New Wisconsin opportunity zone fund raising up to $25 million

Allows investment in variety of projects statewide, rather than single projects

Racine Mayor Cory Mason and chief innovation officer William Martin.
Racine Mayor Cory Mason and chief innovation officer William Martin.

Last updated on March 17th, 2020 at 01:33 pm

A new statewide opportunity fund aims to help Wisconsin investors benefit from the federal Opportunity Zone incentive program while investing in real estate development and business startups within their home state.

The so-called Badger State Opportunity Fund was spearheaded by the city of Racine, which is where the fund would be headquartered. Various elected officials and community leaders announced the creation of the fund Thursday morning in the offices of Racine Mayor Cory Mason.

The fund will partner with both the public and private sectors to attract capital for things like development and redevelopment projects, business expansions and new business startups.

It differs from other opportunity funds in Wisconsin in that, rather than focusing on just one particular project, investments would be dispersed across a variety of project types and location, said William Martin, chief innovation officer with Racine.

“We’re looking at helping provide diversification,” he said.

According to a news release, the fund is seeking to raise between $15 million and $25 million. Martin said that due to U.S. Securities and Exchange Commission requirements, only accredited investors may contribute to the fund. Martin said individual investors must earn at least $200,000 a year, and couples must earn at least $300,000 annually. Or, they must have a net worth of at least $1 million, excluding the value of their primary residence.

Even so, more than 90,000 Wisconsin households meet these requirements, according to the release.

Martin said investors can put as little as $25,000 into the fund, which is low compared to the majority of similar opportunity funds. For instance, he said about 85% of such funds require a minimum investment of $50,000.

Martin added that in order to receive the maximum benefits under the Opportunity Zone program, investors have to make their investments by Dec. 31, which doesn’t leave much time for those looking to put money into the newly created statewide fund. Martin noted it took until now to launch the fund in large part due to the latest federal guidelines weren’t issued until this April.

The Badger State fund was established as a limited liability company and its operational costs will be funded principally through administrative fees paid by investors and income generated through its investments.

The Opportunity Zone program was passed by U.S. lawmakers in 2017 as part of the Tax Cuts and Jobs Act. It aims to encourage investment in projects located in distressed areas. Benefits include: A temporary tax deferral for capital gains reinvested in an opportunity fund; an increase in basis of the original investment if that investment in the opportunity zone is held by the taxpayer for at least five years; and a permanent exclusion from taxable income of capital gains from the sale of an investment in an opportunity zone if the investment is held for at least 10 years.

Wisconsin has 120 opportunity zones, of which 48 are located in southeastern Wisconsin and 34 are located in the city of Milwaukee. Racine has three zones.

“The City of Racine is primed for a tremendous resurgence in economic development that will bring more opportunity to our community, but it will require creating new tools to realize our potential,” Mason said in the release.  “This is one of the reasons I created the contracted position of Chief Innovation Officer in my office to research how we could take advantage of Opportunity Funds and attract greater investment. Our goal is to create tool for investors who would rather keep their investment here in Wisconsin where they can see the direct benefit to their community, rather than use a fund on located on the coast where their dollars would stay on the coasts.”

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Alex Zank, former BizTimes Milwaukee reporter.

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