Several years after the Trump administration created opportunity zones to encourage investment in low-income census tracts across the county, Missoula’s designated zone has attracted its share of projects.
This week, the largest such project made its debut in City Council where a local team announced its plans to develop nine acres off Scott Street into a mix of permanently affordable and market rate housing.
The project, which should close with the sale of property this summer, culminates years of work by the Missoula Economic Partnership and included funding from the Missoula Redevelopment Agency to help push the project forward.
“We went through a process of almost two years going to conferences, touring communities, working with our partners at MRA and the city,” said Grant Kier, CEO of the Missoula Economic Partnership. “When we started that process, this was our vision. Talking with impact investors, Scott Street was the place we’d have the best likelihood to succeed.”
The Trump administration created opportunity zones in its 2017 tax plan. The tool enables an investor to defer capital gains on the sale of certain assets by investing those gains into an opportunity fund or opportunity zone.
The Scott Street housing project includes a pool of parties who have invested into an opportunity fund. Each fund has its own goals and outcomes, though a number of them also look to create a positive community impact.
Such outcome-based funds are often referred to as an impact fund, and it’s exactly what landed in Missoula to help push the Scott Street project forward. Once completed, it will result in around 70 permanently affordable homes built on a land trust held by a nonprofit, along with around six acres of market rate housing.
“This is the result of a very remarkable partnership,” said Mayor John Engen. “We have an opportunity fund partner and an impact opportunity fund very interested in doing good. It’s the kind of partner we hoped to find.”
Like many other locations, it took time for Missoula to fully grasp the impacts and potential of an opportunity zone. Montana was allocated a limited number of zones, and former Gov. Steve Bullock designated one in Missoula.
The zone loosely extends from Orange Street to Reserve and from the Clark Fork River north to Interstate 90. A number of projects have utilized the opportunity benefits within the zone, including a $3 million office building by DJ&A and a $7 million medical clinic for gastroenterology.
But it’s the public-private partnership behind the Scott Street project that could provide the momentum the city’s economic leaders have been looking for over the past several years.
“It really showcases how to leverage public-private partnerships,” said Julie Lacey, the economic development director at MEP. “We’re excited to see where that goes and what that means for other projects in the area. How do we take what we’ve learned and how do we engage outside partners and folks in Missoula and apply that to other sites?”
Kier said interest in Missoula remains strong, even if the city represents a relatively small market and isn’t widely known to large-scale investors. That makes it hard to attract the national capital needed to fund larger project, such as 9 acres of housing.
But the organization’s networking paid off, and the city’s ownership of the Scott Street property added some security to investors. The parcel, along with most others in the opportunity zone, also sits in one of Missoula’s urban renewal districts, meaning public funding can be used to build the public infrastructure needed to accommodate the development.
“We do feel that if this goes well, it will open the eyes of a new pool of potential investors into the kinds of projects we want to see in Missoula,” Kier said. “We’re hoping this will be an opportunity to build momentum and replicate this as a way of partnering with the city or county and the private sector to move the needle on some of our bigger goals, rather than waiting for the private sector to just come along and take it on.”
Kier said MEP continues to see investor interest in Missoula, both in and out of the opportunity zone. The Scott Street deal, fueled in part by an opportunity fund based in Salt Lake City, could prompt other investors to take a closer look.
“As people have gotten to know us and learn more about what’s happening in Missoula, we’re seeing more and more interest from people looking at opportunity zone investments, but who are also thinking about ways they can engage in new markets to deploy funding for capital investments and land, and commercial and residential real estate,” Kier said.
The tax plan that created the opportunity zones also set a timeline for when investments can be withdrawn, and when investments can be made for the greatest return. The maximum benefit is coming to a close, though some tax benefits will continue.
MEP believes the benefit of the opportunity zone represents only a small fraction of the overall financing. As a result, Kier said, impact investments will likely continue.
“The whole universe of what impact investors – who are interested in both a financial return and achieving an important social outcome – that group is sill out there. Our kinds of projects as a place and as a community will still appeal to those investors going forward,” Kier said.
“Even without the opportunity zone as the catalytic point, we can continue to attract community minded capital going forward.”