Why Opportunity Zone Projects Need to Develop Best Practices

Opportunity zone investors should develop an industry-adopted set of best practices. There is a frenzy around the new investment model—which provides an exemption for capital gains tax in exchange for investing in neglected communities—but investors need to remember the social impact component of the legislation. These best practices include job creation, job training and job quality, which will collectively provide economic mobility for people living in these communities.

“This is great legislation, and we need to adopt best practices standards. If we develop a project, we need to be able to evaluate the number of jobs. Second, this can’t just be a clock-in, clock-out job,” Quinn Palomino, principal and co-founder of Virtua Partners, tells GlobeSt.com. “We need to be able to measure the quality of the job. Third, we need to be able to measure the job training. People feel like if they didn’t get a college education, they can’t move into the middle class. These are the three areas that we think are critical to develop a best-practice standard and apply that to the industry.”

Virtua Partners has broken ground on the first opportunity zone project, the 130-room Springhill Suites by Marriott in a suburb of Phoenix. She says that hospitality can provide the balance needed for opportunity zone developments—returns for investors and job creation for the community. “Hospitality can provide healthy returns,” says Palomino. “It isn’t easy. We have be creative on our projects and mitigate the innate risk that comes with development and construction.”

While investors are, of course, looking for returns, Palomino says that many real estate players are also looking for ways to create a positive impact on the community as well. “Most investors are family offices and high net worth individuals, and they genuinely have a philanthropic desire to give back to the community,” . They just need to have a return that supports that,” she adds. “We are able to show the project that allows us to do that and here is a clear path to train individuals. We are able to provide for both sides and give back to the community.”

Bringing quality developments and jobs to a market is also a way to fight gentrification trends and create a better balance in emerging communities so as not to displace residents. “Gentrification is real. If you develop luxury housing, that has a limited social impact in order for that capital to be spent effectively,” says Palomino.

In addition to hospitality, Virtua also focuses on affordable and entry-level housing projects in opportunity zones. “We focus on affordable housing and entry-level housing because there is an acute shortage of housing,” says Palomino. “It is a pretty easy problem to solve. Our policy is that any redevelopment project replaces any low-income project. When we do our underwriting and complete that, we have to replace an include those units in the new development. Our goal it to do no harm, and our job is to make sure the numbers work.”