Not long ago, the parking lot beside developer Eric Blumenfeld's Mural Lofts apartment building on North Broad Street was destined to be the future site of a shopping plaza with a bank and a convenience store.
Today, though, Blumenfeld wants to build an office and apartment tower at site, on the northeast corner of Broad and Spring Garden Streets, that would be Philadelphia's tallest building outside the city's central core.
What's changed is that the property has since been designated part of a "Qualified Opportunity Zone" under a provision of last year's federal tax cut bill, offering investors in projects there potentially big savings on what they owe the IRS.
Federal agencies are still devising the final rules that will govern investments under the tax law's opportunity zone provisions, which aim to promote development in rural and low-income urban communities. But, in Philadelphia and beyond, developers with projects in census tracts designated as zones are getting ready for what they hope will be a cash bonanza.
"Opportunity Zones are going to change urban America," Blumenfeld said. "And North Broad Street is a microcosm of urban America."
Under last year's legislation, people and companies owing tax on investment income can put off those liabilities for up to seven years by directing the earnings into real estate ventures or other businesses set up in opportunity zones. Investors qualify for reductions of those taxes, too, if they keep their money parked in the ventures long enough, with the biggest breaks going to those who stay invested for the full seven years.
And once 10 years pass, investors can sell their stakes in opportunity zone projects or businesses without being taxed at all on gains from that transaction.
Nationwide, the program has the potential to inject $100 billion in private investment into areas in need of development, U.S. Treasury Secretary Steven Mnuchin told political newspaper and website the Hill last month.
Investors are still waiting for the IRS and Treasury Department to release their guidelines on the provision, which is thought to be imminent, so few have committed money to such projects, said Brad A. Molotsky, a real estate attorney at Duane Morris LLP in Philadelphia.
But once the regulations are published, "you're going to see a lot more activity," as investors start scrambling for projects to park their capital gains in order to take maximum advantage of the program, Molotsky said.
In Philadelphia, zones that qualify for investment include many of the communities along Market Street in West Philadelphia and Broad Street in North Philadelphia, as well as neighborhoods such as Mantua and Brewerytown. They were selected through a process spelled out in last year's legislation that called on states to nominate census tracts with high poverty rates and low median household income.
The selections were based on data in the Census Bureau's 2010 survey, so some areas that have attracted substantial investment on their own in more recent years also qualify as opportunity zones. Among them are rapidly gentrifying neighborhoods such as Point Breeze and sites around 30th Street Station and Drexel University in University City, where major office and housing developments are underway.
But Lauren Gilchrist, Philadelphia research director for real estate services firm JLL, said investors could find their way to areas in greater need of private investment, as well, especially if developers there have plans that are far enough along to use the capital right away.
"It's another way to incentivize development in areas that may not be currently market-ready for it," she said.
One Philadelphia project that may get a boost from the program is the complex of apartments or condos, research labs and offices proposed as a $162 million first phase of redevelopment for the area around Amtrak's North Philadelphia station, which sits within an opportunity zone.
Michael Bailkin, a principal with one of the New York-based real estate companies leading the venture, the Arete Group, said he's hoping to tap into funds being raised for opportunity zone project investments by firms such as Goldman Sachs Group and RXR Realty.
Miles away in the Norris Square neighborhood northeast of Center City, Revolution Development Group is eyeing the program as it works on an $8 million plan for a five-story, 28-unit apartment building with street-level shopping or dining at the corner of Berks and Mascher Streets, now the site of an industrial building.
Marc Kaplin, a Blue Bell-based land use lawyer who started Revolution with his son Andy, said he expects that the opportunity zone tax breaks will draw investors who might not otherwise have been willing to take a chance on what remains a fringe neighborhood.
And in Germantown, near SEPTA's Wayne Junction Regional Rail station, developer Mosaic Capital Partners also is targeting opportunity zone investors, hoping the program can aid its plan to convert a former medical supply factory on Wayne Avenue north of Berkley Street into a 39-unit apartment building it's calling Golaski Labs. Planned for the $7.3 million complex's commercial space are a coworking offshoot of diversity-focused recruiting agency Diverse Force LLC and a Haitian restaurant run by former Top Chef contestant Sylva Senat.
Leslie Smallwood-Lewis, a Mosaic co-founder, said the opportunity zone designation will help her group draw investors to the still-blighted area. "This is going to generate some interest that may not have been there before," she said.
Back at the corner of Broad and Spring Garden, developer Blumenfeld has been consulting with community groups and local leaders on a proposed $130 million tower that would rise 30 to 33 stories, making it the tallest building outside the dense agglomeration of central Philadelphia districts across Vine Street, about three blocks to the south.
The tower, to be called Mural West, would accommodate 250 apartments and two stories of offices, he said, with ground-floor restaurants that open onto a pedestrian plaza showcasing the Common Threads mural painted on Blumenfeld's Mural Lofts apartments, formerly the Thaddeus Stevens School.
It's a major shift from the Wawa and Bank of America branch that Blumenfeld's main financial partner on past North Broad Street ventures, New York-based investor Billy Procida, said was coming to the site, above a SEPTA Broad Street Line station, just a few years ago.
For Blumenfeld's previous projects in the area — such as Mural Lofts, the rehabilitation of the former Divine Lorraine Hotel into apartments, and the conversion of the Metropolitan Opera House building into a state-of-the-art concert venue for promoter Live Nation — he was able to cobble together historic tax credits and other public funding sources to get his investors a workable return.
But those projects were baby steps toward achieving what Blumenfeld described as his "mission in life": bringing vibrant street life to the strip of North Broad Street north of Center City. The possible tax windfall available to investors in his Mural West opportunity zone project could fuel a great leap forward, he said.