It’s not yet clear how or when the federal Opportunity Zone program will be handled by the team of Gov. Phil Murphy, but developers and lawyers are eager to begin working towards creating such a zone.
The federal program was launched in December in connection with assorted tax reforms. It allows for unrealized capital gains to be reinvested in Opportunity Funds aimed at low-income communities – known as Opportunity Zones – in exchange for a diminishing tax on capital gains over the lifespan of the investment.
Hugo Neu’s director of development, Michael Meyer, said the designation can help speed up the economic development of Kearny and the region as a whole.
“In Kearny Point already, we have over 175 small businesses, minority and women-owned businesses,” Meyer said in an interview. “They are generally startups, entrepreneurs, some makers and they, too, can use this program, if we get designated, to assemble private equity and private capital for their operating activity. We happen to have a location in Kearny where we both have investment opportunities for private capital as well as a large cohort of small, women and minority-owned businesses that can use private capital and return a profit to their investors.
Kearny Point is comprised of the construction and retrofitting of six buildings with roughly 2 million square feet. The project calls fora total investment of more than $1 billion of public and private capital.
The first building retrofitted, a 160,000-square-foot office building and a 50,000-square-foot warehouse, is fully leased. And the next portion of the project, a 200,000-square-foot warehouse is 50 percent leased.
Funds from the Opportunity Zone designation and its accompanying Opportunity Fund could help speed up the rebirth of the shipyard and grow the businesses occupying Kearny Point, Meyer said.
“We see this as a regional opportunity, not just an opportunity for Kearny Point,” he said. “By May or June, we will be starting construction of our next 300,000-square-foot adaptive reuse. We estimate that will be a $114 million redevelopment project and we anticipate that we would form an Opportunity Fund of up to $50 million to provide the private equity and capital that would be required to go about that project.”
Meyer said officials in Jersey City and Newark are also exploring how to obtain zone designations.
According to the Economic Innovation Group – the organization overseeing the Opportunity Zone program – states must designate tracts within the state as Opportunity Zones for which Opportunity Funds can be formed and used. Once state officials have designated each zone and a fund has been arranged, investors have access to three tax incentives on unrealized capital gains through the Opportunity Funds: a temporary deferral, a step-up in basis and a permanent exclusion.