(co-authored with Ross Baird)

As states, cities, metropolitan areas and rural communities wrestle with the implications of the 2024 elections, Opportunity Zones have emerged as a core pillar of what might come next in housing and economic development.

Opportunity Zones emerged as a little-known provision of the Tax Cuts and Jobs Act of 2017. Focused on attracting private investment to distressed communities, the incentive allows people or corporations to defer taxes on capital gains if they park those gains in qualified Opportunity Funds that target their investments to state-designated Opportunity Zones. If investors stay in a Fund for 10 years, any additional gains from Fund investments are also exempt from taxes on the capital appreciation.

Six years on, the real-world impact of Opportunity Zones is beginning to be understood. As the Economic Innovation Group (EIG) reported earlier this year, “Opportunity Zones are home to about 10 percent of the country’s population but now account for 20 percent of all new market-rate multifamily apartment units being developed in the country, up from 8 percent prior to legislation passing.” EIG also cites private estimates that the tool has catalyzed an estimated $100 billion in private investment into distressed areas.

But Opportunity Zones are getting renewed attention for other reasons. The Tax Cuts and Jobs Act of 2017 was a signature achievement of the first Trump Administration, and tax reform will be an early focus of the new Administration since key provisions of the 2017 Act are set to expire on December 31, 2025. Senator Tim Scott (R-S.C.), now the incoming Chair of the Senate Banking Committee and a senior member of the Senate Finance Committee, was an original co-sponsor of the Opportunity Zones legislation (with Senator Cory Booker (D-N.J.)). And Scott Turner, President Trump’s nominee to the Secretary of Housing and Urban Development, ran the White House Opportunity and Revitalization Council during Trump’s first term (which sought to coordinate federal investments in Opportunity Zones).

Given the likelihood that Opportunity Zones could be extended and expanded, there is substantial interest in lessons learned from places which were able to take full advantage of the tax incentive in purposeful ways, by smartly leveraging public, private and philanthropic investments.

To that end, Opportunity Alabama has emerged as a best-in-class model in how states and communities mobilize local corporations, high net worth individuals, universities, hospitals, foundations, and governments to get coordinated, invest at scale and attract outside capital.

The key mover in this was Alex Flachsbart, a remarkable individual who saw the potential of Opportunity Zones and moved quickly to organize Opportunity Alabama (OPAL) to maximize the potential of this new tool for his state. Ross singles out Alex as the single best “new localist” entrepreneur he’s worked with over the past five years. As Ross likes to say:

“I grew up in Georgia, and we always had a saying: “Thank God for Alabama.” It made us feel a little better about our rankings in everything. But in the world of Opportunity Zones, Alabama has defied the usual narrative. Thanks to the leadership of Alex and the work of OPAL (Opportunity Alabama), the state now ranks in the top ten nationally in OZ capital deployed.”

Alabama’s success isn’t just a story of unexpected triumph; it’s a blueprint for what’s possible when innovative thinking meets strategic execution. As Opportunity Zones stand on the brink of potentially significant expansion, the lessons from OPAL are more relevant than ever. We are excited to hear Alex unpack how one state leveraged this program to not only bring in unprecedented capital but also create the infrastructure for sustained inclusive growth.

Alex, tell us the backstory of Opportunity Alabama. Why was it formed? Who were early backers? What was the original mission and structure? What were the initial success metrics?

Opportunity Alabama was formed in the summer of 2018 as Alabama’s Opportunity Zone designations were finalized. But the story stretches back a lot further — for decades now, Alabama has had chronic issues with lack of access to capital for real estate development and business investment in its low-income communities. The CDFI movement that helped close that gap in many other states over the last 20-30 years really never took off in Alabama; we only have three certified non-bank CDFIs headquartered in AL, and not a single one of those invests in real estate. We’re 50th of the 52 states and territories in terms of per-capita CDFI Fund financial assistance awards. And the number of private foundations making grants and PRIs to solve the access to capital problem in Alabama is just as limited — from 2011 to 2015, we only had $30 per resident in grantmaking activity from national and local sources (compared to $194/pp in New York or $107/pp on average nationally). That represents the lowest figure even within the chronically underinvested South.

Alabama’s corporate / philanthropic community knew we needed to mobilize private capital to help close the gap — but the question for years has always been “how”? Enter Opportunity Zones! Finally, here was an incentive designed to work for anyone with a capital gain — from a tech investor exiting a seed investment to a rural landowner who cut and sold timber. And given the way our OZ map laid out in Alabama (Governor Kay Ivey put at least one in every county), we had an excuse to start those conversations about “local capital for local deals” in, quite literally, every corner of our state. Beyond that, OZs offered the potential to attract net new capital to Alabama — if we had the right infrastructure in place to identify national Opportunity Funds that wanted to invest here. But who would do the field work of bringing potential OZ investment opportunities to capital, and the equally important work of ensuring our low-income community members got a voice in the capital allocation process?

Our state’s largest utility (Alabama Power), our state’s largest bank (Regions), and a number of other corporate and philanthropic partners coalesced around the creation of a new nonprofit organization to be the “one stop shop” for capital access through the OZ incentive. This new nonprofit (Opportunity Alabama) would help originate investment opportunities, identify capital sources, and train project sponsors and capital allocators alike on how to leverage OZs and combine that incentive with the dozens of others at the state and federal level that could drive investment. Our goal was to put boots on the ground in every county, hosting educational events, listening sessions, and deal talks all over Alabama over a two year period. We wanted Alabama in the thick of the national conversation around OZ investing — and, over time, we hoped the same infrastructure that delivered OZ capital could start channeling non-OZ dollars into the same low-income geographies.

I’ll admit that I had a front row seat for this entire process. I’m a “recovering” attorney, and prior to OPAL, I worked at one of the big firms in Birmingham on tax credit and economic development-related projects. I spent years working on everything from major industrial deals to downtown revitalization in Selma, and consistently ran headlong into the exact access to capital gaps described above. I spent years working with large investors and major corporates attempting to build an ecosystem to close those gaps, but there was never enough exigency behind the question to create a scalable solution. I stumbled across Opportunity Zones in the initial draft of the Tax Cuts and Jobs Act back in 2017 precisely because I was looking for something – anything, really — that could help in my day-to-day work. I had to read the provision three or four times before I convinced myself that it said what I thought it said — and I hit the phones pretty quickly after that. Within six months of TCJA, I had enough stakeholders bought into OZs that I felt confident enough stepping away from my law firm job to launch OPAL, and I haven’t looked back since.

What has the organization accomplished since its inception? Have these accomplishments met or are exceeded your expectations? What projects are particularly memorable?

According to the best available data we have, Alabama ranks in the top ten nationally in the aggregate (not just per capita) in the level of OZ investment we’ve seen statewide — that’s the opposite of where Alabama typically finds itself on a national ranking list and is a huge testament to getting out in front of this new incentive early. Far more important than that, however, is the network we’ve painstakingly built over the last six years. Alabama now has a functioning access to capital ecosystem that includes hundreds of banks, family offices, high net worth individuals, corporations, foundations, and so many more. Some have capital gains and are interested in OZs; some are tax-exempt and like the idea of their corpus dollars being reinvested in the communities they are chartered to support; some are only interested in tax credits, some want market rate returns, and some are willing to be concessionary — but collectively, they now form the foundation for capital allocation infrastructure that totally transcends the Opportunity Zone incentive that brought them all together in the first place.

For the first two years of our organizational existence, we spent an enormous amount of time on the road, meeting with all the community, deal sponsor and investor representatives that would form the basis of our ecosystem. COVID completely changed the model — doing OZ education and capacity building over Zoom just wasn’t going to work. At the same time, we were realizing the limitations of the “connector” model: namely, that you can lead capital allocators to water, but you can’t make them drink! We decided that we’d rather pool capital within an infrastructure we controlled and could allocate, and spent the next twelve months partnering with Blueprint Local to build out a whole new investment shop within OPAL. We launched it in 2021, started deploying capital in 2022, and have now invested over $500M in deals out of that infrastructure over the last 3 years.

What’s so fascinating about Opportunity Zones is their enabling capacity. So many of the calls that we still get today are from folks that have a capital gain and are interested in OZ investing — but once they hear about the totality of our pipeline and investment infrastructure (which includes everything from tax credit investment and bridge fund products to a debt fund run by our own emerging CDFI), they may ultimately place OZ capital and additional investment, or invest a portion of their gain into one of our other products.

This evolution from having almost no capacity around capital deployment in underserved communities to having a fully-functioning, integrated capital access infrastructure statewide in just six years is, without question, our biggest accomplishment. But we’ve certainly had some memorable projects along the way — we’ve done everything from a $36M naturally occurring affordable housing development in a blighted, 20+ year vacant property to a $500K redevelopment of a neighborhood theater into a new home for a nonprofit and a music venue. We’ve invested in woman-owned, Black-owned, Hispanic-owned, and veteran-owned businesses, and have helped close deals from Selma to Heflin (population 3,500). And I believe we’re just scratching the surface of what this infrastructure can ultimately do for Alabama.

What lessons have you learned over the life of the organization? About local capacity? About private sector risk tolerance?  

I had a list that was about 20 bullet points long in response to this question! We have learned an enormous amount over the last few years (and much of it is what NOT to do, learned by experience), but if I were to pick a “Top Three”, they would be:

• Controlling Capital Allows Control of Destiny. I love the intermediary model — being a nonprofit at the center of a new ecosystem allowed us to approach every stakeholder on equal footing, build our deal / investor pipeline, and understand the investment landscape without “threatening” any particular group (or having others worry about how we would “profit off of them”). But that model will always be practically limited by the human capacity of those running the organization and the government / philanthropic support for the entity. Transitioning from the intermediary model to the capital allocator model (while retaining our nonprofit as the ultimate owner of our corporate infrastructure) was great for our organization because (A) it allowed us to focus on the deals that had the mix of returns and impact that we wanted to see; and (B) it created a sustainability model for the entire organization. With capital under management, we could charge management fees — and the cash flow from our deals could pay those management fees, which covers our overhead and obviates the need for general operating subsidy from government and philanthropy.

• Technical Assistance, Not Capital, Unlocks Catalytic CRE Deals. This is my “clickbait” bullet — of course we can’t get deals done without capital access, but capital allocators simply will not put dollars to work on a real estate deal unless there is a clear pathway to viability. Establishing that pathway to viability means building out a comprehensive redevelopment plan (design, architecture, engineering, etc.), the right tenant mix (how many apartments at 80% AMI, who occupies the retail storefronts, etc.), and the perfect capital stack. The typical property owner or local organization looking to tackle a major placemaking project on their own might have capacity to handle one, maybe two, of these big categories. But local resident developers or property owners handling all three, and then executing on all three, without third party help is extraordinarily rare. To address this gap, we’ve reverse engineered a technical assistance program to help local residents and community-centric developers execute on catalytic projects, providing comprehensive development assistance work (from pro forma creation and capital stack modeling to design and tenant recruitment). We offer this wraparound TA support (called Property Development Assistance Program) through a competitive application process we run 2-3 times per year, and have far more demand than we have slots — last round, we could only accept 30% of applicants. Because we’ve spent the time, energy, and effort to ensure that a deal is ready for capital when it goes to market, the deals that successfully complete PDAP have (thus far) been able to attract capital more consistently.

• Getting High Impact Deals Done — Particularly in Rural — Is Possible but Extraordinarily Hard. Every capital allocator has their particular set of return requirements and risk thresholds that simply won’t get moved; don’t try. Instead, you’ve got to find enough risk-mitigating elements on your high-impact project to unlock the capital. Candidly, that’s why we invented PDAP; going through the “de-risking” process is long and laborious, and almost always involves pulling in multiple subsidy sources at the local, state, and federal levels. But the nature of high-impact rural deals makes them, at least in our experience, even harder to get across the finish line than their urban counterparts. Negative population growth dynamics, generational disinvestment, and private market rents at (almost always) far below what could be achieved even in underserved urban neighborhoods all meld together to make deals exceptionally tricky to pencil. Deals are smaller, both because they can’t support more costs and because the square footage needs are not as great. And local capacity gaps are even more exaggerated in rural areas, where there may not be capital, labor, or talent within a 2-hour drive to fill in each element of the team needed to get a high impact deal done. To consistently support deals in rural underserved places, PDAP is almost a base-level requirement, rather than “the answer” — as even with the perfect plan, the deal may still be too small, too risky, or not “juicy” enough for private capital allocators to take notice. Having a thriving local-vesting ecosystem is part of the solution here, but I’d encourage anyone looking at what federal and state tax/incentive policy looks like 2025 to think carefully about how their proposals will ultimately impact our ability to solve the rural challenge.

What advice would you give a place that wants to adapt the Opportunity Alabama model? What are pitfalls to avoid? Surprising elements to elevate early? 

As mentioned above, I could write a small novel on pitfalls, but to keep your readers engaged — let’s do another Top 3 List:

• Pick a Lane and Hire or Contract Around It. The skills needed to help (or invest in) a consumer-centric small business are completely different than the skills needed to back great high-growth biosciences or tech startups. And any of those skills are totally different from those needed to effectively underwrite or help “scale” real estate deals (where knowing how to build single-family housing is entirely different from supporting mixed-use historic revitalization projects). Trying to be a connector across all capital needs in low-income places all at once was, at least in our two years of trying, a bridge too far. Work with community stakeholders to identify the biggest gap in your ecosystem that can be paired most readily with potentially available capital and focus there for building out your internal team talent. Here in Alabama, we have multiple organizations providing technical assistance and access to capital for small businesses, and an emerging venture ecosystem to support our growth companies. What we had absolutely none of anywhere was catalytic real estate support — so over the last few years (and thanks to the revenue stream provided by our fund vehicles), we’ve built out an in-house team of real estate experts who can both help scale deals and deploy capital.

• The Cavalry is Not Coming Over the Hill. Early in our OPAL work, we were convinced that much of our capital (both operating foundation support and private investment) would come from national investors and philanthropy. While we had some luck with both (thanks to folks like Woodforest, Arctaris, Lumina Foundation and EFA), it was a drop in the bucket compared to what we were able to do locally. Only now that we’ve fully built our investment infrastructure, hired a strong management team, deployed millions in capital, and received consistent local buy-in are we attracting the kind of non-OZ-motivated national capital we hoped would “crowd in” from the start. The lesson learned here? Find or create an incentive powerful enough (more on this below) to make every single local capital allocator listen to your pitch, get as many of them as you possibly can into your infrastructure, and THEN go big with it.

• Have a “Hook” to Build Your Ecosystem. OPAL would not exist without Opportunity Zones. Over the last 20 years, various efforts to start CDFIs, leverage SSBCI, create local-vesting venture funds, etc. all ran into the same problem: they didn’t provide a big enough “tent” to draw in all the possible capital allocators, communities, and project sponsors, and/or they didn’t offer a compelling enough incentive to make them stay to listen. In Alabama, Opportunity Zones acted as the center tentpole — but that’s not to say that a special “local-vesting” oriented state tax credit couldn’t do the same thing in your community. And with what we think will be a favorable setup for Opportunity Zone renewal in 2025, there may be a second bite at the apple for leveraging a “revamped” OZ 2.0 to build a new OPAL wherever you are.

Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University. Ross Baird founded Blueprint Local, which has invested $250M in Opportunity Zone capital in projects that now have an estimated ~$2B in value across the country.