A Scottsdale-based real estate and investment firm was one of the first companies in the state to take full advantage of the opportunity zone designation tucked into the 2018 tax law, resulting in accolades from the White House.
Caliber got its start in 2009 during the recession focusing on buying and flipping single family residential properties.
In the intervening years, the company — founded by CEO Chris Loeffler and COO Jennifer Schrader — has expanded into general contracting and developing commercial real estate, including multifamily housing and hospitality.
The company also has a number of investment funds available, including a fund focused solely on properties located within opportunity zones.
Essentially, opportunity zones are a tax incentive that allows individuals to temporarily defer taxes on capital gains and potentially avoid taxation on new gains if they invest capital gains in specific areas approved by states and the federal government.
If a qualified investment is held for five years, there is a 10 percent exclusion of deferred gain. That goes up to 15 percent if the investment is held for seven years, according to the IRS.
Rodney Riley, Caliber’s director of acquisitions and development, said that a few years ago the company was building up its accounting and legal teams as it explored the possibility of going public.
That build-up also happened to give the company the resources it needed to get a head start on the considerable compliance requirements associated with opportunity zones when talk about the potential legislation began to heat up.
CEO Chris Loeffler “saw that as opportunity to take advantage of what we were already building,” Riley said.
Riley said that gave Caliber the chance to dive in when the legislation was passed while other companies were still navigating the new landscape.
“There was somewhat of a delayed response (by the industry) because of ambiguity in some regulations associated with it,” Riley said. “Our team felt confident in the direction it was headed, raised money and completed deals in advance of anybody else.”
Caliber has now invested in dozens of properties located in opportunity zones in Arizona and other southwestern states, including nine buildings in downtown Mesa, a hotel near the Tucson Convention Center and multiple properties near Sky Harbor Airport in Phoenix.
The stated goal of the program, according to statements from Treasury Secretary Steven Mnuchin, was to incentivize needed private investment in low-income communities.
According to Caliber, that is what its fund is doing by bringing needed investment to areas like downtown Mesa, which have struggled in recent years.
Riley said Caliber has already started renovating and marketing its Mesa storefronts in an effort to attract retail and restaurant users.
Caliber also has a knack for investing in struggling areas with high upside.
According to East Valley Tribune, Caliber finalized the purchase of its first eight buildings in downtown Mesa — located in an opportunity zone — just a week after Arizona State University and the City of Mesa announced that it would be partnering to bring an ASU campus to the area.
A few months later, an arm of the Church of Jesus Christ of Latter-day Saints announced plans for a massive redevelopment on lands the church owns just east of downtown Mesa.
“We are ready for that explosion,” Riley said, referencing the new development planned for the area.
Though Caliber has been aggressive in its opportunity zone investments thus far, Riley emphasized that just being located in an opportunity zone is not enough for company leadership to sign off on a deal.
“It has to be a good land deal first,” Riley said.
Caliber’s early forays into opportunity zones caught the attention of the White House.
In mid-June the company received a visit from Scott Turner, executive director of President Donald Trump’s White House Opportunity and Revitalization Council.
Turner toured opportunity zones in Arizona with representatives from Caliber and met with local officials in communities where the company has invested, including Mesa Mayor John Giles.
“Caliber understands the spirit of this law, and the social impact part and the community development part,” Turner said in a video produced by Caliber.
In the video, Turner characterized opportunity zone investment as “giving back” to communities by creating lasting projects that will benefit multiple generations.
Investing in opportunity zones is not a wholly altruistic venture, though.
It also carries real financial benefits for investors in the form of deferred taxes or taxes avoided completely.
If an opportunity zone investment is held for over 10 years, investors will pay no taxes on the new gains produced through the opportunity zone investment, according to the Tax Policy Center.
The program is not without its critics.
Shawn Novak, an associate professor at ASU’s School of Public Policy, argued that opportunity zones are an inefficient way to invest in communities and direct expenditures on programs like those administered by the U.S. Department of Housing and Urban Development would be more effective.
“To me, the real question in any case like this is if you really do want to subsidize economic activity in a targeted area, is this the best and most efficient way to do it?” Novak said. “I would argue, unquestionably, no.”
Contrary to Turner’s contention that the investment resulting from the legislation will result in generational benefits, Novak argued it could actually saddle future generations with more debt.
He said that tax revenue losses resulting from opportunity zone investment will likely extend well past the 10 year budget projections examined by Congress when the tax bill was passed.
“When you look back on this, you may see revenue loss was higher than what was projected for purposes of revenue scoring that the bill was enacted under,” Novak said.
Still, there is no question that the opportunity zone model has its supporters and is one of the few bipartisan efforts seen at the Congressional level in recent years.
According to the Economic Innovation Group, a public policy organization that helped craft the legislation, opportunity zones were championed by a bipartisan group of lawmakers, including Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI).