The founder and principal of The Marian Group announced at a news conference on Monday that the real estate development firm had created its own qualified fund to invest in businesses and projects within Opportunity Zones — designated census tracts where investors can receive capital gains tax incentives under the new federal program.
The news conference was organized by Mayor Greg Fischer as a way to underscore his administration’s effort to take advantage of the new Opportunity Zones program, with a particular focus on increasing capital investment in low-income areas of west Louisville that are plagued with vacant and abandoned properties.
This would appear to be the first public disclosure of a specific opportunity fund investment within Louisville since the U.S. Department of Treasury released its first round of rules and guidance on the Opportunity Zones program two weeks ago.
Though its second and last round of guidance is expected before the end of this year, these rules provided clarity on what type of investments would qualify for the tax break, in addition to providing flexibility for how and when such investments must be deployed into specific projects.
The event Monday took place in the western part of the Russell neighborhood at the new and expanded location of Blacksmith Iron Works, a fabrication and custom metal solutions business that is owned by The Marian Group.
Jake Brown, a principal with The Marian Group, indicated that its move to the 20,000-square-foot facility would create at least 16 jobs by next year and represent a $750,000 investment, which would come from the qualified opportunity fund that the development firm created.
Under the new program, investors can roll over their unrealized capital gains into such funds that invest within Opportunity Zones, with the incentive of having their taxes on these gains deferred by up to seven years, plus paying no taxes on gains from within these zones if such investments are held for at least 10 years.
Brown told Insider Louisville that this is just the first pilot investment made by The Marian Group’s new opportunity fund, though he declined to specify what their other investments would be or how much money was currently in the fund.
“We started with our money, initially, and the goal is to build it larger,” said Brown. “That is the goal, to now get other investors to come in with us and build something that could become bigger.”
During the news conference, Fischer touted his work nationally with the U.S. Conference of Mayors on Opportunity Zones, saying that he led a small group of mayors in a meeting with Treasury Secretary Steven Mnuchin before that guidance was released, in which they pushed “for regulations that we believe will be most beneficial for the cities of our country.”
Fischer later told Insider that the Treasury followed through on several of the mayors’ requests, including expanding the percentage of assets for qualified investments that could be located outside of a zone and increasing the time period in which a qualified fund would have to deploy that capital toward a specific project.
Backed by the leader of his economic development team at Louisville Forward, Mary Ellen Wiederwohl, Fischer also praised their updated city prospectus to promote Louisville as a great place to invest within its Opportunity Zones. The updated marketing document breaks down the city’s 19 Opportunity Zones into eight groups, three of which are specific to west Louisville.
The prospectus describes the proposed track and field facility at the Heritage West property in Russell — led by the Louisville Urban League and OneWest — as one of the opportunities that Opportunity Zone investors can take advantage of, including the possible $15 million redevelopments of nearby empty warehouses on Madison Street into a “small business incubator” with hotel, retail, restaurant and residential uses.
Louisville Urban League President Sadiqa Reynolds stated that since the announcement of the $35 million “sports and learning complex” on the 24-acre brownfield site, “we have probably had three different groups of investors give us a call about what they might be able to do once the (Opportunity Zones regulations) are done,” adding that the new incentive program “will help us close this deal so much faster.”
Another zone grouping in the city prospectus is labeled “Medical Center/Soccer Stadium,” which includes the proposed $200 million soccer stadium district in the up-and-coming Butchertown neighborhood east of downtown. The prospectus notes the opportunity of investing in retail, office, hospitality and housing next to the stadium “in a rapidly growing neighborhood.”
Louisville City Football Club co-chair Mike Mountjoy also spoke at the news conference and thanked Fischer “for his effort in making sure that the Butchertown area, the Louisville City stadium district, if you will, was in an Opportunity Zone, which gives us the ability to consider opportunity funds to complete that development in the future. We’re happy about that and we’ll consider that as a tool that we’ll use.”
One potential project that was not mentioned in the prospectus was the restoring and redevelopment of a long-vacant factory at 1405 W. Broadway, which was featured in a recent grant application by OneWest and the Housing Partnership Inc. to the JPMorgan Chase AdvancingCities Challenge. In addition to leveraging affordable housing funds from the city for the project, the grant application mentioned nearly $8 million in equity from an Opportunity Zones fund.
Wiederwohl told Insider Louisville that the city is currently in discussions with OneWest and other entities to redevelop this landmark structure, but said the multiple opportunity fund investors were not ready to make an announcement on the project, though they could go public before the end of the year.
Fischer, Reynolds and Evon Smith of OneWest all noted that while they are optimistic about the Opportunity Zones program, they also believe that city must make sure that such investments are right for these communities and have the best interests of their residents in mind.
Skeptics of the program have feared that it could lead to the displacement of current low-income residents, or that it would simply subsidize developers for investing in certain up-and-coming areas where they would have invested anyway.
“We’re only interested in creating responsible development that provides opportunity investment without the displacement of our citizens,” said Fischer. “As we’re starting to see more investment in west Louisville now, some people are having concerns about gentrification – that is, the people living here now won’t afford to live here in the future. We will fight that with all of our might, and we will also work with investors that are interested in a social impact so that we can build income and wealth for our existing residents.”
Asked what would constitute an “irresponsible development,” Wiederwohl said that Opportunity Zone investors and projects should “follow the neighbors’ wishes, and that involves community engagement.”
Noting the recently completed neighborhood plan for Smoketown and the one that California is currently working on, Wiederwohl added that such plans “express in a regulatory format what a community wants and doesn’t want. So that’s a great baseline for responsible development. And before you go into a community, you do community engagement and listen first before you act.”
Fischer, referring to his hope that investors are interested in projects with a “social impact,” said these could include features like affordable housing, where the long-run rate of return may not be as high but could include the participation of nonprofit foundations.