How a Trump Tax Break to Help Poor Communities Became a Windfall for the Rich

AdvertisementSupported byThe BonanzaBy Jesse Drucker and Eric LiptonNEW ORLEANS — President Trump has portrayed America’s cities as wastelands, ravaged by crime and homelessness, infested by rats.But the Trump administration’s signature plan to lift them — a multibillion-dollar tax break that is supposed to help low-income areas — has fueled a wave of developments financed by and built for the wealthiest Americans.Among the early beneficiaries of the tax incentive are billionaire financiers like Leon Cooperman and business magnates like Sidney Kohl — and Mr. Trump’s family members and advisers.Former Gov. Chris Christie of New Jersey; Richard LeFrak, a New York real estate titan who is close to the president; Anthony Scaramucci, a former White House aide who recently had a falling out with Mr. Trump; and the family of Jared Kushner, Mr. Trump’s son-in-law and senior adviser, all are looking to profit from what is shaping up to be a once-in-a-generation bonanza for elite investors.The stated goal of the tax benefit — tucked into the Republicans’ 2017 tax-cut legislation — was to coax investors to pump cash into poor neighborhoods, known as opportunity zones, leading to new housing, businesses and jobs.The initiative allows people to sell stocks or other investments and delay capital gains taxes for years — as long as they plow the proceeds into projects in federally certified opportunity zones. His investment company, SkyBridge Capital, is using the so-called opportunity zone initiative to help build a hotel, outfitted with an opulent restaurant and a rooftop pool, in the city’s trendy Warehouse District.The tax benefit also is helping finance the construction of a 46-story, glass-wrapped apartment tower — amenities include a yoga lawn and a pool surrounded by cabanas and daybeds — in a Houston neighborhood already brimming with new projects aimed at the wealthy.And in Miami’s hot Design District, where commercial real estate prices have nearly tripled in the last decade, the tax break is set to be used for a ritzy new office tower with a landscaped roof terrace.Some proponents of opportunity zones note that money is already flowing into downtrodden communities like Birmingham, Ala., and Erie, Pa. They argue that more funds will follow. That is why the Trump administration — and Mr. Kowalski in particular — is promoting the tax break on Wall Street.“I have served a little bit as a middle man between the business community and the I.R.S.,” he said at another conference a few weeks later.More than 200 opportunity-zone funds have been established by banks like Goldman Sachs and major real estate companies, including CIM Group of Los Angeles, which has previously been a partner with the Trump and Kushner families on projects. He is making the investments through a private equity firm, Virtua Partners.The tax break is largely benefiting the real estate industry — where Mr. Trump made his fortune and still has extensive business interests — and it is luring people with personal or professional connections to the president.Mr. Christie, a onetime adviser to Mr. Trump, has raised money for opportunity-zone investments including an apartment building in Hackensack, N.J., and a self-storage center in Connecticut.Cadre, an investment company co-founded by Mr. Kushner and his brother, Joshua, is raising hundreds of millions of dollars that it hopes to use on opportunity-zone projects. Over the long run, they say, those deals will be eclipsed by ones that produce social benefits in low-income areas.At least some struggling neighborhoods are already starting to receive investments.In Birmingham, for example, a developer is using opportunity-zone funds to convert a building, vacant for decades, into 140 apartments primarily aimed at the local work force.“We are seeing projects that are being announced here in Alabama that would not have happened otherwise,” said Alex Flachsbart, founder of Opportunity Alabama, which is trying to steer investors to economically struggling neighborhoods.Similar projects are getting underway in Erie, Cleveland and Charlottesville, Va. Goldman Sachs is using some of its capital gains — profits on the company’s own investments — in opportunity zones, including $364 million for mixed-income housing developments in Salt Lake City, Baltimore and other cities.Mr. Case, the AOL co-founder, and Derrick Morgan, a former professional football player, are among those who have announced that they will invest in opportunity-zone projects that are designed to address clear social and economic problems.As he announced his retirement from the Tennessee Titans in July, Mr. Morgan wrote on Instagram that his goal would be to “create more opportunities for those who are underserved and overlooked” in communities like Coatesville, Pa., where he went to high school.Emanuel J. In addition, states could designate whole sections of cities or rural areas that would be targeted for investment, including some higher-income census tracts.In some cases, developers have lobbied state officials to include specific plots of land inside opportunity zones.In Miami, for example, Mr. LeFrak — who donated nearly $500,000 to Mr. Trump’s campaign and inauguration and is personally close to the president — is working with a Florida partner on a 183-acre project that is set to include 12 residential towers and eight football fields’ worth of retail and commercial space.In spring 2018, as they planned the so-called Sole Mia project, Mr. LeFrak’s executives encouraged city officials in North Miami to nominate the area around the site as an opportunity zone, according to Larry M. Its location inside an opportunity zone meant investors could earn greater profits than they otherwise would have, by financing the project with tax-advantaged money.Early opportunity zone development is often happening in neighborhoods where income was already rising, not in struggling areas.DecreasedIncreasedMedian householdincome 2012-1705,00010,000$15,000OpportunityzonesMid-CityFrenchQuarterVirgin Hotel(under construction)SuperdomeHoffman TriangleWarehouse District$16,833$11,871NEW ORLEANSGardenDistrictMississippi River1 MILEMedian household income 2012-17DecreasedIncreased5,00010,000$15,0000OpportunityzonesMid-CityFrenchQuarterVirgin HotelSuperdomeHoffmanTriangleWarehouseDistrict$16,833$11,871NEW ORLEANSMississippi River1 MILESources: American Community Survey; OpenStreetMap | By Weiyi Cai and Blacki MigliozziThose investors include Mr. Scaramucci, who briefly served as White House communications director in 2017 and has claimed credit for helping to create the opportunity-zone plan. The development is being financed by the investors in Cresset, a multibillion-dollar asset management firm, including one of its founders, Avy Stein.Early opportunity zone investment is coming to Market Square, already a site of high-end developments and major income growth.Median householdincome 2012-17DecreasedIncreased05,00010,000$15,0001 MILEMarket Square is home to three recent luxury developments.GreaterFifth WardDowntownHoustonFourth WardHOUSTON$36,564Opportunity zonesSouthCentral HoustonUniversityof HoustonRice UniversityHoustonZooMedian household income 2012-17DecreasedIncreased5,00010,000$15,00001 MILEMarket Square is home to three recent luxury developments.DowntownHoustonFourth Ward$36,564HOUSTONSouthCentral HoustonUniversityof HoustonHoustonZooOpportunity zonesSources: American Community Survey; OpenStreetMap | By Weiyi Cai and Blacki MigliozziAnd in downtown Portland, Ore., the developers of a 35-story tower with a hotel, condos and office space are hoping to raise up to $150 million in opportunity-zone money to pay for the project.