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Before getting into Opportunity Zones, Patrick McKenna, managingpartner at Catalyst Opportunity Funds, had the venture fund focusedon investing in entrepreneurs outside of Silicon Valley—fromBaltimore to Pittsburgh to Milwaukee.

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"The idea here is that there's talent everywhere," he says."It's under-capitalized. So, I've personally been in those placesworking with entrepreneurs and working with local investors."

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That experience helped McKenna develop an eye for cities withgreat potential. "I have a track record of being able to validatethat there's underlying growth, there's talent and there's a brightfuture in these places, but they are also under-capitalized," hesays.

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But in many of these places, the infrastructure isn't in place."If you're scaling a company in Columbus or Pittsburgh or a lot ofthese places, you've got five, 10 or 20 people and a $1 or $2million in investment, and now you're going to [need to] raise $10or $20 million," McKenna says. "First of all, you need investorswho are in." But these fledgling companies also need Class A officespace and housing for their workers. In the past, they might havemoved to California or Boston or New York. McKenna thinks theOpportunity Zone program can be a springboard to encouraging thesefirms to grow in second-tier cities.

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"The potential to me is how do we keep that company inPittsburgh and Baltimore and Columbus," he says. "The truth is weneed seed investment. We need venture capital in Series A, but thenwe also need office space that will accommodate that growth, and weneed housing. People will move and come in from San Francisco, NewYork and Boston, but they need to access that housing. You need allthose things coming together to address the opportunity gap, whichis a big theme of my personal investing."

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McKenna wants the young graduate from Carnegie Mellon, forinstance, to feel like they can stay in Pittsburgh and have thesame opportunity they would get in San Francisco.

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"If the growth is happening around the country and not on thecoasts, there's historically been a lack of investment in thatgrowth," he says. "Now we can bring that investment in and catalyzethat growth. That's going to make a big difference for thecountry."

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McKenna cautions that the Opportunity Zone program won't createa business ecosystem in places that don't have underlyingpotential, but it stimulates those that do. "If that potential isbubbling and ready and it lacks capital and network, we can bringthat," he says. "That's the sweet spot that is unique to the way wesee the world."

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Already, Catalyst launched three fund investments in Salt LakeCity and Bozeman, Utah. At Industry SLC and Pickle and Hide in SaltLake City, the firm intends to transform old industrial propertiesinto creative office and retail. "This is a place that's sittingbetween two pretty successful areas, but it is being left out,"McKenna says. In Bozeman, Catalyst is investing in a 60-unitworkforce-attainable apartment complex. "Bozeman is growing a lotof tech jobs," McKenna says. "It also has a lot of second-homepeople moving there."

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The population growth is squeezing the working class, accordingto McKenna. "Nobody is investing in that workforce housing forpeople who go to work every day making 60% to 120% of AMI," hesays. "That's why we got behind that project in Bozeman."

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Leslie Shaver

Les Shaver has been covering commercial and residential real estate for almost 20 years. His work has appeared in Multifamily Executive, Builder, units, Arlington Magazine in addition to GlobeSt.com and Real Estate Forum.