Downtown Santa Rosa, Sonoma Valley designated Trump 'opportunity zones'

Two areas in Santa Rosa and one in the Sonoma Valley have been designated “opportunity zones” by the state, making them eligible for Trump administration tax breaks designed to encourage development in low-income neighborhoods.

Santa Rosa and county officials hope the tax incentives will draw investors and spur new housing in three neighborhoods - Roseland, downtown Santa Rosa and the Springs area on the northwest edge of Sonoma - that have been targeted for development.

Last week, President Donald Trump held a press conference to promote the program and its ability to revitalize “distressed areas.”

“Our tax cuts have kicked off a race to invest in opportunity zones beyond anything that anybody in this room even thought,” Trump said.

The impact on construction of new or higher-density housing has yet to be seen locally, said Sonoma County Supervisor David Rabbitt, one of four members on a new joint redevelopment venture formed by the county and Santa Rosa.

“I don’t think there’s been a flurry of overwhelming response to it,” said Rabbitt. “But I do think it could help the right person build the right project sooner than later, which is really what it’s all about. It’s one of many tools required, but it alone won’t make or break someone’s decision to do something.”

To be designated an opportunity zone, at least 20 percent of residents in the area must live at or below the poverty level, or with median family incomes below 80 percent of the regional median income.

Based on that criteria, California officials selected nearly 900 census tracts for the new program, including three in Sonoma County.

Santa Rosa has long craved high-rise buildings in its downtown core to increase the supply of housing and reduce residents’ reliance on automobiles, helping the city meet its greenhouse gas reduction goals. In September, the City Council approved a plan to cut development fees and accelerate the permitting process as part of a larger plan to attract builders.

The results so far have fallen short of expectations.

Last month, the city helped organize a bus tour of its opportunity zones for some 60 Bay Area real estate developers and investors.

David Guhin, Santa Rosa’s assistant city manager, said the March 15 tour generated “really strong response.”

“We have had a lot of follow-up meetings since the tour,” Guhin said of the two Santa Rosa zones. “The interest has primarily been housing and we are urging developers to go up not out, with eight- to 10-story buildings.”

Development in Roseland will be different than the type sought in the city’s downtown, he added, with a greater emphasis on community enhancements that won’t displace existing residents from the neighborhood.

And in the downtown area, Guhin and his planning and economic development team have put “a lot of measures in place” to encourage housing near public transit, including SMART passenger rail and the city’s bus system.

“We’ve developed a multi-pronged approach, of which the opportunity zone designation is one prong to encourage infill building downtown at multiple levels of affordability,” he said.

Tours of opportunity zones are invaluable, said Matt Regan, senior vice president of public policy at the Bay Area Council and co-host of the March 15 tour.

“At the end of the day, the decision to invest in a community is math - but it also depends on the decisions being made by humans, and meeting with a mayor face-to-face, and hearing them say they are serious about affordable housing might tip the scale for that developer to proceed,” Regan said.

From a tax standpoint, the opportunity zone initiative works in a similar way to other home mortgage interest deductions. Both land and vacant buildings - housing and commercial spaces - are eligible in the program, though Sonoma County is focused on housing, said Rabbitt. Opportunity zone investments can defer or eliminate federal taxes on an investor’s capital gains costs.

Housing activist Dave Ransom, of the Sonoma Valley Housing Group, said he sees both pros and cons to the program. He said the opportunity zones could help revitalize distressed communities, but also increase the risk of displacing residents of poor neighborhoods while providing benefits to developers investing in areas already prone to gentrification.

“Critics believe that the program benefits wealthy investors who would buy and sell the properties anyway,” said Ransom. “But the value of the tax subsidy is ultimately dependent on rising property values and rising rents. As I understand it, the law does not require that new housing built be affordable.”

Real estate sales prices are increasing at a faster rate in opportunity zones since being designated as such in 2017 - as much as 25%, according to analysts at real estate website Zillow.com. In that same time frame, tracts that were not designated opportunity zones are up by 8%.

“It’s also very likely that the big money hasn’t even started pouring into these zones yet,” said Casey Alexander, policy analyst for Zillow. “Many funds may watch from the sidelines until more rules and regulations are hammered out.”

BRIDGE Housing, an affordable housing nonprofit, has launched a nationwide initiative to build in opportunity zones. It doesn’t currently have projects in the pipeline in Sonoma County, but CEO Cynthia Parker is bullish on the concept.

“They can be a real game-changer, as they are generating interest in affordable housing development from a new class of investors,” she said.

There is no investor tour planned yet for the Springs zone in the Sonoma Valley, according to Regan, but he plans to keep an eye on the neighborhood, and he hopes that “investment there will support businesses without pushing out existing residents.”

“It is a beautiful location and it is prime spot for development,” he said. “If I had the capital, I would be buying up all the properties on Highway 12.”

Press Democrat Staff Writer Kevin Fixler contributed to this report.