Ex-Obama Aide Starts Firm to Spur Investment in Poor Areas
(Bloomberg) -- Steve Glickman was a senior economic adviser in the Obama administration until 2013, when he set out to steer private capital to distressed parts of the U.S.
As the co-founder and chief executive officer of the Economic Innovation Group, a bipartisan Washington-based think tank, he helped lay the groundwork for recently enacted tax breaks that give investors incentives to devote money to real estate and businesses in roughly 8,700 low-income areas called “opportunity zones.”
Now Glickman’s starting a consulting firm to speed funding to these parts of the country. His new company, Develop, will provide advice to investors wading into the new market, helping with everything from communicating the benefits of the tax breaks to government relations.
“My goal is to let the investors and fund managers focus on what they really do: raising capital and doing due diligence on deals,” Glickman said in an interview Tuesday.
The opportunity-zone breaks were one of the lesser-known provisions of the federal tax overhaul signed into law in December, but they’ve sparked a tremendous amount of interest. They’re especially attractive to firms seeking to redeploy capital gains. Investors start by plowing those proceeds into “opportunity funds,” deferring taxes until 2026. If the funds buy and hold qualifying assets for at least five years, investors can reduce the tax they pay on appreciation or eventually eliminate it altogether.
Last month, Treasury Secretary Steven Mnuchin talked up the initiative to an audience in the Hamptons, lauding its potential for spurring business in struggling communities. Goldman Sachs Group Inc. has already pursued a handful of projects it expects will be eligible for the benefits. Several real estate investors are seeking to raise money for funds that will claim the breaks. And, last week, one of the largest affordable-housing groups in the country said it was partnering on a fund to revive Main Streets in small towns by using the incentives.
Yet it isn’t clear just what kind of investments will qualify and how money managers will need to structure their funds to ensure they can claim the breaks. The Treasury Department is expected to provide some guidance in the coming months. In the meantime, lawyers and accountants have been poring over the legislation for clues. Glickman said he’s not looking to supplant that work, but the newness of the market and his involvement in forging it are sure to create opportunities for him to provide advice.
The incentives are expected to cost the government $7.7 billion by 2022, an impact that’ll eventually wane as investors pay deferred capital gains, according to the Joint Committee on Taxation. Still, there’s no limit on the potential lost revenue, since investors who commit money to opportunity zones for at least a decade can permanently avoid taxes on their gains.
Glickman declined to name any potential clients, but the announcement of his new firm includes testimonials from an executive at Steve Case’s venture capital firm, Revolution LLC; Sean Parker, the Napster creator and first president of Facebook Inc., who went on to found the Economic Innovation Group; and Scott Goodman, the co-founder of Sterling Bay, a Chicago-based real estate company.
Despite the potential for billions of dollars to flow to communities that haven’t seen much investment, some researchers and nonprofits have raised red flags since the law went into effect. They’ve argued that the legislation is written so broadly that savvy investors and real estate developers could exploit it for projects they might have done anyway or that displace lower-income residents.
Glickman said gentrification isn’t a concern for the vast majority of opportunity zones, citing a study this year from the Urban Institute. Investors, however, aren’t required to disperse their investments evenly, so a lot of capital could end up going to areas where money is already flowing.
He also waved off any criticism he might receive for trying to profit from a tax benefit he helped usher in.
“If you really care about opportunity zones,” he said, “you want to see lots of investors moving lots of capital to these markets.”
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