy, water and waste disposal,. But, beyond that they are also an eco-system that reflects the culture and values of the people that live, work and play within them. A unique matrix of individual parts that when put together in a thoughtful and intentional way create harmony and enable each of us to bring our best selves to the mix. Buildings play an important role in how easily and effectively we can do that. And the recognition of how people interact with each other is key to creating a resilient and vibrant community.

The best projects are ones in which we make the conscious choice to be mindful and think holistically and systemically about the solutions. The trans-disciplinary nature of the team and partnering with the community brings forth solutions that may not be obvious or expected, but in the end are more meaningful and durable. By sharing roles and crossing disciplines we learn from and challenge each other, ultimately pooling and integrating a wealth of expertise. Today’s world requires a vastly different analysis - one that looks at the total value of resiliency, sustainability and high performance. It includes the full range of economic, social and environmental impacts. Decisions around sustainability need to quickly move beyond neat rows of check boxes (and simple payback) to the messy complexity of real life.

There exists a quantifiable and integrated suite of payoffs at the property level that accrue to the owner and occupants, as well as at enterprise and community levels. Successful adaptation and change happens when we are able to articulate the benefits in the context of this complexity and make this the primary source of inspiration and the lever for action versus falling into the trap of easy black and white answers."

The best offense is a good defense. 


re·sil·ience (rəˈzilyəns)

  1. the ability to become strong, healthy, or successful again after something bad happens.
  2. the ability of something to return to its original shape after it has been pulled, stretched, pressed, bent: elasticity


    I'm about to head off to huddle with a group of colleagues to frame "10 Principles of Resilience" based on our work in more than a dozen communities.  This gave me the chance to look at some of the projects I've worked on, and think about lessons learned.  

    Resiliency can be divided into four basic dimensions of urban resilience[1]:

    • health and well being,
    • economy and society,
    • infrastructure and environment, and
    • leadership, strategy and community engagement. 

    The cost of preparing for a hard to see, long-range event can play second fiddle to immediate, day-to-day operational challenges particularly when there are competing capital needs.  However, resiliency is not merely a protective Band Aid, it is also an economic driver.  Economics is a combination of avoided risk and the capitalization of opportunities.

    The objective is to proactively make cities and communities increasingly capable of overcoming both the day to day and catastrophic stresses placed upon them.    This is measured in terms of economic value- increased revenue, avoided cost, community cohesion, environmental health and resident physical and social well-being.  Each of which contributes to a desirable, future ready city.

    Developing a plan for a resilient community involves a large and diverse number of stakeholders spanning the domains of economic development, industry, social equity, urban planning, design, and engineering.  Some of the focal points include establishing leadership structures, finding launching points to gain traction, and engaging business and residential community to help drive appropriate investments.   

    Costs associated with resiliency measures must be viewed in conjunction with the avoided impacts – loss of property, business and economic exposure and critical life/safety mitigations.  At the same time, value associated with a stronger, more resilient neighborhood and quality of life must also be incorporated.  Communities rely heavily on linked networks.  The loss of one critical component of infrastructure can have cascading effects throughout a myriad of systems.    

    For example, our work showed that in the event of a climate related event in the Duwamish River area in Seattle (such as a sea level with a King tide or prolonged precipitation) significant economic losses would be incurred.   Lost wages, property damage and business interruption would reverberate throughout the local, regional and national economy.  

    While the actual amount is difficult to assess, a comprehensive commercial level assessment in the Green River Valley (GRV) shows total property value exposure between $30-50 billion.  Given, the Duwamish area accounts for about 30% of total sales/property tax and 10-20% of total employment in the overall GRV region, we estimated about a $10 billion exposure in property value in this area.  Business interruption, for days or weeks, would add exponentially to this cost.  Food insurance is generally an exclusion in most policies.  Even though many companies carry property damage and business interruption insurance, the downtime and inability to deliver a product or service in a timely manner has long term ramifications – for the firm, their employees and their clients.  

    Research shows resilient people, possess three characteristics: a staunch acceptance of reality; a deep belief, often buttressed by strongly held values, that life is meaningful; and an uncanny ability to improvise.  Communities, made up of people, are the same.  

    Resiliency strategies play a huge role in long term viability and economic value both for public entities as well as individual businesses and residents.   The objective is to future-proof against potential downside while priming to take advantage of opportunities. What region or business would, in their right mind, leave their long term fate to the vagaries of the environment, when reasonable, prudent and proactive measures can be taken to avoid property and profit losses? 


    [1] Rockefeller Foundation 100 Resilient Cities Program



    "Wait, what?" Responsible Property Investing

    (This is a re-post of something I shared on Linked-In in June 2016.)

    As chair of the 'Responsible Property Investment Council' for the Urban Land Institute I often get eye rolls or quips such as  -  "wait, what did you say? 'responsible' property investing'?   - if you invest 'responsibly', does that mean I'm investing 'irresponsibly'?!".   (ummm....)  These comments make me smile - because I know we are simply being thoughtful and strategic in the way we invest.  We invest with an eye toward creating competitive and durable market rate returns.  Call it what you will - my experience is that incorporating a holistic lens drives alpha returns.

    I believe that the Responsible Property Investing is the leading edge. Call it "triple bottom line" or "people, planet, profit"  - it is about being really smart and intentional about our investments. The first hurdle to overcome is the notion that investing with an environmental or social sense will naturally result in lower returns or performance. I think it is just the opposite. We are investors first. Like anyone else, when we deploy capital, we want to get it back with a return - either in yield or appreciation. The TBL/PPP principles are about creating a strong and healthy foundation, be it in the context of a building, neighborhood or city. By consciously using our natural resources, reinvesting in our people and our communities and recognizing that diversity results in better decision making and stronger ties, we are creating a higher quality asset. If we raise the standard of living for all, we will create jobs and healthy and safe places to work and live.  In turn, raising the tax base,  supporting investment in infrastructure and community programs, driving art, music, better education and individual agency and commitment.  As you create vibrant, healthy, desirable neighborhoods you also raise asset values.

    I’m currently tracking the overlay between climate change and populations which are disproportionately impacted. Frankly, if we don’t get our act together on this one, we will continue to see rising unrest as our resources are strained to capacity - water fights, food shortages, migration and dislocation; the typical sustainability issues - water, energy, waste, carbon; increasing income disparity. Let’s look at water (or lack thereof). If you invest in infrastructure that delivers clean and accessible water to communities in need you start to tackle gender inequality and economic returns. In many countries, women are the ones who collect water from far away places, often at great risk. By investing in water delivery, you reduce the amount of time and effort they must go to to provide for a basic need - thereby freeing up time for them to go to school, increasing the educated population, reducing health care costs and allowing them the opportunity to engage in commerce, providing a positive benefit into the local economy. 

    With every investment we make (money, time or capacity) we are making a clear statement of what we choose to impact. We can be far more intentional in how we develop and redevelop. Doing mixed-income, cross-generational development. Use responsible contracting to ensure living wages. Reduced resource use. 

    How can we motivate more investors, developers and lenders to take into account these topics?  Ultimately, I think it is a shift in focus. Change the questions that are being asked to make them more meaningful and so they are tracking a higher level of significance. Instead of focusing on whether or not returns have increased over the quarter (or some other short period of time), we need to be asking whether or not we are building adaptable and resilient buildings, cities and systems. Are we creating assets that can withstand and flourish given the future.

    We are facing unprecedented change - we have narrowed our perspectives needlessly and frankly, to our own detriment. When we only look at investing as what shows up on the most recent P&L, we shrink our field of vision, limiting our opportunities, opening ourselves up to risk and excluding some of the most important factors and consequences. It provides an inadequate and incomplete view of investment returns. And it keeps us in a mode of extraction - which as we all know is unsustainable. (The healthiest plants and food grow in soil that has been tended and replenished.) By expanding our focus, it is easier to see the true cost and profit, which allows us to optimize our investment decisions. Ultimately the capital markets and our investments can be a positive force for change.