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Sustainable Agriculture Opportunity Zone Fund Closes Omaha Investment
The Harvest Returns Sustainable Agriculture Opportunity Zone Fund recently funded the first tranches of an investment in a vertical farm and restaurant business that will produce locally-consumed food year-round in Omaha, Nebraska
The Harvest Returns Sustainable Agriculture Opportunity Zone Fund recently funded the first tranches of an investment in a vertical farm and restaurant business that will produce locally-consumed food year-round in Omaha, Nebraska.
The Sustainable Agriculture Opportunity Zone Fund invests to create a positive impact to the agriculture industry across economically disadvantaged regions of the U.S. The fund seeks to provide investors with tax-favorable, risk-adjusted returns in assets uncorrelated with the stock and bond markets. The fund’s investment objective is to achieve tax-advantaged capital appreciation in production agriculture projects that are economically, socially, and environmentally sustainable.
“Gather Omaha represents exactly the type of project in which we designed this fund to deploy capital,” said Chris Rawley, fund manager of the Sustainable Agriculture Opportunity Zone Fund and CEO of Harvest Returns. “The track record of the Gather management team and Omaha’s local economy makes this an appealing opportunity for investors who seek to diversify their portfolios out of volatile stocks.”
Opportunity Zones were created as part of the 2017 Tax Cuts and Jobs Act to encourage investment in underfunded, low-income, and distressed communities. Opportunity Zones offer a chance for investors to earn significant returns and tax incentives, including delayed and potentially reduced taxes on capital gains.
“We are really excited to work with a fund like the Sustainable Agriculture Opportunity Zone Fund that aligns perfectly with our model of an Opportunity Zone and Urban Agrarian move,” said Graeme Swain, manager of Gather Omaha. “It isn’t too often that you find two companies aligning ideologically on such a specific agenda.”
Gather Omaha will produce locally sustainable food using a vertical hydroponic farming system. Hydroponic production uses fewer resources than traditional farming practices with 95 percent less water usage, zero pesticide use, and a carbon footprint reduction from shorter shipment distances due to local consumption. In addition, to use within their restaurant, the produce will be sold to local schools, hospitals, grocery stores, and farmers’ markets.
About Harvest Returns
Headquartered in Fort Worth, Texas, Harvest Returns, Inc. is a financial technology marketplace created in 2016 by two military veterans to bring agricultural producers together with investors. Through democratizing the agriculture investment process, the online platform provides curated, diversified offerings of farms, ranches, and timberland to qualified investors.
For more information, please visit harvestreturns.com.
Former Steel Site To See Aquaponics Facility
To the complex problems of the City of Duquesne and the Mon Valley, entrepreneur Glenn Ford offers a solution that is both down-to-earth and very fishy
RICH LORD
Pittsburgh Post-Gazette
NOV 11, 2019 rlord@post-gazette.com
To the complex problems of the City of Duquesne and the Mon Valley, entrepreneur Glenn Ford offers a solution that is both down-to-earth and very fishy.
Mr. Ford, of Minneapolis, is the founder of InCity Farms, and on Friday he revealed plans for a 180,000-square-foot aquaponics facility on 25 riverfront acres in Duquesne. Backed by the social impact investors Hollymead Capital, the nonprofit Food 21 and an opportunity zone fund, with Peoples Natural Gas as its chief cheerleader, freshly sprouted InCity Farms is in the process of finding a headquarters in Pittsburgh. Its planned $30 million Duquesne facility is expected to employ 130 — starting salaries around $35,000 — potentially expanding to 275.
“We will try to hire as many of these people as we can from Duquesne and the surrounding area,” Mr. Ford said. “We’re going to take 25 [acres] and we’re going to turn that into, if you will, a little metropolis of food businesses there.”
“I think it could be the starting point for the revitalization of the city of Duquesne and the [Mon Valley] region,” Duquesne Mayor Nickole Nesby said.
Grown-up solutions to combat child poverty
In aquaponics, edible fish are raised in clean, indoor pools, and sold commercially. The waste the fish produce is filtered and treated with beneficial bacteria, and the result is used to fertilize vegetable plants.
The plants are grown indoors in optimal temperature, humidity and light. The technique can support the rapid growth of some 800 vegetable varieties year-round, Mr. Ford said. Add the fish, and you’ve got an economically viable business that also cushions against the food shocks created by global warming.
Both technologically sophisticated and labor-intensive, the field “can be the very first job that someone has, and it can also be [an opportunity for] your Ph.D. with a whole lot of experience,” he said.
Raised in Chicago, Mr. Ford worked his way up to the executive level in Pepsico before leaving to create several food-related companies and to consult for many more. He created a pilot aquaponics site in Minneapolis.
Then he got a call from Pittsburgh.
Peoples spokesman Barry Kukovich had read about aquaponics in National Geographic magazine and introduced the concept to Peoples CEO Morgan O’Brien. They saw the indoor food industry as a potential customer for a natural gas system called Combined Heat and Power, or CHP, in which the fuel is converted to electricity on-site — and as a way to help the local economy.
“We’re interested in the ripple effect of creating more jobs, more employment,” Mr. Kukovich said.
They reached out to Hollymead Capital’s managing partner, Joseph Bute, who happened to know Mr. Ford.
“Morgan [O’Brien] said, ‘I want this here, and I don’t want to waste a lot of time looking for the perfect solution,’” Mr. Bute recounted.
That doesn’t mean Duquesne isn’t the perfect solution.
It has large amounts of vacant land, much owned by the nonprofit Regional Industrial Development Corp. The city has a population of 5,500, of which more than one-third (including around 750 kids) are in poverty.
The entry-level, living-wage jobs would be “outstanding, to a community where you have a large group of people, one, with a learning disability, and two, with a criminal background,” Duquesne Mayor Nikole Nesby said.
A child of a modest Chicago neighborhood, Mr. Ford understands that situation.
“In my DNA, I know that people need scenarios where they can work their way out of their circumstances,” he said. “That’s what I want my business to be known for.”
He said 75% of the initial jobs require only that the applicant be “reliable and trainable.”
Low-income communities, he said, often suffer from a negative “balance of trade” because they sell little to the wider world and buy goods and foods that are made far away.
“Until we can start to balance that out a little bit better, we create permanent dysfunction, permanent ghettos, permanent poverty,” he said.
He said aquaponics can restore some balance, letting those communities buy food grown nearby, and giving them a product to sell to the world.
A nonprofit called Food21, created last year will help to coordinate InCity Farms’ growing plans with those of local farmers. That way they won’t be competing to sell the same vegetables at the same time. Instead, they can coordinate to meet a buyer’s needs year-round — for instance, providing traditionally grown tomatoes in summer, and aquaponics product in the winter.
InCity Farms is scouting for other sites, likely including Erie, Pa. But Duquesne comes first.
Mr. Ford said he has an agreement with RIDC to purchase 25 acres of the former Duquesne Steel Works site. He is looking for a public subsidy only for an amphitheater that he hopes will make the site a riverfront destination.
“This is the start of something meaningful and beautiful,” Ms. Nesby said.
Rich Lord: rlord@post-gazette.com or 412-263-1542.
What We Can Learn From The Opportunity Zone Comment Letters
Comment Letters Give A Sense of How Developers Are Thinking About Using The Opportunity Zones.
By Erika Morphy | January 14, 2019
In October 2018, the Treasury Department and the IRS released highly anticipated regulatory guidance related to the Opportunity Zone program. The guidance answered a lot of questions and its generally favorable approach for real estate jump-started interest in the program.
But as Treasury admitted in the release there were still issues to be resolved and it promised another guidance. In the meantime, comment letters have been pouring in that, the writers hope, will have some influence on the final shape of the regulations.
If nothing else, the comment letters provide a guide as to what developers and other participants are thinking about the Opportunity Zones and how they might be used.
CREModels did an analysis on some of the letters and concluded that, “We are starting to see development-friendly trends emerge in the comment letters.”
“There are repeated requests for clarifications surrounding substantial improvement and original use. We also see a lot of requests for extensions beyond the 30/31 month timelines and flexibility around the asset and gross income tests,” it wrote.
Here are some excerpts from comment letters that may shed light on the future shape of the Opportunity Zone program.
National Multifamily Housing Council National Apartment Association
NMHC/NAA request that the Treasury Department and the Internal Revenue Service clarify in a specific example in the final regulations that land itself need not be improved to meet the original use requirement so long as development occurs on the land . We also request that the Treasury Department and Internal Revenue specifically state that the land may have been acquired prior to 2018 and still qualify as Opportunity Zone property so long as development on that land occurs after 2018 consistent with Opportunity Zone rules.
To incentivize additional multifamily rehabilitation projects and address our nation’s workforce housing shortage, we once again respectfully request that the Treasury Department and Internal Revenue Service allow a waiver to the “double the basis” rule if property has been vacant for a period exceeding one year.
While beyond the scope of final regulations, the multifamily industry also urges the Trump Administration to support statutory modifications to reduce the basis increase necessary to qualify a multifamily rehabilitation project for Opportunity Zone purposes.
NMHC/NAA request that the Treasury Department and Internal Revenue Service use final regulations to clarify that debt-financed returns of capital that do not exceed a partner’s basis in an Opportunity Fund are not treated as a sale or exchange.
Individuals may wish to exit one Opportunity Fund to invest in another. We recommend that the Treasury Department and Internal Revenue Service allow such reinvestments without negative consequence to the five-, seven-, and 10-year basis adjustment thresholds so long as proceeds from exiting a Qualified Opportunity Fund are reinvested in another Qualifying Opportunity Fund within 180 days.
NMHC/NAA are concerned that the proposed regulations do not address the ability of an Opportunity Fund to: (1) dispose of a qualifying multifamily asset and acquire or construct another qualifying asset; and (2) own multiple multifamily assets within a single Opportunity Fund. We recommend that the Treasury Department and Internal Revenue Service address the first issue by providing Opportunity Funds the ability to reinvest capital from a sale without adverse Opportunity Fund tax consequence to either the Fund or its investors. This could be done by treating proceeds from a sale as working capital eligible for the 30-month working capital rule. We also request that the Treasury Department and Internal Revenue Service allow for multiple properties to be held within a single Opportunity Fund and that Opportunity Funds be allowed to divide into two funds in the case that a property is sold and the Fund does not reinvest the resulting capital in a qualifying Opportunity Fund asset. In such case, investors would still be able to realize Opportunity Fund tax benefits with regard to assets remaining in the original Opportunity Fund.
Stroock & Stroock & Lavan LLP
It would be very helpful for the IRS to provide guidance that addresses the following questions:
When will a QOZ business be treated as engaged in the active conduct of the QOZ business? For example, if a startup is just spending money on R&D, is that active enough for these purposes?
What constitutes a “substantial portion” of the intangible property of the business? We would suggest that 40% is a substantial portion, based on the use of that percentage for the new markets tax credit. See Treas. Reg. §1.45D-1(d).
Is cash used for advertising, research and development or other purposes eligible for the working capital exception? We would suggest that cash used for expenses to create or buy intangible property be eligible for the same 31-month safe harbor that is provided for cash that is used by a QOZ business to acquire or construct tangible property pursuant to a written schedule.
Under what circumstances should a business be treated as being conducted (and intangible assets be considered to be used) in the zone? For example, should this determination be made solely based on the location of employees and/or tangible assets of the business? We believe those factors should be determinative. Should the location in which property is sold or services are provided be relevant? We believe they should not be, at least if the employee or tangible asset tests are met. Based on the use of 40% for purposes of the new markets tax credit, we would suggest that a business would be considered conducted in qualified opportunity zones if at least 40% of the tangible assets of the business are in one or more QOZs or at least 40% of the employees of the business are employed in QOZs.
Center for American Progress
The zone selection process has resulted in the creation of Opportunity Zones in many tracts that are relatively well off or already gentrifying….In these tracts, the forfeited tax revenue will simply provide windfalls to those who already invested there before the program began rather than to community residents. In fact, certain developers have already cashed in due to their property being in a tract that was designated as a zone.
The Small Business Investor Alliance
SBIA recommends a broader definition of “qualified opportunity zone business property” to include intangible property because the active conduct of certain QOZ businesses will, no doubt, involve intangible product.
Please consider expanding the “substantially all” test (70 percent/total tangible property) to include investments in both tangible and intangible property provided the intangible property relates back to the tangible property of a QOZB.
Treasury regulations should expressly permit QOF investments in entities defined as small businesses under the Small Business Investment Act of 1958 as amended….
Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
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