Cuyahoga County Won Dozens Of Opportunity Zones. Now What?

This year, when the U.S. Treasury Department selected “opportunity zones”—those higher-poverty census tracts in which financiers will be able to claim tax breaks in exchange for investment—an unlikely Cleveland Heights neighborhood made the cut.

Other zones in Northeast Ohio are home to major employers, commercial districts, industrial land or hot real estate markets adjacent to lower-income neighborhoods.

But Cleveland Heights’ Caledonia neighborhood, which borders East Cleveland, is made up largely of single-family homes. The county land bank and the city own dozens of properties. Vacant lots dot the crosshatch of gently curving streets.

“The situation here is really a product of the financial crisis and then all the unwinding that took place from there,” Cleveland Heights business development manager Brian Anderson said on a recent tour of the neighborhood.

Now, with the lure of the new federal tax breaks, Anderson and others in the city hope an investor will put down money to build new homes in the empty lots where old ones once stood.

Leaders across Northeast Ohio are now facing a similar challenge as they market their opportunity zones. 

There aren’t many reporting requirements for projects right now, and no rules that say investors need permission from local communities. Those watching the new program say local governments will have to take it upon themselves to find and support projects that benefit their neighborhoods.

Below, see a map of all census tracts recommended to the state of Ohio for the opportunity zone program.  See a full-screen version of the map here.

Green tracts in the map were selected as opportunity zones. Red tracts were recommended to the state, but did not make the final list. Click each tract for more information. The state and county provided copies of all submissions in response to public records requests.

Opportunity Zone Winners And Losers

As state officials this year deliberated on which census tracts to recommend for tax breaks, they received a flurry of suggestions. Local governments, nonprofits, the regional chamber of commerce and real estate developers promoted more than 150 tracts in Cuyahoga County.

Tracts with poverty rates of at least 20 percent were eligible, as were those with low median incomes. But the submissions to the state often talked less about poverty than they did about development plans that might appeal to investors.

“We put forward tracts that had distress, but also had some initial investment that we could build on,” Ted Carter, Cuyahoga County’s chief economic development and business officer, said in an interview. “In a lot of these areas, once you get investment momentum, there’ll be concentric circles out, so it’s like dropping a pebble in a pond.”

David Ebersole, who directs economic development for the city of Cleveland, said the state and the Treasury Department encouraged local communities to focus on places with ongoing development plans.

“The direction was pretty clear that they were looking for areas to be designated that were areas that had some investment activity already,” he said.

Cleveland Mayor Frank Jackson, center, prepares to cut the ribbon on a portion of the Opportunity Corridor, the road project linking I-490 with University Circle. The planned road and surrounding neighborhoods are inside opportunity zones. [Nick Castele / ideastream]

Ohio officials picked 64 tracts in Cuyahoga County, and the U.S. Treasury Department approved all of them in late spring.

The winning census tracts have poverty rates in the double digits, but the zones are not exclusively poor. They include Cleveland’s hospitals, downtown businesses and active real estate markets on the near west side.

The zones also include lower-income Cleveland neighborhoods like Glenville, Fairfax, Kinsman and parts of Clark-Fulton, St. Clair-Superior and Hough.

East Cleveland, the poorest city in Ohio, received no opportunity zones. County officials had recommended the tract containing General Electric’s Nela Park campus, next door to Caledonia, but the state passed on it.

“East Cleveland would be a great candidate, but there weren’t a series of investments that were perceived as investor-ready,” Brad Whitehead, the president of the nonprofit Fund for Our Economic Future, said in an interview. The fund worked with government and business leaders on the local bid that nominated Nela Park. 

Carter said county officials were disappointed the state didn’t pick Nela Park, but said “we haven’t given up on our ambitions there.”

Asked by email why East Cleveland was not picked, a spokesman for the Ohio Development Services Agency said the state could only nominate a quarter of eligible census tracts.

Holiday lights at General Electric's Nela Park campus in East Cleveland. [Nick Castele / ideastream]

East Cleveland wasn’t the only very low-income place to miss out. Of the 100 poorest census tracts in Ohio, about 41 percent were named opportunity zones, according to an analysis by the liberal-leaning think tank Policy Matters Ohio.

Wendy Patton, a researcher at Policy Matters, said other Ohio cities also saw major anchor institutions like universities and hospitals included in their opportunity zones.

“We saw in Dayton, we saw in Canton, we saw in Cleveland, even in Cincinnati, we saw some of our hottest census tracts nominated for the opportunity zone,” Patton said.

But taking Ohio’s opportunity zones as a whole, Patton said the state’s selections tended to favor poorer districts.

“I have to say, that out of the 320 census tracts nominated statewide, 213 did come from the poorest quarter of the state’s census tracts, two thirds of them,” she said. “So we think that’s also a victory for Ohio.”

A city-owned lot in Cleveland Heights' Caledonia neighborhood, which was selected as an opportunity zone. [Nick Castele / ideastream]

Selling Northeast Ohio's Opportunity Zones

Caledonia wasn’t Cleveland Heights’ first choice for an opportunity zone.

It was fifth on the city’s priority list. City leaders’ top choice for opportunity zone tax breaks was Severance Town Center, the flagging shopping area. But it wasn’t to be.

Now, officials are now trying to figure out how to attract investors to this residential northern pocket of the city.

“Our goal for this neighborhood would be to have more owner occupants,” Deanna Bremer Fisher, the executive director of nonprofit FutureHeights, said in an interview. “We would love to see new homes developed on these vacant lots.”

About a third of Caledonia’s residents live below the poverty line, according to census figures. During the financial crisis, more than 60 homes in the census tract went through foreclosure every year, records maintained by Case Western Reserve University show. This year, about two dozen foreclosures were filed—most for delinquent property taxes. Homes this year sold for an average of $49,500, including sheriff’s sales. 

On a recent neighborhood tour, Cleveland Heights economic development director Tim Boland said the housing stock is in good shape.

“The residents have done a great job in keeping up their properties and investing in it,” Boland said. “I think that sets the stage for a very successful redevelopment of the Caledonia neighborhood.”

Severance Town Center, the diminished shopping area in Cleveland Heights, was the city’s unsuccessful first choice for the opportunity zone program. [Nick Castele / ideastream]

Real Estate Projects Draw Interest

Developers can self-certify their projects with the IRS, allowing investors a break on their capital gains taxes. The longer the money stays in a zone, the better the break. The Treasury Department released a set of proposed rules for the program in October. 

The money is already starting to flow as investors make deals, according to the Fund for Our Economic Future’s Brad Whitehead.

“We’re hearing about them almost every week,” he said.

Whitehead said local leaders need to develop a prospectus selling the region to investors. 

“There is not a central planning here of trying to control which investments occur,” he said. “Our job is to make sure we lift up those deals that are most impactful for our distressed communities and most strategic for those communities.”

David Ebersol with the city of Cleveland cited a new development in Glenville as an example of a project helped along by the opportunity zone designation.  

PNC Bank has already formed an opportunity fund to make investments in zones around the country, according to Michael Taylor, a senior vice president who manages community development banking from the company’s Cleveland office.

“It’s a litany of various types of opportunities, from affordable housing, to market-rate housing in distressed areas to get economic integration, to mixed-use development,” he said.  

Critics of the program want more rules to ensure that investments benefit the low-income people living in opportunity zones. Wendy Patton at Policy Matters Ohio said the program should include community advisory boards.  

“It looks to me as if the winners from this are going to be wealthy investors, opportunity zone fund administrators and attorneys and dealbrokers,” Patton said. “And there will be more tax revenue coming into cities.”

But she said there’s a risk that locals could lose. Developments price people out of their housing, she said, or businesses might not create jobs for neighbors. 

“It could be that the revenues that grow as a result of this influx of capital are abated to sweeten the pot for the wealthy people that are doing the investing,” she said. 

Economic development officials at the city and county say they think they will have a seat at the table with opportunity zone investors when developers come looking for local tax breaks and subsidies.

Ted Carter, Cuyahoga County’s development director, said the county is having early discussions with investors who “have more of an orientation toward social impact.” 

“There are not a lot of regulations and rules at the moment, but we’ll have to be creative,” Carter said, “and work very, very hard to ensure that those broader social benefits are achieved.”