Opportunity Alabama

Opportunity Alabama was formed in the summer of 2018 as Alabama’s Opportunity Zone designations were finalized. The story, however, stretches back significantly further. For decades, Alabama faced chronic capital access issues for real estate development and business investment in its low-income communities. The Community Development Financial Institution (CDFI) movement that helped close that gap in many other states over the last 20-30 years never took off in Alabama. At the time of OZ designation, the state had only three certified non-bank CDFIs headquartered in AL, with none focusing on real estate. Consequently, Alabama ranked 50th of the 52 states and territories for per-capita CDFI Fund financial assistance awards. And the number of private foundations making grants and program-related investments (PRIs) to solve the access to capital problem in Alabama was similarly limited; from 2011 to 2015, Alabama received only $30 per resident in grantmaking activity from national and local sources (compared to $194/pp in New York or $107/pp on average nationally). This represents the lowest figure even within the chronically underinvested South.

Against this backdrop, Alabama’s corporate and philanthropic communities understood the need to mobilize private capital to help close these gaps. They realized that the OZs incentive could work for anyone with a capital gain — from tech investors exiting seed investments to rural landowners who cut and sold timber. Given Governor Kay Ivey’s designated zones (at least one in every county), there were openings to start conversations about “local capital for local deals” throughout the state. Beyond that, OZs offered potential to attract net new capital to Alabama if the right infrastructure was established to identify national Opportunity Funds interested in investing in the state.

Led by Alex Flachsbart, one of our coauthors, the state’s largest utility (Alabama Power), largest bank (Regions), and several other corporate and philanthropic partners coalesced around the creation of a new nonprofit organization serving as a “one-stop shop” for capital access through the OZs incentive. The objectives of this new nonprofit were to help originate investment opportunities, identify capital sources, and train project sponsors and capital allocators alike on leveraging OZs while combining that incentive with dozens of others at the state and federal level that could drive investment. With OZs as the catalyst for discussion, Alabama could potentially turn the tide on accessing grant capital, PRIs, CDFI Fund dollars, and other community development sources previously lacking.

Lessons from Opportunity Alabama

With Opportunity Alabama operational for several years, a broad leadership network of leaders has identified five signature lessons that can guide other states and cities choosing an organized approach to OZs capital or a similar ecosystem level approach:

Get the Word Out: For Opportunity Alabama’s first two years of existence, staff spent enormous amounts of time on the road, meeting with the community, deal sponsors, and investor representatives who would form the basis of the state ecosystem. The goal was to put boots on the ground in every county by hosting educational events, listening sessions, and deal talks across Alabama over two years. Opportunity Alabama had large ambitions: positioning Alabama at the forefront of national conversations around OZs investing and, over time, using the same infrastructure that delivered OZs capital to channel non-OZs dollars into the same low-income geographies.

Build the Network: As noted above, Alabama now ranks in the top ten nationally in OZs capital deployed. More importantly, however, is the network that has been painstakingly built over the last six years. Alabama now operates a functioning capital access ecosystem that includes hundreds of banks, family offices, high-net-worth individuals, corporations, foundations, and many others. Some have capital gains and are interested in OZs; some are tax-exempt and like the idea of their corpus dollars being reinvested in the communities they are chartered to support; some are only interested in tax credits, some want market rate returns, and some are willing to be concessionary — but collectively, they form the foundation for a capital allocation infrastructure that totally transcends the OZs incentive that brought them all together initially. OZs were the catalyst, but now many ties bind them together

This evolution from having almost no capacity around capital deployment in underserved communities to having a fully-functioning, integrated capital access infrastructure statewide in just six years represents a remarkable and replicable accomplishment. The results can be observed in a series of memorable projects. Opportunity Alabama has enabled a $36 million naturally occurring affordable housing development in a blighted, 20+ year vacant property and a $500,000 redevelopment of a neighborhood theater into a new home for a nonprofit and a music venue. It also facilitated investments in woman-owned, Black-owned, Hispanic-owned, and veteran-owned businesses, helping close deals from Birmingham (194,000) to Heflin (population 3,500).

Controlling Capital Allows Control of Destiny: Opportunity Alabama evolved over time from an intermediary model to a capital allocator model. The benefits of the initial phase were a key part of the evolution: networks were built, projects were identified. But the organization realized early on the limitations of the “connector” model: you can lead capital allocators to opportunities, but you cannot make them invest. The organization ultimately decided that it would rather pool capital within an infrastructure it controlled and could allocate, spending the next twelve months partnering with Blueprint Local to build out a whole new investment shop. Opportunity Alabama launched the endeavor in 2021, began deploying capital in 2022, and has invested in over $500 million of deals through that infrastructure over the last three years — the majority of which are deals creating “missing middle” (80-120% AMI) housing across the state.

Transitioning from an intermediary to capital allocator model (while retaining nonprofit ownership of the corporate infrastructure) enabled the organization to: (A) focus on deals mixing the desired returns and impact; and (B) create a sustainable organizational model. With capital under management, Opportunity Alabama could charge management fees, with the cash flow from the deals paying those management fees, which covers overhead and obviates the need for general operating subsidies from government and philanthropy. OZs have proven to be the door-opener and enabler to much larger capacity and impact. Opportunity Alabama receives many calls from individuals who have a capital gain and are interested in OZs investing. Once these individuals hear about the totality of the pipeline and investment infrastructure (which includes everything from tax credit investment and bridge fund products to a debt fund run by the organization’s own emerging CDFI), they may ultimately place OZs capital and additional investment in a mezzanine debt offering, a bridge-to-perm financing loan, or a Historic Tax Credit purchase.

Technical Assistance, Not Capital, Unlocks Catalytic Deals: Opportunity Alabama has learned that it cannot close deals without capital access, but capital allocators will not invest in real estate deals without a clear pathway to viability. Establishing that pathway to viability requires building out a comprehensive redevelopment plan (design, architecture, engineering, etc.), the right tenant mix (how many apartments at 80% AMI, who occupies the retail storefronts, etc.), and an ideal capital stack. The typical property owner or local organization looking to tackle a major placemaking project on their own might have the capacity to handle one, maybe two, of these big categories. But local resident developers or property owners handling all three, and then executing on all three, without third party help is extraordinarily rare because of required costs and expertise.

To address this gap, Opportunity Alabama reverse-engineered a technical assistance program to help local residents and community-centric developers execute on catalytic projects, providing comprehensive development assistance work—from pro forma creation and capital stack modeling to design and tenant recruitment. Opportunity Alabama offered this wraparound TA support (called Property Development Assistance Program (PDAP)) through a competitive application process running 2-3 times annually and has far more demand than available slots; during the last round, the organization could only accept 30% of applicants. Because the organization spent the time, energy, and effort to ensure that a deal is ready for capital when it goes to market, the deals that successfully complete PDAP have (thus far) been able to attract capital more consistently. Notably, there is no cost to participate in PDAP, but OPAL does reimburse its own time and expenses if the deal closes as part of the flow of funds at closing. There are no charges up front and no charge to a community if a project does not close.

Getting High Impact Deals Done — Particularly in Rural Areas — Is Possible but Extraordinarily Hard: Every capital allocator has their particular set of return requirements and risk thresholds that will not move. Rather, successful high-impact projects must find enough risk-mitigating elements to unlock the capital. Candidly, that’s why Opportunity Alabama invented PDAP; going through the “de-risking” process is long and laborious, and almost always involves pulling in multiple subsidy sources at the local, state, and federal levels. But the nature of high-impact rural deals makes them, given experience, more challenging to complete than their urban counterparts. Negative population growth dynamics, generational disinvestment, and private market rents that are nearly always far below what could be achieved even in underserved urban neighborhoods all meld together to make deals exceptionally tricky to structure. Deals are smaller, both because they can’t support more costs and because the square footage needs are not as great. And, local capacity gaps are even more exaggerated in rural areas, where there may not be capital, labor, or talent within a 2-hour drive to fill in each element of the team needed to get a high-impact deal done.

To consistently support deals in rural underserved places, PDAP is almost a base-level requirement, rather than a complete solution, as even with the perfect plan, the deal may still be too small, too risky, or not attractive enough for private capital allocators to take notice. Having a thriving local-vesting ecosystem is part of the solution here, but we’d encourage anyone looking at what federal and state tax/incentive policy looks like 2025 to think carefully about how their proposals will ultimately impact our ability to solve the rural challenge.