Herman Cain, a business executive who ran for president in 2012 as a Republican, talked up “opportunity zone” investments at a Jan. 16 conference in New York, encouraging developers, investors, local officials and others in the audience to “think bigger” and go beyond just affordable housing.
But Cain’s veering into more political topics rubbed one attendee the wrong way, leading to an awkward public exchange after the end of his remarks.
Under the Tax Cuts and Jobs Act of 2017, Congress directed states to designate up to 25 percent of their low-income census tracts as opportunity zones, along with certain other areas.
So far, 8,761 zones have been created, according to data analytics and investment firm CapZone Impact Investments. The U.S. Treasury Department, which expects $100 billion to be invested as part of the program through 2026, has yet to finalize all the rules associated with opportunity zones.
However, the basic elements are in place. Taxable investors that invest capital gains distributions into qualified opportunity funds within 180 days of the distribution can receive tax breaks:
- Provided they hold the opportunity-zone investment for 10 years, they don’t have to pay any capital gains when the investment is sold. Investments can grow tax free for 29 years, through 2047.
- They can defer paying capital gains on the original distributions that they invested in the opportunity zone fund until the end of 2026. If they hold the investment for at least five years, they get a 10 percent discount on the capital gains tax owed; if they hold the investment for seven years, they get a 15 percent discount.
The program includes both real estate investments and operating companies, and some private equity firms will surely form qualified opportunity funds — partnerships or corporations set up to invest at least 90 percent of their assets within the zones.
However, the requirement that investors earmark distributions that are less than 180 days old for qualified opportunity funds is largely incompatible with the blind-pool model many firms use. With a blind pool, investors would be challenged to time their distributions to meet capital calls. Rather, the program appears more suitable for independent sponsors, pledge funds and other firms that operate on a deal-by-deal basis.
In his address at U.S. Opportunity Zone Expo NYC 2019, Cain, who served as president of Godfather’s Pizza starting in 1986 and who hosts a daily video show on his website, advised investors and developers to first identify the needs of local communities by talking to residents. They should also make sure they bring sufficient resources to their projects.
And Cain suggested that they “think bigger rather than smaller” — that they go beyond affordable housing into areas like retail and health services, both of which can produce jobs.
Cain said “there’s no better time for opportunity zones than now.” He pointed to the Donald Trump administration’s economic policies as a big reason, noting that the stock market has risen rapidly over the past two years; that the country is enjoying low unemployment, especially among minorities; that median income has risen and steadied at a near-record $61,000; and that business confidence is high thanks in part to regulatory relief.
Cain added: “My feeling about the possibility of a recession is it is unlikely. I would go so far as to say highly unlikely. …”
Cain’s remarks at times took on a more political tenor. He referenced the large amount of student debt outstanding in the country. “And you’ve got the socialists running around talking about how we ought to just forgive all the student debt. … It’s called ‘creeping socialism.’ And when the federal government forgives all of that debt, what next?”
He also blasted the proposal by the “overexposed” Rep. Alexandria Ocasio-Cortez (D-New York) to raise the marginal tax rate to as high as 70 percent for “the super-rich.” (From the audience, in a preview of things to come, Thomas Lopez-Pierre, managing member of Harlem Real Estate Fund LLC and a candidate for New York City Council in 2017, called out that he voted for her, and Cain responded that he’s “just telling you the facts.”)
“It’s not the government’s money,” said Cain of Ocasio-Cortez’s tax proposal. “And I don’t care if it’s over $10 million or if it’s over $20 billion, the assumption is that the government can use that money better than the individual or the business person. The business person is going to be looking for ways to invest any additional money, maybe in opportunity zones, if the government stays out of the way. … A business person is going to put it back in the community, rather than let it get stuck in the bureaucracy in Washington, D.C.”
Cain closed his address with a rousing call for people in poor communities to do more to help themselves. “What are you doing to leverage technology and improve your skills?” he asked. “What are you doing to try to get some additional education? What are you doing to get a better job? Those are the questions that ought to be asked.”
He added, paraphrasing John Sibley Butler, a professor at the University of Texas at Austin, “Stop dreaming of a better yesterday. Start working on a better tomorrow.”
Cain asked attendees to “show me some love,” which came in the form of a round of applause. But some non-love followed just after the applause died down when Lopez-Pierre twice called out “Uncle Tom.”
Lopez-Pierre, whose firm matches Black and Hispanic investors with opportunities to invest in affordable housing for poor communities, later explained that he had attended the conference to learn more about opportunity zones and was annoyed to hear Cain “basically shill for Donald Trump.” He said he used the phrase “Uncle Tom” to mean that Cain doesn’t have the best interests of Black people at heart.
Some people in the audience said for Cain to ignore him. But Cain seemed to welcome the exchange, saying that if the heckler was not there to learn, then he should remain silent. “This is not my meeting,” said Cain, a reference to his being a guest speaker. “But if it were, I would invite you to leave.”
After declining an invitation from a representative of the conference organizer to step outside, Lopez-Pierre stayed, the name-calling stopped, and Cain finished by fielding questions from the audience. They included one about the possibility that entrepreneurs would use the opportunity zone program to open marijuana shops or other businesses considered undesirable by some.
The opportunity zone statute does exclude some types of “sin” businesses from participation, although marijuana is not named. Cain suggested using zoning laws to exclude unwanted businesses.
“Don’t wait for the federal government to do it,” Cain said. “You do it at the state level.”