While we are still awaiting final guidance from the U.S. Treasury Department on Opportunity Zones (OZs), The Kresge Foundation has made a major announcement in an effort to establish equitable best practices for OZ funds.
The foundation is partnering with two impact fund managers, providing $22 million in investments for their emerging OZ funds.
The firms are Arctaris Impact and Community Capital Management (CCM). CCM also manages the Michigan Collaborative Fund which provides opportunities for investment in Michigan in affordable housing, targeted small business lending and civic infrastructure from endowment portfolios. It is available to CMF members, and CMF is also an investor.
The foundation says the fund managers expect to raise and deploy more than $800 million in capital nationally into census tracts designated as OZs.
Kresge shares that the two fund managers “have agreed to a level of transparency, accountability, and disclosure thus far unheard of in the Opportunity Zones space.”
“Opportunity Zones will only be a positive force in low-income communities if paired with responsible investing principles,” Rip Rapson, president and CEO, The Kresge Foundation said. “This legislation was passed without minimum transparency or reporting guidelines, permitting a ripe opportunity for misuse. Nearly a hundred are rumored to be currently seeking investment. Because of our mission to expand opportunity in low-income communities, Kresge has decided to put into action and model for other investors how solid deals can be constructed to meet the needs of investors and communities alike. Our intent is to establish proof points at scale to demonstrate that there is a responsible way to implement this incentive.”
As CMF reported in 2018, the foundation published a call for proposals to find potential Opportunity Zone projects that aligned with the foundation’s work with the hope of setting an example of best practices in socially responsible community investments, guided by transparency, research and reporting. The foundation selected Arctaris Impact and CCM from a pool of more than 140 responses.
Kresge shares that both fund managers have agreed to go beyond what’s required in the Opportunity Zone legislation. The fund managers have agreed to:
Prioritize the development of affordable housing units and prevent displacement.
Invest in the creation of living wage jobs.
Prohibit non-productive investments such as those into self-storage facilities.
Form community advisory boards.
CMF recently reported on the release of the Opportunity Zones Reporting Framework that provides a set of guiding principles, a reporting framework and a shared goal of measuring outcomes.
Kresge states that the agreements with the two fund managers complement the principles shared in the framework, which was developed in part through Kresge grants to the U.S. Impact Investing Alliance and the Beeck Center for Social Impact and Innovation at Georgetown.
“The Opportunity Zone Program represents a unique way to bring new investors into the impact investing arena. The tax advantages may draw people in, but they may be pleasantly surprised by the positive impact outcomes that are as rigorous, granular, and transparent as traditional financial reporting,” David Sand, chief impact strategist, CCM said. “The covenants we have agreed to might not be required by legislation or regulation, but we believe they should be – we are going above and beyond to demonstrate to the market what this can look like when done right.”
View the Michigan State Housing Development Authority’s (MSHDA) OZ resources.
Connect with The Kresge Foundation’s OZ work.
Check out Mission Investors Exchange’s OZ resources.