When Natalie Noel and her father Chip open Noel Family Distillery early next year in Donaldsonville’s historic district, it will be the first of its kind in the small city. Once complete, the craft distillery will produce high-grade rhum agricole, vodka and gin, all made with sugarcane cultivated by local farmers and provided in partnership with Cora Texas sugar mill in White Castle.
Its unique concept inspired Noel to open an opportunity- zone fund earlier this year in an effort to attract larger-scale investment to the business venture, on top of existing bank financing and $15,000 already raised from a 60-day crowdfunding campaign. Since it’s only secured one investor so far, she calls the fund a “work in progress.”
“We’ve hardly marketed the fact that we’re in an opportunity zone because we want to make sure we get the right investor,” says Noel, also the founder of the Baton Rouge-based Tech Advocate Group. “We’re ultimately concerned about the community we’re from.”
With a 32% poverty rate and a median annual household income ($34,197) that’s significantly less than the nation median ($60,336), Donaldsonville is the quintessential community opportunity-zone incentives are supposed to benefit.
Similar to a trend visible throughout the country, developers appear slower to jump on investment opportunities in the Capital Region’s low-income areas.
At its core, the capital gains tax incentive program—established by Congress in the Tax Cuts and Jobs Act of 2017—is designed to drive long-term investment to low-income communities by incentivizing developers to reinvest their capital gains into opportunity-zone funds, which are specialized vehicles dedicated to investing in the designated zones. The greater Baton Rouge area is home to 29 federally designated opportunity zones, which are seeing mixed levels of traction.
The hardest step forward
To pump significant investment into an overlooked area, national policy experts say attaching a developer to a project is the most difficult, yet most necessary, step.
“This program works at its best when it’s truly community developed, when the community and investors are completely in on it,” says Peter Hirshberg, co-founder and CEO of Lighthouse.one, a San Francisco-based investment platform for opportunity zones that connects investors with projects.
After a cursory analysis of Baton Rouge area zones being marketed, company President and COO Marcia Kadanoff said their investors would be hesitant toward the local sites that don’t explicitly mention property visions or developers.
Indeed, developer-attached opportunity-zone projects have picked up the most activity in Baton Rouge.
Partners Southeast, the nonprofit development arm of of the East Baton Rouge Parish Housing Authority, offers investors an opportunity to “twin” affordable housing tax credits and opportunity-zone tax incentives as equity.
“Our discussions with equity investors indicate an imputed enhancement and appetite for our proposed developments within opportunity zones,” says J. Wesley Daniels, housing authority CEO.
Over the next several years, these will include, among others, the $5.2 million Cypress River Lofts, an under-construction, 19-unit apartment complex near the Water Campus; Cypress at Gardere, a 99-unit multi-
family development on Gardere Lane valued at $22 million; and 4730 North, eight apartment units to be built along North Boulevard for a to-be-determined price.
Meanwhile, Mike Wampold is using the incentive—stacked on top of a historic building tax credit—to redevelop downtown’s Chase South Tower building into a mixed-use development of high-rise luxury apartments, offices and ground floor retail.
Initially, the top five floors will be redeveloped into 75 high-end, multifamily units that could be completed and ready to lease by next summer—the first of some 150 units planned for the building’s top 10 floors. Future plans also call for renovating existing office space and adding new ground-floor retail space on the plaza, a bricked-in walkway that flanks the building on its Fourth and Fifth street sides.
The project is among many announced nationally that have led critics to question who stands to benefit more from the tax break—residents of the low-income communities where revitalization is needed, or deep-pocketed investors who are now able to defer their capital gains taxes.
Their point is arguably illustrated in the case of Ready Shield Solutions, a project that was supposed to invest $60 million into north Baton Rouge to redevelop the old Cotton’s Holsum Bread Factory on Choctaw Drive into a housing manufacturing facility that could create as many as 300 permanent jobs. When announcing the project over a year ago, developer Robert Day thought the facility would be located in an opportunity zone, but it was literally on the wrong side of the street from one, which, in part, is why there’s been so little visible progress made on the site.
Meanwhile, program supporters say investors are developing urban amenities that will ultimately attract people to once-forgotten areas, with the potential to employ and upskill a previously untapped workforce. However, even the staunchest advocates acknowledge challenges the program must overcome.
“It’s reinforced a narrow brand of real estate capital, just because that’s been the easiest thing to do,” says Hirshberg, of Lighthouse.one. “But the nature of community development in America is changing as communities have taken a more privatized view. In Baton Rouge, you have LSU, these properties, developers and local government … there’s a whole community stew going on.”
Still, investors remain cautious for various reasons. Among them is, until recently, a lack of clarity about the rules, according to some marketing the properties.
“When it first came out, nobody really understood it, but everybody was really excited about it because it was hyped up well,” says Mathew Laborde of Elifin Realty, who’s marketing a handful of designated zones in Baton Rouge’s downtown and Mid City areas. “Now, there’s less people excited about it, but the people who are capable of actually utilizing opportunity zone benefits are the ones looking into it.”
Many prospective investors who check all the boxes are keeping their cards close to their chests, waiting to see what transpires before making an investment themselves.
That means there still aren’t any formal plans are in place for The River District, says Ty Gose of NAI Latter & Blum, who’s marketing the 42-acre property, once envisioned as an “urban village” linking LSU to downtown. He says the area has seen “good traction,” but declines to elaborate, citing a nondisclosure agreement with his client.
“The opportunity zone incentive is certainly a carat, but the deal overall still has to make sense,” Gose says. “I’ve seen increased demand, but overall there are still a lot of questions that need to be answered before people feel comfortable making an investment.”
Local economic development professionals hope to change that. The Baton Rouge Area Chamber has been approved by the Delta Regional Authority for a $36,750 grant to create an interactive GIS system to promote state-certified sites and industrial sites to companies seeking to relocate or expand their operations in Louisiana. As part of this, BRAC will make investment prospectuses for opportunity zones in the nine-parish Capital Region, which chamber officials hope will emulate those of Louisville and other communities that have them.
“Part of it just means going to investors with an idea in hand,” says Andrew Fitzgerald, BRAC’s senior director of business intelligence. “There are cities in areas where it’s going well.”
Such follows the advice given by Bruce Katz, co-author of The New Localism, who’s helped create more than 40 investment prospectuses across the country and recently spoke at BRAC’s Statewide Economic Development Summit.
Specifically, a prospectus should go beyond pitching affordable housing projects to also include projects that would help grow locally owned businesses, like Noel Family Distillery.
“The first audience for (opportunity zones) is not the foreign fund; it’s going to be local,” Katz said. “You’re re-educating people about your state, showing the possibility for investment.”