New tax law helps enrich wealthy college towns

Plus: Convention Center construction starts; Michael Jordan selling minority stake in Hornets; Dairy Queen closing protested by at least 3 people

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Opportunity zones are designed to channel investment to poor areas, but towns including Chapel Hill are benefiting

We often hear that the opportunity zones created by the 2017 tax law are helping benefit distressed communities. But they are having another effect, too — channeling investment into wealthy college towns.

From a piece by Ledger editor Tony Mecia in Saturday’s Wall Street Journal (paywall):

If you stroll down Franklin Street, the main drag here in this wealthy college town, you aren’t likely to think you’ve landed in a disadvantaged place. Just a few blocks from the main campus of the University of North Carolina, groups of happy-looking young people crowd the sidewalks and patronize businesses including Starbucks, Chipotle, Cold Stone Creamery, several national bank branches, a bike shop, a craft-beer brewery and a wine bar.

But like many commercial areas adjacent to major colleges, this section of Chapel Hill is primed to attract millions of additional dollars in new investment thanks to changes that were part of the 2017 tax law. Investors around the country are racing to take advantage of one of the hottest tax-planning strategies in wealth management: sticking money into “opportunity zones.” 

The program allows investors to reduce and defer paying capital-gains taxes until 2026 by investing in high-poverty communities. But because of the way the federal government wrote the rules, some census tracts—including Chapel Hill’s—appear on paper to be high-poverty areas but are actually populated by college students with no income. As a result, a tax benefit intended to help poor areas is channeling money to places that are already relatively well-off.

It’s true that Chapel Hill’s opportunity zone has a poverty rate of 47%, three times the state average. But the zone’s median age is 22, 99.8% of residents have high-school diplomas and 49% say they’ve moved in the past year. The tract has a lot of apartments and rental units—including nearly a dozen fraternity and sorority houses—but the median value of owner-occupied housing is $500,000, or triple the state average.

Money is already pouring in. In April, a Charlotte-based real-estate firm [Grubb Properties] spent $23.5 million to buy a 119,000-square-foot Franklin Street office building with a ground-level CVS pharmacy and adjacent parking lot. “It is a bit of a head-scratcher why it is an opportunity zone,” the company’s vice president admitted to the Raleigh News & Observer, which noted: “Most people aren’t likely to think of Franklin Street as a disadvantaged area.” The company plans a $12 million renovation to refresh the offices and to convert them to a technology hub. It might include a co-working space.

Many of the country’s 8,700 opportunity zones are in legitimately distressed communities in need of revitalization. Still, as investors have begun announcing deals taking advantage of the tax breaks, some of the projects in opportunity zones appear to fall short of the goal of spurring new investment that lifts up struggling areas. …

A study last year by the Brookings Institution identified 33 college towns with opportunity zones in which more than 85% of residents are college students. The top three were the University of Southern California, Indiana University of Pennsylvania and Illinois State University—each of which has nearby opportunity zones composed of 99% college students. 

WELL-HEELED: Investors are pouring money into opportunity zones to take advantage of tax benefits. One zone in Chapel Hill includes a portion of Franklin Street adjacent to UNC-Chapel Hill’s campus. (Ledger photo by Emily Mecia; map below from Chapel Hill’s Office of Economic Development.)

In the Carolinas: Besides UNC-Chapel Hill, there are opportunity zones adjacent to Clemson, Appalachian State and Duke.

In Charlotte: Charlotte has 17 opportunity zones, mostly north and west of uptown, though there’s also a cluster in east Charlotte, according to a thorough January piece by Andrew Dunn in Charlotte Agenda. More recently, the Biz Journal’s Ashley Fahey explained last month how opportunity zones are helping fuel investment in the city’s westside (paywall).

Convention Center starts construction

The Charlotte Convention Center has started its $110M renovation and expansion, according to the Charlotte Regional Visitors Authority.

The initial construction phase might not be visible from the outside, as it “requires reinforcement to Exhibit Halls A and B and to the roofline structure along Stonewall Street,” according to an email to the Ledger from CRVA spokeswoman Karen Brand. “While it won’t be visible from the exterior of the building, this important interior structural work will be underway.”

She says the building will remain open and the CRVA will continue working to attract business during construction.

The CRVA said in 2017 that construction would add a pedestrian bridge to the Westin and add meeting rooms and “soft spaces where attendees can network between sessions.” It will add about 50,000 s.f. to the existing meeting level.

The view from Stonewall Street: Work has started on the Convention Center’s $110M renovation and expansion. (Rendering courtesy of Charlotte Regional Visitors Authority.)

Work is expected to be finished in 2021.

Photo of the day

Blizzard preservation: Protestors in Plaza-Midwood demonstrate Saturday against the planned closing of the Dairy Queen on Central Avenue. The restaurant, which opened in 1950, said this month that it was unable to reach new lease terms with its landlord and will close Nov. 1. (Ledger photo by Liza Whitmire)

Panthers fans go down fighting

The internet delivers yet again with another Charlotte footbrawl video, although this one is no Brads vs. Chads. It was apparently filmed during the first-quarter lightning delay at Thursday night’s Carolina Panthers game.

In brief:

  • Jordan selling minority stake in Hornets: Two New York investors have reached a deal to buy a portion of the Charlotte Hornets from majority owner Michael Jordan, the Observer’s Rick Bonnell reports. “Jordan is bringing in Gabe Plotkin, a founder of Melvin Capital, and Daniel Sundheim, a founder of DI Capital. … A source familiar with the deal said Jordan is attracted to adding investors with deep resources who might offer new ideas regarding technology advances.”

  • Retirement community rezoning: At a City Council meeting tonight, Proffitt Dixon Partners is requesting to rezone 20 acres on Providence Road north of Lynbridge Drive for an active-adult retirement community and townhouses for people aged 55+. It could have as many as 241 housing units and would tie in to the future McAlpine Creek Greenway.

  • Elizabeth mixed-use: Also up for rezoning tonight is the former site of Jackalope Jack’s at 7th and Caswell streets in Elizabeth. Crescent Communities is proposing to build a four-story office and retail building.

  • Housing shortage continues: The number of homes for sale in the Charlotte region fell 18% in August compared with a year earlier, the largest such drop since May 2018. Sales fell 3%. Prices rose 5%, to a median of nearly $258,000. (Observer)

  • LendingTree takedown: The financial site Seeking Alpha published a long article last week poking holes in LendingTree’s financial outlook. The author wrote that while the Charlotte company “has a great track record and it seems to be in the right place and time to grow earnings at an unprecedented clip, there are many problems with this seemingly straight forward thesis.” He says the company faces fierce competition and is growing mostly from acquisitions. It’s a contrarian view, as most analysts rate LendingTree stock as a buy or hold. The stock is up 47% this year.

  • Tough job market for fired Wells workers: Many low-level branch employees who were fired in the bank’s fake-accounts scandal are having a tough time finding work. “Many have found they are now effectively blacklisted from the banking industry.” (WSJ/paywall)

  • Inside Amazon’s west Charlotte warehouse: Amazon’s new distribution facility near Charlotte’s airport is hiring hundreds of local workers and is the company’s first locally to rely on robotics. (Agenda)

Taking stock

Unless you are a day trader, checking your stocks daily is unhealthy. So how about weekly? How local stocks of note fared last week (through Friday’s close), and year to date:

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The Charlotte Ledger is an e-newsletter and web site publishing timely, informative, and interesting local business news and analysis Mondays, Wednesdays, and Fridays, except holidays and as noted. We strive for fairness and accuracy and will correct all known errors. The content reflects the independent editorial judgment of The Charlotte Ledger. Any advertising, paid marketing, or sponsored content will be clearly labeled.

The Charlotte Ledger is published by Tony Mecia, an award-winning former Charlotte Observer business reporter and editor. He lives in Charlotte with his wife and three children.