What Steps Can Grantees Take to Identify OZ Investment Opportunities?
There are several steps a grantee should take if it wishes to pursue HOME/HTF development in the OZ as outlined below.
The first step in seeking to work with OZ developers and investors is to be proactive. Grantees should learn as much as possible about the OZ program and the OZs in their communities, if they are not already involved in the OZ efforts in their jurisdiction.
For many grantees, especially in states and large jurisdictions, the department or agency involved in facilitating development in the OZs may not be the same as the department or agency administering the HOME or HTF program. Grantees that administer competitive programs for the disbursement of HOME and HTF funds in their jurisdictions can often rely on developers to seek out projects that the grantee chooses from.
Grantees will want to identify the boundaries of the OZ and determine whether any proposed HOME/HTF projects in the grantee’s pipeline might be located in the OZ. If there are HOME or HTF projects in the pipeline that have financial gaps, the grantee may want to encourage developers to seek OZ equity as gap financing in these projects, if needed.
During the jurisdiction’s planning and consolidated planning processes, grantees can scope out opportunities for affordable housing investments in the OZs. Grantees might use charrettes and other planning tools to seek input on strategies for future investments within OZs.
Grantees can identify vacant land ripe for new construction or deteriorating structures in need of rehabilitation that are situated in the OZ and assess whether these sites are appropriate for residential (affordable housing) use. If so:
- What type of housing makes sense (rental, homebuyer)?
- Do (very) preliminary financial calculations suggest that HOME- or HTF-assisted housing might be feasible on these sites?
- Does (very) preliminary site control assessment suggest these sites might be attainable for affordable housing development?
Typically, the OZ investor seeks investment opportunities, but is not the developer. Grantees may want or need to identify project sponsors and/or developers that might be interested in affordable housing development in the OZ. Once identified, the grantee can facilitate introductions to OZ investors.
To identify potential OZ investors, see guidance provided in this Guidebook, How Can a Grantee Find Potential OZ Investors Who Might Be Motivated to Invest in HOME or HTF Projects?
Grantees might also consider providing incentives to developers who propose projects in the OZ, such as those discussed in a later section of this Guidebook. See How Can Grantees Create Incentives for Developers to Construct/Rehabilitate Affordable Housing in the OZs?
It will be important that all the key team members understand the various funding sources, motivations, and requirements:
- Educate OZ partners about HOME and HTF. Once identified, grantees will need to educate potential OZ partners about the HOME and HTF programs and requirements to ensure that these potential partners understand the opportunities and limits these financial resources provide. This effort should combine education about the program with promotion of the benefits of HOME and HTF to investors/developers.
Grantees can show investors examples of existing affordable housing projects to demonstrate the quality and stability of well-managed rental projects that have been underwritten and funded to ensure long-term stability. Grantees may also be able to demonstrate the need for affordable units and the challenges low-income households in finding available decent, affordable housing in the local market.
- Educate grantee staff about the OZ. Conversely, grantees may also need to educate their own staff and development partners about the OZ, how it works and what motivates the OZ investor. This understanding is important so that grantees can ensure that HOME/HTF projects are structured in a way that ensures OZ equity investments meet IRS requirements. See Opportunity Zone Basics 101 in this Guidebook for guidance on IRS requirements for OZ investments.
Explore viability of using HOME or HTF in the OZ for specific project(s). Grantees and their partners (state recipients, State-Designated Entities, subrecipients, developers, etc.) can access several tools provided in this Guidebook to guide collaboration efforts.
- Identify challenges in structuring a deal and explore ways to overcome these challenges. See Challenges to Using HOME and HTF in OZs in this Guidebook.
- Explore incentives that grantees can offer to OZ investors to create incentives to investment (discussed on the next page in this Guidebook).