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Opportunity zones to be discussed at York town hall meeting

Residents of York and other interested individuals have the opportunity Wednesday night to find out more information on how federal opportunity zones may affect the city and region.

The Department of Community and Economic Development for the City of York is planning to host a town-hall meeting at 6 p.m. to discuss the five qualified opportunity zones within city limits. The meeting is scheduled to take place in Council Chambers on the first floor of City Hall at 101 S. George St.

Nace, York’s chief opportunity development officer, will lead the discussion during the meeting and will answer questions on the opportunity zones and how to invest in qualified opportunity funds.

Nace has held several positions with the York County Economic Alliance, the county’s economic development nonprofit, including a stint as the acting director of strategic development before leaving the position in February to pursue a seat as York County commissioner. He left the race in April after York Mayor Michael Helfrich named him chief opportunity development officer.

As chief opportunity development officer, Nace leads the city’s federal opportunity zone development in low-income neighborhoods, oversees workforce development and creates strategies for attracting investors and businesses to the city. He has a bachelor’s degree in structural design and construction engineering from Penn State.

The federal opportunity zone program was passed as part of the 2017 tax overhaul championed by the Trump administration and is intended to help economically distressed areas by offering tax incentives for investment and development.

The administration of Gov. Tom Wolf identified 300 areas statewide that are eligible for the incentives, including five zones in York. Nationwide, there are more than 8,700 qualified zones.

Local qualified zones can be viewed through an interactive map on Pennsylvania’s Department of Community & Economic Development website.

Guest view: An “opportunity” to eliminate federal capital gains tax?

Sounds too good to be true, right? Over the past nine months, I have received calls from a number of my clients asking about a new investment opportunity being pitched to them. Whether it was a downtown York restaurant or an apartment complex in Baltimore, a primary draw of these investment opportunities was the potential tax savings. Many of these clients I would label “sophisticated investors,” so they are all well aware of various investment and tax-deferral strategies, such as 1031 like-kind exchanges. But permanent tax abatement? That almost seems too good to be true.

When President Trump signed tax reform into law in December 2017, he enacted this new tax incentive. At first, federal opportunity zones were widely overlooked as many other tax reform provisions such as the C Corporation rate reduction, the 20 percent qualified business income deduction and the $10,000 state and local tax deduction limit received national attention. As we moved into spring, however, attention turned to opportunity zones as investors began to realize just how good of an incentive they could be.

Opportunity zones can help stimulate economic and community redevelopment, but I’m a tax guy so I want to share why it makes sense from a tax standpoint. This is where I may lose some of you, but hey, the tax incentives are really what is going to drive this redevelopment forward.

There are three different tax scenarios at play with opportunity-zone investments: a tax deferral on capital gains tax, a partial permanent abatement of capital gains tax and a full abatement of capital gains tax.

Tax deferral

The tax deferral piece relates to the unrecognized capital gain on property (such as real estate, stocks or artwork) that a taxpayer disposes of and within 180 days reinvests into a qualified opportunity fund, similar to a 1031 like-kind exchange.

The taxpayer can now defer paying capital gains tax on this original investment until the earlier of: 1) the date of the disposal of the investment in the qualified opportunity fund, or 2) Dec. 31, 2026. One important difference with an opportunity-zone deferral compared to a 1031 exchange is that for opportunity zones, only the deferred gain must be reinvested, not the entire proceeds from the sale. This will allow investors to reserve some cash upon their disposition of the original investment for future taxes when the deferral period ends. This becomes important as we discuss the benefits of holding onto the qualified opportunity fund beyond the deferral period.

Partial tax abatement

There also is a potential partial permanent abatement of capital gains tax for the original investment that was sold. If the taxpayer holds onto the subsequent qualified opportunity fund for five years, 10 percent of the capital gain on the original non-qualified opportunity fund investment is abated. If held for seven years, a total of 15 percent of the capital gain is abated.

Since the deferral period ends on the earlier of the qualified opportunity fund disposal or Dec. 31, 2016, there is incentive to invest in these qualified opportunity funds now to take advantage of this partial abatement of capital gains.

Full tax abatement

Lastly, there is a 100 percent abatement of all capital gains tax associated with the qualified opportunity fund investment itself as long as the investment is held for more than 10 years. This is where the real tax savings can occur if the qualified opportunity fund is successful.

Let’s walk through a brief example to show how this all plays out:

• An investor sells a multi-unit residential rental property for $1 million. The investor realizes capital gains of $300,000. Within 180 days of the sale, the investor reinvests that $300,000 capital gain into a qualified opportunity fund, deferring capital gains tax. He keeps $700,000 of cash from the deal.

• The investor holds onto the qualified opportunity fund for 12 years, and then sells his share of the investment for $750,000.

• Prior to this, on Dec. 31, 2026, the investor recognized capital gains tax on $255,000 of capital gains from the original non-qualified opportunity fund investment. $45,000 (15 percent) of gain was permanently abated, since the taxpayer held onto the subsequent qualified opportunity fund investment for more than seven years.

• Lastly, since the investor held onto the qualified opportunity fund for more than 10 years, his $450,000 of capital gain is fully abated upon his sale of the qualified opportunity fund.

• In total, the investor was able to abate $495,000 of capital gains and enjoy a tax deferral along the way.

What have I been telling my clients about federal opportunity zones?

It is potentially one of the best tax incentives out there due to the combination of tax deferral and permanent tax savings, but as with all tax-planning strategies, do not let sound investment practice be overruled by tax incentives.

There will certainly be a number of qualified opportunity funds that do not pan out for investors, so careful analysis of a qualified opportunity fund’s objectives is key before investing. And beyond the financial and tax aspects of the federal opportunity zones, let’s hope these special investments really do spark the revitalization efforts in our surrounding communities that they are intended to do.

Michael J. Eby is a partner in the tax services group of RKL LLP in Harrisburg. He can be reached at [email protected].

In York, plans aplenty for opportunity zones – and one early target

A map shows the extent of opportunity zones in the city of York.
A map shows the extent of opportunity zones in the city of York.

York has five census tracts included in the federal opportunity zone program, which is designed to spark investments in distressed communities.

And York Mayor Michael Helfrich is optimistic many of the city’s old manufacturing sites in York will be revived as a result of the program.

“We certainly see this as an opportunity of a lifetime,” he said.

But one tract is likely to get the lion’s share of attention, at least for now. It is the tract known as the Northwest Triangle, an area long targeted for redevelopment, some of which has been moving ahead.

“At least $100 million has already been invested here,” said Eric Menzer, president of York Professional Baseball Club LLC and the York Revolution.

He pointed to the $32.5 million minor-league ballpark, apartment projects and the York Academy Regional Charter School, which last year opened a $22 million high school along the Codorus Creek.

Menzer and the York County Economic Alliance see more in store for the triangle, which hugs the Codorus around Beaver and North streets and Pershing Avenue.

“It’s very natural to see continued development of that corridor,” Menzer said.

York County Economic Alliance and the York Revolution have floated a project for the Queen Street parking lot at PeoplesBank Park, seen here. The idea is to build an office tower on the parking lot with the first level or two for parking and the next four or five stories dedicated to office space. The parking would be shared with the Revs. PHOTO/JASON SCOTT
York County Economic Alliance and the York Revolution have floated a project for the Queen Street parking lot at PeoplesBank Park, seen here. The idea is to build an office tower on the parking lot with the first level or two for parking and the next four or five stories dedicated to office space. The parking would be shared with the Revs. PHOTO/JASON SCOTT

In the meantime, the alliance is working to market all of York’s opportunity zones. It has launched a website, opportunityyork.org, and begin working with community partners to develop plans to attract investors.  

“We have good building stock for redevelopment,” said Silas Chamberlin, the alliance’s vice president of economic and community development.

Chamberlin believes landing one big project through the opportunity zone program could “change the way people think” and prompt other investments in York.

Among the potential projects is a manufacturing, technology, arts, history and education district, dubbed The York Plan 2.0 Innovation District.  The state last summer awarded the city a $6 million grant for the project, which would be in the Northwest Triangle. Among other elements, the plan calls for a 240,000-square-foot facility for robotic-device development, design workshops, labs and office space.

A full drawing board

Menzer, meanwhile, sees potential for more construction around the baseball stadium.

Among the ideas on the drawing board is an office building on what is currently a parking lot off Queen Street behind the stadium. The first level or two would be dedicated to parking and the next four or five stories to office space. Menzer sees corporate tenants using the parking during the day and baseball fans using spaces for night and weekend games.

“It’s a great shared use,” said Menzer, who pegged the project’s cost at more than $10 million.

Another property that could garner outside investment is the former Pewtarex facility at 145 N. Hartley St., which is near the alliance’s office on Roosevelt Avenue.

The 54,000-square-foot building is owned by Royal Square Development and Construction. But the property is listed for sale or lease with True Commercial Real Estate.

The former Pewtarex facility, left, is in one of York’s five designated opportunity zones. It is currently owned by Royal Square Development and Construction. Last fall, Royal Square donated use of the building for Downtown Inc’s annual fundraising event, hoping to showcase the potential redevelopment of the space, dubbed The Foundry (submitted rendering on right).
The former Pewtarex facility, left, is in one of York’s five designated opportunity zones. It is currently owned by Royal Square Development and Construction. Last fall, Royal Square donated use of the building for Downtown Inc’s annual fundraising event, hoping to showcase the potential redevelopment of the space, dubbed The Foundry (submitted rendering on right).

Last fall, Royal Square donated the space to host Downtown Inc’s annual fundraising event, hoping to showcase the potential of the former factory space, dubbed The Foundry.

Potential uses for the building include as brewery, restaurant and office spaces. The Foundry could also be used for production or manufacturing, events and even some residential, according to True.

In the city’s Southwest neighborhood, the alliance is keeping tabs on the former Smurfit-Stone containerboard factory at South Penn Street and Kings Mill Road.

York College has owned the old industrial site for a decade and is currently seeking a $7 million state grant through the state’s Redevelopment Assistance Capital Program to expand the college’s business incubator on Kings Mill Road.

College officials say redevelopment plans are still being formulated but the goal is to convert the old factory buildings and old manor house into new space for what is being called Knowledge Park at York College of Pennsylvania.  

Knowledge Park would be an extension of the J.D. Brown Center for Entrepreneurship, which is across the street from the old factory. The state grant would help cover construction expenses needed to renovate three buildings on the property.

“This new venture would allow us to grow our partnerships with companies, agencies, nonprofits or organizations that will provide programmatic connections to York College through student experiential-learning opportunities and collaboration with our faculty,” said Jeff Vermeulen, the college’s assistant vice president for external relations and executive director of the center.

In Harrisburg, tax incentives could build on development momentum

A map showing the location of opportunity zones in Harrisburg.
A map showing the location of opportunity zones in Harrisburg.

Six of Harrisburg’s 14 census tracts are designated as qualified opportunity zones, opening up large swaths of real estate across the capital city for new investment.

They include most of Harrisburg’s downtown area south of Forster Street, South and Central Allison Hill and the neighborhoods along the Cameron Street industrial corridor, extending north along the railroad lines around HACC and Wildwood Park up to Linglestown Road.

The zones also push into parts of Midtown above Forster Street with two smaller tracts that run largely between Susquehanna and North Seventh streets and up to Maclay Street, which leads to Cameron Street and Interstate 81.

“I think there are opportunities in each of the areas in their own way,” said Shaun Donovan, director of regional workforce partnerships for the Harrisburg Regional Chamber and Capital Region Economic Development Corp.

But investment funds planning to tap the federal program aren’t pouring capital gains into Harrisburg yet. And some people aren’t convinced the program will have a big impact in cities like Harrisburg.

Donovan has been fielding exploratory calls from national investment groups about Harrisburg, but most, he said, have not been forthcoming on their parameters for properties or businesses they see potential to invest in.

Impact up for debate

A view of the Seventh Street corridor looking toward downtown and the state Capitol in Harrisburg. Much of the corridor lies in a federally designated opportunity zone, which affords tax incentives to people who invest in the area. PHOTO/JASON SCOTT
A view of the Seventh Street corridor looking toward downtown and the state Capitol in Harrisburg. Much of the corridor lies in a federally designated opportunity zone, which affords tax incentives to people who invest in the area. PHOTO/JASON SCOTT

J. Alex Hartzler, managing partner in Harrisburg development firm WCI Partners LP, said he’s not sold on the idea that opportunity zones will “move the needle” compared to other popular incentives, such as New Markets Tax Credits, another federal program designed to encourage investors in low-income areas.

Developers often have to spend more to restore vacant and blighted properties than they can expect to earn back in rent. Tax incentives help offset costs so developers can keep rents in line with what a local real estate market can support.

The federal tax credits and other state grant programs, like the Redevelopment Assistance Capital Program, or RACP, help overcome financing deficits and make projects viable, Hartzler said.

“This is not that,” he said of the opportunity zones. “This feels to me more like a tax-shield device for people who already made their money. It’s not clear to me that people with capital gains really want to invest.”

Hartzler said he would have preferred to see the federal government double the size of the New Markets program, a $3.5 billion program.

Nonetheless, Donovan and other local developers expect opportunity funds targeting Harrisburg will look to build on the momentum in areas such as the city’s downtown and Midtown sections.

“It’s easier to follow other investments,” Donovan said.

Construction has started on a new federal courthouse building at North Sixth and Reily streets in Midtown Harrisburg. Pictured behind the construction site is the 1500 Condominium building. PHOTO/JASON SCOTT
Construction has started on a new federal courthouse building at North Sixth and Reily streets in Midtown Harrisburg. Pictured behind the construction site is the 1500 Condominium building. PHOTO/JASON SCOTT

They include a mix of new apartments, mixed-use projects and plans by Harrisburg University of Science and Technology to erect a new educational tower at Chestnut and South Third streets, which is in one of the designated zones. There also are state plans to reduce flooding along the Paxton Creek, which could open up hundreds of acres around the Harrisburg Transportation Center and along the Cameron Street corridor for development.

But many projects have been occurring because of other local tax incentives, including the city’s tax-abatement program.

The city’s improving financial position after near bankruptcy earlier this decade also has boosted confidence, as has construction of a new federal courthouse at North Sixth and Reily streets and of a new Pennsylvania State Archives building nearby. Both are in an opportunity zone.

Those projects and other factors are likely to drive investment in Harrisburg.

If some business comes because of the opportunity zone, more local people will start to take notice of it, said Harrisburg real estate agent Wendell Hoover of Iron Valley Real Estate.

But so far, he said, “It’s not on a lot of people’s radar.”