Microsoft announces $475M investment in Seattle housing

Seattle-based tech giant Microsoft announced Wednesday its intent to invest $475 million in housing development throughout the Puget Sound region, including $225 million in King County’s Eastside and $250 million in the county more broadly.

According to the company, the investments in the Eastside—which encompasses affluent suburbs Bellevue, Kirkland, Medina, and Issaquah, among others—will seek below-market-rate returns with the intent of “preserving and developing new middle-income housing.”

The other investments will target market-rate returns “to support low-income housing” in unspecified areas of King County. Microsoft plans to deploy most of the capital over the next three years.

Microsoft’s dive into housing development comes on the heels of two of its former executives, Tim Shoultz and Joe Ollis, making moves into the space as well. The former Microsoft execs announced earlier this month that their company Smartcap will launch an Opportunity Zone Fund, the new investment vehicle created by the tax overhaul President Trump signed into law at the end of 2017.

The Opportunity Zones program gives massive tax breaks to investors who invest in areas designated as “distressed.” While Opportunity Zones can, theoretically, invest in anything—businesses, infrastructure, housing—experts believe the program favors long-term investments in real estate. According to GeekWire, Smartcap’s first Opportunity Zones project will be an industrial development in Arlington, a rural town north of Seattle that’s beginning to suburbanize.

Affordable housing has been a hot topic in Seattle, as high-wage earners from tech companies like Microsoft and Amazon have helped fuel a rise in housing costs that’s among the most dramatic in the nation since the financial collapse 10 years ago.

In May, the Seattle City Council passed a so-called “head tax” on businesses making $20 million or more in gross adjusted income, which affected 3 percent of Seattle’s businesses. The plan would have raised between $40 and $50 million annually in tax revenue to address homelessness and affordable housing directly.

But just a month later, a business coalition lobbied to have the tax repealed, and the city council capitulated. Amazon openly opposed the tax. According to The New York Times, Microsoft took no public position on the matter. Tech companies were widely considered to be behind the push to repeal the tax.

The Opportunity Zone program is the brainchild of Silicon Valley financier Sean Parker, who believes the program can be used to direct capital investments in areas of the country that were passed by in the post-2008 recovery. Parker launched the Economic Innovation Group to push the policy, which was lumped into the Tax Cuts and Jobs Act in 2017.

Think tanks like the Brookings Institute and the Urban Institute have questioned whether every Opportunity Zone is in particular need of capital investment, and that a surge in capital in some of the zones that are already growing would cause hyper-gentrification and the displacement of the residents that Parker and the program’s advocates claim to want to help.

The program is intentionally open-ended, which Parker believes will allow municipalities to tailor the program to their specific needs. But some have argued that the program’s open-ended nature serves as a massive tax loophole that can be abused by investors, developers, and businesses.

Amazon’s much-publicized new headquarters in New York City is in an Opportunity Zone, and there are numerous Opportunity Zones near its new headquarters in Crystal City, Virginia, where developers are said to have scrambled to acquire land in hopes of reaping a huge tax windfall.

In King County, Washington, where Microsoft plans to deploy hundreds of millions of dollars in development investments, there are 23 Opportunity Zones. In Seattle, there are some south of downtown, and most are south of the city. None are in the Eastside of King County.

In response to specific questions about where in King County the company plans to deploy capital, what type of housing it plans to invest in, what type of financial vehicle or fund the capital will be deployed from, and whether the investments will be held on the company’s balance sheet or in a separate entity, Microsoft declined to comment.

Sarah Lloyd, editor of Curbed Seattle, contributed reporting to this article.