BALTIMORE — Since the 2017 launch of the Trump-backed federal “Opportunity Zones” program to spur investment in poor neighborhoods, Baltimore has been a focus of the discussion — and for good reason.
The post-industrial port city sits along the nation’s busiest trading corridor, poised for growth. It’s a city essentially built for a million people — its population peaked at about 950,000 in 1950 — but only has about 615,000 now. Entire swaths of its east and west sides stand vacant and ready for the sort of rehabilitation envisioned by the federal program, which provides substantial tax benefits for investment in distressed areas.
There’s a low cost of entry for developers here, and lots of anchor institutions — hospitals and universities, big employers and nonprofits — that are committed to staying. All that makes the long-term investments necessary under the federal program a safer bet.
Before President Donald Trump began blasting Baltimore last month as “a disgusting, rat and rodent infested mess” where “no human being would want to live," he had most recently spoken about the city and its problems during a White House event in December, where he praised Opportunity Zones as a major part of his administration’s outreach to distressed, predominantly black urban communities.
“With Opportunity Zones, we’re drawing investment into neglected and underserved communities of America so that all Americans, regardless of ZIP code, have access to the American dream,” Trump said at the time.
Amid his recent barrage, Trump said Democrats should thank him for creating the Opportunity Zones program.
In the past six months, Baltimore has indeed seen increased interest from investors, according to city officials and others who have been tracking the tax incentive’s impact.
“A lot of investors are coming and saying, ‘We see potential for significant growth in Baltimore,’ ” said Ben Seigel, the Opportunity Zones coordinator at the Baltimore Development Corp., the city’s economic development agency.
Yet some criticize the program, objecting to what they call its trickle-down economics. They fault projects likely to push out, rather than lift up, existing neighborhood residents.
“The tax shelter is one that is really very susceptible for abuse, for providing subsidies not so much for the ostensible purpose [of providing] capital to distressed neighborhoods, but for the purpose of providing lucrative tax benefits to wealthy investors,” said Barbara Samuels, managing attorney for the ACLU of Maryland’s Fair Housing Project.
“It was never really about investment of capital in poor neighborhoods. ... The fact that not much is going to trickle down to the neighborhoods is a feature, not a bug" of the incentive, which passed as part of the Republicans’ 2017 tax overhaul, Samuels said.
Seigel, who jokingly refers to himself as “the Match.com of Opportunity Zones” for his role in connecting investors with potential projects here, said lots of Baltimore projects have incorporated Opportunity Zone investments into their economic equation for success in the past six months. He estimates upward of 50 projects across the city’s 42 zones are what he calls “investment-ready,” if not shovel-ready.
The most prominent might be the Port Covington project in South Baltimore, owned by Under Armour founder Kevin Plank and New York investment bank Goldman Sachs. But investors also have stepped forward with interest in neighborhood projects around Penn Station, where Amtrak has committed to developing its nearby properties; the Perkins Homes in the Perkins Somerset Old Town neighborhood; and the old Madison Park North site along North Avenue between Bolton Hill and Reservoir Hill.
Other projects are in “active conversation” with interested Opportunity Zone investors, including commercial properties seeking renovations such as the 1100 Wicomico Building in Pigtown; rental housing and mixed-use projects such as Walbrook Mill in Coppin Heights; and mixed-use office and community center projects such as the Southern Streams Community Health and Wellness Center in Broadway East, according to a roundup by the BDC.
In one of the city’s first Opportunity Zone deals, Prudential Financial invested in the $150 million Yard 56 mixed-use project across from Johns Hopkins Bayview Medical Center in East Baltimore, not far from the booming neighborhoods of Brewers Hill and Canton.
Across Baltimore and at the state level, elected officials have praised Opportunity Zones as a needed boost for a city where investment funds aren’t always easy to come by, particularly in some of the neighborhoods where projects are popping up.
Maryland Gov. Larry Hogan and state lawmakers envisioned the Opportunity Zones boosting big projects that had already received other local, state and federal incentives, helping to ensure that profit margins would make sense for long-term investment.
The Republican governor said as much in June to a room filled with visiting officials from other states at a national summit on Opportunity Zones in Annapolis, where he shared his administration’s goal to make Maryland’s 149 zones the “most competitive ones in America.”
“The fact is that providing federal capital gains tax incentives is a great start, but it may not be enough to ensure the revitalization of these neighborhoods,” said Hogan, according to prepared remarks from the closed-door National Governors Association event. “So we set out to do everything in our power to utilize new and existing state and federal programs, grants and funding sources, and to have all our state agencies work collaboratively with our county and municipal governments and the private sector to supercharge our opportunity zone revitalization.”
The Opportunity Zones program allows investors to use profits from another investment to re-invest in real estate or businesses in the designated zones; in doing so, they can defer and reduce their capital gains tax on the initial profits. And any profits from the Opportunity Zone investment are tax-free as long as it is held for 10 years.
Some see the program as more a handout for the rich than a windfall for poor areas, as supporters have pitched it.
In one neighborhood put up for the program by the city but left out by Hogan, the skepticism is so strong that some residents expressed relief at being left out.
Aisha Pew, one of the owners of the Dovecote Cafe in Reservoir Hill, said she is “actually thankful” that her neighborhood didn’t get designated as an Opportunity Zone. If it had, she said, she feared more people would start “paying attention to Reservoir Hill in a more predatory way.”
Black-owned businesses can create financial opportunity and build up neighborhoods on their own, as they have in Reservoir Hill, Pew said, and shouldn’t wait for outside investors.
“We’re not looking to gentrify,” agreed Miriam Burg, whose family moved to Reservoir Hill in 2000. “We’re looking to lift the whole neighborhood up. We don’t want this to become like the other neighborhoods that have just flipped.”
Fears of inequities under the program were exacerbated after The Baltimore Sun and ProPublica published an article, on the same morning as Hogan’s speech at the Annapolis summit, outlining how the governor had agreed to include Port Covington in the state’s list of eligible properties.
Plank’s old railroad site on the Patapsco River’s Middle Branch in Baltimore already has more than $300 million in private investment and is eligible for $1.4 billion more in public support, including infrastructure bonds under a hard-fought tax deal with the city. Now, the project had qualified for the Opportunity Zone tax breaks on what seemed like a technicality.
While it lacked the traditional poverty indicators of qualifying tracts, Port Covington was deemed eligible as an Opportunity Zone on federal maps because a sliver of its land overlapped with a previously designated investment area.
Critics saw the governor’s inclusion of the property as possibly taking the same opportunity from some other downtrodden tract.
Ryan Dorsey, a progressive voice on the all-Democratic Baltimore City Council, said Port Covington already received a large tax deal from the city while providing little benefit for most residents.
“The equity analysis that I know on Port Covington is that it’s going to benefit high-income white people, and to the exclusion of low-income people and black people,” Dorsey said. "Adding more public support into that with an Opportunity Zone is really a slap in the face to all the rest of the communities in the city that aren’t getting that support.”
Dorsey called claims that the Port Covington project will benefit the entire city dishonest, despite its backers having agreed to a community benefits agreement with surrounding neighborhoods worth tens of millions of dollars. The fact that the program is backed by Trump reveals its true intent to make rich investors richer, he said.
"What for a long time has seemed ill-defined is, What is an Opportunity Zone? Who is going to get them? How is that decision going to be made?” Dorsey said. “So it’s not surprising that ... ‘Opportunity Zone’ is coming to be defined here as something that is going to benefit a high-income white group that excludes low-income black people.”
Many others — including Hogan and Port Covington officials — defend the Opportunity Zone program broadly and the Port Covington designation specifically, saying both will help Baltimore.
“We make no apologies for working hard to ensure Baltimore gets its fair share from the federal government,” said Marc Weller, who is leading Port Covington’s development. “We will keep advocating for every avenue available to drive more investment to the city.”
Port Covington executives called the suggestion that they were given special access to the incentive wrong. They said they did not even know, until the ProPublica story ran, that their property qualified as an Opportunity Zone based solely on a tiny overlap in Treasury Department maps.
“The Port Covington development is being built on land that was, until very recently, a mostly abandoned and contaminated industrial wasteland,” Weller said.
The Treasury Department, which did not include Port Covington on a first list of qualified tracts, did not respond to questions about its revised list. It previously said it left some tracts off the first list in error.
Mike Ricci, a Hogan spokesman, said the governor’s office followed the rules for including Maryland tracts in the federal program, and believes Port Covington will benefit the city at large. Hogan also included two Sandtown-Winchester tracts in West Baltimore the city had not suggested.
He left out other tracts recommended by city officials in Upton, Reservoir Hill and Brooklyn, Ricci said, because he believes that Opportunity Zones “are generally less optimal in dense residential areas, where it would require more demolition and disruption to the community."
Some residents agreed with that decision; others disagreed.
Diane Ingram, president of Concerned Citizens for a Better Brooklyn, said she supports the designation for Port Covington but believes the Brooklyn tract should not have been left out, as there are clusters of rowhomes and other pockets ripe for redevelopment.
The ACLU’s Samuels said that to the extent investments are being made in poorer neighborhoods, the program has largely been limited to housing and not for the sort of economic development, such as grocery stores and banks and small businesses that offer local residents jobs, that could have the biggest impact.
It’s unclear exactly how big a windfall the designation will be for Port Covington and its backers. While Plank and Goldman Sachs don’t stand to benefit from the tax break on their existing investments, any new investment in the project could benefit from the incentive.
Some Opportunity Zone experts said the inclusion of Port Covington, and the sites of other projects that appear well on their way to redevelopment already, made perfect sense in these early stages of the federal program.
Maryland’s inclusion of shovel-ready tracts with others in parts of the city where the investment outlook is more dim is in line with national trends, said Colin Higgins, program director at The Governance Project, a nonprofit working with municipalities to maximize the program’s benefits. Higgins recently toured Baltimore’s zones with Seigel.
“A lot of the states were really thoughtful and intentional about how they designated their zones, and a lot of them by design designated a mix” of projects in varying stages of development, Higgins said.
The Rev. Donte Hickman was one of the first people in Baltimore to boost the Trump-backed plan. At one point, Trump was even scheduled to visit Hickman’s East Baltimore church to discuss the program, before deciding to host the late-December White House event that Hickman attended instead.
Hickman understands the rancor over Port Covington’s inclusion and the fear that “the wealthy are getting the benefit” of the program, he said. But he sees no problem with it, as long as the investment doesn’t stop there.
“If it’s easier to start at Port Covington first, it doesn’t matter to us,” Hickman said. “What does matter is that we as a city don’t remain hijacked of potential, but that there is some real [intention to move] that potential to other city neighborhoods.”
Seigel said his office has been working hard to ensure that the benefits of the program are spread across the city. And he said he expects a lot more investment to arrive between now and the end of the year, when provisions of the tax law provide for the greatest capital gains reductions for investors.
“There is a sense of urgency in the industry right now, especially among larger investors,” Seigel said.
Baltimore Sun reporters Lorraine Mirabella and Meredith Cohn contributed to this article.