(Feb. 14, 2020) Local realtor and entrepreneur Michael Nolen is taking advantage of the national opportunity zone program, and the Ocean City Development Corporation hopes to see more investors follow suit.
“I first learned about it [opportunity zone program] in the fall of 2018 working with a client who was buying land for development of a business he had. I found it as kind of a niche as a real estate agent to promote that [opportunity zone program] because a lot of agents aren’t really familiar with it,” Nolen said.
The opportunity zone program was developed three years ago under the 2017 Tax Cuts and Jobs Act.
“It’s a federal program — that downtown Ocean City is eligible for from the inlet to 33rd Street — for investors to put capital assets in, and they get some relief if they hold on to that investment property for a long time,” said Glenn Irwin, Ocean City Development Corporation executive director.
The program boosts economic development by offering what is essentially a tax break to property owners who maintain a business in an economically-distressed community for a set amount of years – typically at least 10.
“Let’s say I bought a property for $250,000, and over a course of 10 years, with appreciation and any depreciation on any of the assets there, let’s assume that I could sell the property for $350,000,” Nolen said. “With $100,000 of gains, if I were to sell the property in a normal real estate investment, I would take capital gains [tax] on that … [In an opportunity zone] for every year that I hold the property, my capital gains liability to that $100,000 gets reduced, [and] after 10 years my capital gains responsibility could be next to nothing.”
Maryland has 149 designated opportunity zones, and Worcester County is home to three: Snow Hill, Berlin and Ocean City.
Nolen said he was drawn to Ocean City’s opportunity zone because of its vacation rental market, its pedestrian-friendly design and its historic atmosphere.
“I enjoy downtown. I like what it has, I like the historic feel to it,” Nolen said.
In December 2019, Nolen bought 209 Dorchester Street, unit B, and began $80,000 worth of renovations the weekend of Dec. 6.
Because Nolen’s project is relatively small in scale — typically opportunity zone investments range in the millions — the process was rather simple for him to reap the capital gain tax benefits. He filed an LLC for real estate and then acquired the property using an investment loan from the Bank of Ocean City.
Come tax-filing season, Nolen will simply check off a box stating his business, and the resulting tax savings, are part of an opportunity zone.
“We’re looking to offer a hotel-like stay to our guests, to take advantage of experiencing downtown,” Nolen said.
Part of the renovation work will be funded through the Ocean City Development Corporation’s green building initiative fund.
“We [OCDC] gave him [$7,500] to put in new Energy Star-rated windows and doors, and actually I think he’s putting an insulated garage door in and some other stuff,” Irwin said.
Nolen said he expects the condominium to be ready for business by March.
Despite its small scale, Irwin said the Dorchester project could act as a catalyst in attracting more investors to downtown Ocean City.
“I’m hoping this becomes almost like a pilot project to make people aware of this new program, and that downtown is eligible for investors to do similar projects,” Irwin said.
For more information on opportunity zone investing, check out Nolen’s blog at: myrealestatespot.com.
To apply for the Ocean City Development Corporation’s green building initiative funding, visit ocdc.org or call 410-289-7793.