In the year since Congress passed the Tax Cuts and Jobs Act of 2017, which included a tax incentive that allowed those who invested their capital gains in a project inside of a low-income census tract called an opportunity zone to defer some of their capital gains taxes, the South Bronx has seen only a few projects funded by Opportunity Zone capital, and most of those projects have benefited developers and real estate brokers more heavily than others. 

Opportunity zones are under attack for only helping the wealthy and only facilitating projects that would have happened anyway. But a new charter school in the South Bronx might shift the narrative. 

Zeta Charter Schools, founded by the former top lawyer of Success Academy Emily Kim, is opening its second school on a 147,000-square-foot office building, for which a large portion of the funding has come from Starwood Capital Investment Group’s Qualified Opportunity Fund. The project is to be completed in the fall of 2020, and the school will be PK-8. 

Because a Qualified Opportunity Fund provided equity for the building project, Kim said she was able to rent her portion of the space from developer AB Capstone for cheaper than market rate, although she declined to share what the school pays in rent. 

Zeta, AB Capstone and Starwood’s relationship was mutually beneficial. A charter school is a reliable tenant in the South Bronx, where these alternative schools are in high demand.  This year, South Bronx charter schools received 17,234 applicants for 4,453 seats. And in order to reap the full benefits of an opportunity zone, investors must put money into a project for at least ten years. So a PK-8 charter school that is looking for a long-term lease is a good match for opportunity zone capital. 

For this reason, Ron Solarz, a broker who helped developer AB Capstone employ funding from Starwood Capital, described Zeta Charter Schools as a “dream” tenant for the new office space.

“To de-risk his project in a big way, he wound up with a super high-quality tenant — that’s an absolute dream for a developer,” Solarz said. 

For American Enterprise Institute fellow John Bailey though, the inclusion of a charter school in an opportunity zone actually gives the policy a better reputation, proving that opportunity funds really are focused on efforts to help their communities. 

“Some investors want early terms, but many want social impact,” Bailey said. “Charters aren’t going to have those quick returns, but they’re going to help the community out.” 

The facility will be a big upgrade from Zeta’s current school, which is now just preK- 3rd grade and leases space from a local public school. Kim said that for schools like Zeta, which are relatively new but high performing, the biggest challenge is finding a facility at a reasonable price. 

When she found out AB Capstone was developing office space in the South Bronx, where her school is currently based, it seemed like a perfect fit for two reasons. First, the building is set to house a mix of retail and office space, and Zeta was able to pick and choose the parts of the space it wanted to rent, leasing more undesirable spaces like the rooftop (for a playground) and cellar (for a cafeteria) at discounted prices. 

Kim says Zeta’s lease stretches long after Starwood Capital will reap its full tax benefits in ten years. Right now, the deal is a win for all parties. 

“The benefits of the program are very compelling,” Solarz said. “In the end, it was the only capital he was looking for.” 

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