All we do is build nice things for Mooch

So it was back in February when we started reading about how the new "opportunity zones" embedded in the Trump tax overhaul might make for a good deal of mischief from local politicians looking to hand out favors to the various real estate sharks with whom they have friendships. Today, the New York Times provides us with a little background on how these new rules were developed, as well as  how they're being applied to create "opportunities" for rich people to get richer.

The opportunity-zone tax break was targeted at the trillions of dollars of capital gains held by rich Americans and their companies: profits from investments in the stock market, real estate and other businesses, even short-term trades by hedge funds. When investors sell those assets, they can incur tax bills of up to 41 percent.

Sean Parker, an early backer of Facebook, helped come up with the idea of pairing a capital-gains tax break with an incentive to invest in distressed neighborhoods. “When you are a founder of Facebook, and you own a lot of stock,” Mr. Parker said at a recent opportunity-zone conference, “you spend a lot of time thinking about capital gains.”

Starting in 2013, Mr. Parker bankrolled a Capitol Hill lobbying effort to pitch the idea to members of Congress. That effort was run through his Economic Innovation Group. In addition to Mr. Parker, the group’s backers included Dan Gilbert, the billionaire founder of Quicken Loans, and Ted Ullyot, the former general counsel of Facebook.

The plan won the support of Senators Cory Booker, Democrat of New Jersey, and Tim Scott, Republican of South Carolina. When Congress, at Mr. Trump’s urging, began discussing major changes to the federal tax code in 2017, Mr. Parker’s idea had a chance to become reality.

In May of this year we read that something called the New Orleans Redevelopment Fund had launched an initiative to rake in as much of the financing from these schemes as it could grab. NORF executive Cullan Maumas said at the time they were seeing, "50 to 100 inquiries from potential investors every day since the regulations were clarified."

Later we learned that at least one of the properties NORF was using this "distressed neighborhood" incentive to redevelop turns out to be the Warwick Hotel located on prime downtown real estate right in between City Hall and Charity Hospital.

The official owner of the Warwick Hotel property is the NORF 3 Opportunity Zone Fund, and Maumus said the development is a big leap in scale for NORF.

"It is going to be our flagship project in the city," he said.

Prior to the Warwick purchase, the six-year-old NORF had invested about $40 million to redevelop three dozen New Orleans properties, mostly residential dwellings, though it has had a couple of larger conversions, including a warehouse at 2740 St. Louis St., along the Lafitte Greenway, where the firm's office is now located.

According to the NYT, this poaching of desirable properties that happen to lay in the boundaries of opportunity zones which happen to have been drawn by local electeds doing favors for the poachers is a widespread practice.

But even supporters of the initiative agree that the bulk of the opportunity-zone money is going to places that do not need the help, while many poorer communities are so far empty-handed.

Some opportunity zones that were classified as low income based on census data from several years ago have since gentrified. Others that remain poor over all have large numbers of wealthy households.

And nearly 200 of the 8,800 federally designated opportunity zones are adjacent to poor areas but are not themselves considered low income.

Under the law, up to 5 percent of the zones did not need to be poor. The idea was to enable governors to draw opportunity zones in ways that would include projects or businesses just outside poor census tracts, potentially creating jobs for low-income people. 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.

And it comes as no surprise that the Warwick is far from the only questionable project in New Orleans benefiting from the tax shelter.

The Warehouse District of New Orleans is one of the city’s trendiest neighborhoods. Some of the area’s hottest restaurants — as well as a new one dishing out shrimp tempura tacos — are here. So are hipster barbershops. Boutique hotels spill well-heeled tourists onto the red brick sidewalks. High-end coffee shops are packed with young people buried in their MacBooks.

And it is getting hotter. The sounds of heavy-duty equipment heaving steel or pouring cement are audible across the neighborhood.

In other words, in a city grappling with acute poverty, this is not a neighborhood that especially needs a generous new tax break to lure luxury lodging. Yet state officials have established an opportunity zone here.

That decision benefited businesses already operating or planned for the district. One of those is a 225-room hotel, part of Richard Branson’s Virgin Hotels chain, whose plans were unveiled a year before Mr. Trump signed the tax law. 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.

Oh yeah I remember when that Branson hotel was announced. The freaking mayor went down there to greet him. 

“There’s always give and take when you’re trying to build a building. Sometimes if one doesn’t have those give and takes it just never happens,” Branson said. “You managed to guide it through in an environmentally friendly way, in a friendly way for New Orleans and also a way that we could justify actually building it.”

Construction will begin in coming weeks.

“It has been a long time coming and guess what Sir Branson? You’re worth waiting for,” Cantrell said, adding that she hopes Virgin Air will follow the hotel investment. Cantrell noted the new $1 billion airport terminal, which is set to open this fall.

If there is a ga-jillionaire sicko, whose butt LaToya will not kiss at a moment's notice for a photo-op, we have not yet met that ga-jillionaire. Actually, I wonder if she has met Mooch yet. He shows up in the NYT piece too as one of Branson's investors. 

Those 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. “We got to get into this business because this will be transformative to the United States,” he said recently.

Mr. Scaramucci’s investment firm, SkyBridge Capital, has raised more than $50 million in capital gains from outside investors, and most of it is being used to finance the hotel, according to Brett S. Messing, the company’s president. He said the hotel was likely to be the first of numerous opportunity-zone projects financed by SkyBridge.

This is the part where I usually type, "meanwhile there is a housing crisis in New Orleans..." but the article already does something like that for us.

Less than two miles away is the poorest opportunity zone in Louisiana — and one of the poorest nationwide. The zone includes the Hoffman Triangle neighborhood, where the average household earns less than $15,000 per year. Block after block, streets are lined with dilapidated, narrow homes, many of them boarded up. On a recent afternoon, one of them was serving as a work site for prostitutes.

City officials, including the head of economic development for New Orleans, said they were not aware of any opportunity-zone projects in this neighborhood.

It's a tale of two opportunity zones.  One where wealth begets wealth and one that stays left behind. Either way there's plenty of prostitution in evidence in both. 

NORF

I remember noticing this thing gearing up some months ago around the time the Trump Administration was rolling out its new Opportunity Zone rules.

New Orleans Redevelopment Fund has launched its latest real estate investment initiative designed to provide tax benefits to investors with capital gains while helping fight blight in the area. The NORF 3 Opportunity Zone Fund wants to raise $30 million, a news release said. It would be the largest fund to date for NORF, a private real estate developer founded in 2013 that specializes in the adaptive re-use of historic buildings and urban infill.

The Opportunity Zone program provides tax incentives for investors to re-invest capital gains into funds that promote development in economically distressed areas of the United States. The program offers deferral of the original capital gains tax until 2026 if gains are invested within 180 days of sale; reduction of 15 percent for the original capital gains tax if gains reinvested in an Opportunity Fund are held for seven years; and permanent exclusion of capital gains for gains accrued after investing in an Opportunity Fund if the investment is held for 10 years.

Key details of the NORF fund include sponsor commitment of 15 percent of the fund up to $4.5 million. Investors must be accredited and must have capital gains in need of deferral. NORF has identified properties in New Orleans, Baton Rouge, Houston and San Antonio, Texas and is eyeing other areas of the Gulf South, the news release said. The sites will be mostly multi-family, mixed-use commercial and hotel/hospitality.

All I can find today is that short description from City Business in March which appears to be sourced to a press release. But I also remember there being a more glowing profile of the firm itself, probably in the Advocate, but I can't find exactly the article I'm thinking of now.  I think they're still having trouble with archives and link rot at the Daily Georges.

I noticed them again in May when it was becoming clearer that the Trump rules were likely to be conducive to parked money and/or land flipping schemes. The rush to figure out an angle was described by investors as being "like the Wild West." This NORF group continued to show up in several articles as a prime angler.  Already they specialized in converting government tax incentives into real estate profits. So this was really just the next evolution of that business.

The initiative by The New Orleans Redevelopment Fund aims to take advantage of opportunities created by last year's federal tax cuts as well as the Historic Tax Credits program, and represents a big leap for the local developers, who currently have a portfolio of about $40 million in properties. The new investment round is targeting $30 million in equity from existing and new investors, as well as $70 million in debt financing.

The group has plans for two commercial developments in New Orleans, said Cullan Maumus, director of development. One will be a conversion of a warehouse in the Tulane/Gravier area into retail space catering to the medical district. The second development, which the group expects to finalize in the second quarter of the year, would be a hospitality development in the Central Business District.

Most of the group's 37 projects to date have been residential, though it has had some larger conversions including a warehouse at 2740 St. Louis along the Lafitte Greenway, where the firm is relocating its main office from Tulane Avenue.

Among those 37 residential projects was this Mid-City condo development sold to the public as "affordable housing for teachers and nurses" garnering much well-deserved ridicule this spring. I can't confirm this is the same building they "evicted dozens of tenants" from, but it seems to fit.

Anyway, all of this is just background. Today we learn that the "hospitality development" referenced above is the Warwick Hotel on Duncan Plaza.

The former Warwick Hotel, a derelict building that faces City Hall across Duncan Plaza, is set for a $60 million makeover, the latest in a series of recent moves by real estate firms to redevelop properties on once-neglected blocks of the Central Business District.

The New Orleans Redevelopment Fund, a private investment group focused on property rehabilitation, purchased the 130,000-square-foot building in June for $8 million.

We learn also that,as expected, the project is funded the old fashioned way. On the backs of great big taxpayer subsidies geared especially toward helping rich people make more money. 

The Warwick building is eligible for historic tax credits, as well as the "opportunity zone" tax breaks that were part of 2017 tax package passed by the Trump Administration. These and other public incentives have been key to attracting developers for many of the properties in the CBD, Ragas said.

Indeed, NORF began a new fund in March to attract investors looking to take advantage of the opportunity zone tax breaks, which allow investors to put off and potentially sharply cut their capital gains taxes if they invest in designated areas.

Meanwhile, there is a major housing crisis in the City of New Orleans. You might have heard about it.  Errol Williams says there's not much our tax policy can do about that.

Errol Williams, Orleans Parish Assessor, attended the meeting to help clarify any concerns. Many people came to the front to ask questions.

“We applied the formulas equitably among everybody,” Williams said. Williams said if someone has an assessment increase that they feel is wrong, to bring it to his office. When asked about Smith's large assessment estimate, for example, though, Williams said he didn’t think the value increase was extreme.

“In the past four years there's been substantial increase in values in perspective neighborhoods.”

Williams said while people fear they are being pushed out of their homes this way, gentrification is “happening all over the country.”

“Gentrification is happening not just in New Orleans but all over the country and what you're seeing is people are buying in neighborhoods, renovating their properties and selling it for substantial more. So we can't ignore that. I can't treat them separately,” Williams said. Williams called said it is “a tough situation.” He also said it’s important for property owners to bring their issues to the Assessor's attention.

Not much tax relief for homeowners or the people they rent to who will surely see their costs go up as well.  Not unless they all go out and start their own investment funds first.