Real estate developers are breaking ground on Canton Lofts in Seattle on Oct. 15, an apartment building in Pioneer Square targeting middle-class singles and couples.

The 80 or so future residents will move into a neighborhood in transition. Emblems of the past and harbingers of the future fill the blocks that extend from Seattle’s International District to the former site of the Alaskan Way Viaduct — a soon-to-be redeveloped waterfront.

Startup incubators, co-working spaces, and established tech companies such as PayScale and RealSelf are within a 10-block radius of Canton Lofts; historic Seattle landmarks, decades-old dive bars, and resources for the homeless population also reside in Pioneer Square.

This is an Opportunity Zone.

It’s a new designation invented by President Donald Trump’s administration. Opportunity Zones are mostly — but not always — low-income neighborhoods where wealthy Americans can invest their capital gains to avoid hefty tax bills. Qualified funds can back a variety of projects in Opportunity Zones but real estate is most common because of the way the program was designed.

Canton Lofts is an Opportunity Zone project, largely funded by the tech elite that has rapidly transformed Seattle.

It’s one of the first real estate developments born out of the Opportunity Zone program, which was designed to encourage wealthy Americans to cash out assets and inject that capital into economically distressed communities.

The incentives are appealing. Opportunity Zone investors are eligible for massive tax breaks with few restrictions on the types of projects they fund. Advocates for the program say it is unlocking cash that wouldn’t be poured back into the economy without this incentive. But critics have called it a “windfall for the rich” with too few parameters to meaningfully benefit low-income Americans.

Seattle-based Pinnacle Partners — the Opportunity Zone fund providing capital for Canton Lofts — hopes to prove the skeptics wrong.

When Republicans passed the Tax Cuts and Jobs Act in 2017, the six-page provision on Opportunity Zones quickly caught the attention of Jeff Feinstein. He had a background in tech, holding leadership and advisory roles at companies including IBM and ExtraHop Networks. Knowing what he does about stock gains in the tech industry, he saw the potential for an Opportunity Zone fund in Seattle. As home to Amazon, Microsoft, Zillow, Redfin, Tableau, and dozens of other tech companies, he knew there was no shortage of potential investors who frequently realize big stock gains.

A few months after the tax act passed, Feinstein launched Pinnacle Partners with Leo Backer, a corporate real estate advisor. Pinnacle emerged as a fast-mover as other boutique firms and big banks suddenly turned their attention to this new investment vehicle.

“We formed Pinnacle Partners with the purpose and intent of aggregating capital from tech investors and simultaneously working very closely with local and national developers who have projects in Opportunity Zones that were in need of the qualifying capital,” Feinstein said.

Feinstein and Backer partnered with real estate developer Nitze-Stagen to raise capital for the Canton Lofts Project.

“That project, I think, exemplifies the spirit of the program,” Feinstein said. “That is, Pioneer Square is in need of improved housing. We’re not building luxury housing, we’re building more affordable housing.”

Canton Lofts will have 80, 350-square-foot studio apartments designed as workforce housing for middle-income Seattleites. Parking is not included in the building because of its proximity to Seattle’s downtown core and transit options.

Over the past year, Feinstein and Backer have been courting investors from companies such as Amazon, Tableau, and Second Avenue Partners for the $35 million Pioneer Square project. Feinstein said that 99 percent of Pinnacle’s investors are tech execs.

Pinnacle Partners has raised $12 million to date and funds projects through a mix of debt and equity. The plan is to grow the Opportunity Zone fund to $150 million over the next 18 months.

Feinstein and Backer are eyeing projects up and down the West Coast. Pinnacle just closed on a deal in Los Angeles near Staples Center and plans to announce another project this year. The goal is to invest in workforce, student, and senior housing. Pinnacle is also on the lookout for warehouses that could be updated “to meet the needs of say, Amazon last-mile or an Amazon supplier,” Feinstein said.

Seattle venture capitalist Mike Slade, a former Apple and Microsoft executive with a long history in the tech industry, invested in the Canton Lofts project. He doesn’t always think philanthropy and investment mix well but called this program “an attractive investment and cool idea.”

“In this case, the tax advantages of this have to do with the fact that it has social benefits,” he said. “The Opportunity Zone thing is a public good. It’s a thing that was created to help areas that need development. It’s win-win.”

Pinnacle Partners has found eager investors in the Seattle tech industry, according to Feinstein. One committed a whopping $8 million in capital gains to the fund. “That’s a lot of stock,” Feinstein said. There’s a reason the program is so attractive to tech workers. It allows them to convert something ubiquitous in the industry — stock — into a tangible asset — real estate — while diversifying their holdings in the process.

The Opportunity Zone thing is a public good. It’s a thing that was created to help areas that need development. It’s win-win.

Take, for example, an early Amazon employee sitting on $1 million worth of stock. Under the new program, she can liquidate that stock and delay paying any capital gains tax on it for up to seven years if she invests her earnings into an Opportunity Zone fund within 180 days of cashing out. The deferred capital gains tax allows her to invest more upfront. If she holds onto the Opportunity Zone investment for 10 years, she doesn’t have to pay any taxes on the profits she makes from that asset.

If the Opportunity Zone program seems tailor-made for wealthy tech investors, that’s because in some ways it was. Tech executives, including Napster co-founder Sean Parker, came up with the idea of creating a tax break for capital gains that encourages investment in distressed neighborhoods. They lobbied for the program for years before it became a reality.

But not all Opportunity Zone projects appear to serve the stated goal of the program to “bring economic opportunity to communities that have been left behind.” The governors of each state designate neighborhoods as Opportunity Zones and up to 5 percent can be communities that are not low-income.

Seattle’s trendy Capitol Hill neighborhood is an Opportunity Zone. So is the west side of Manhattan. In the Northern Virginia region where Amazon is building a massive second headquarters, real estate powerhouse CBRE is raising Opportunity Zone funds for an apartment building. As the New York Times notes, many investors are using the program as a tax shield to fund real estate development in neighborhoods that are already booming.

There are more than 8,000 Opportunity Zones across the country and Feinstein recognizes that “some are not attractive at all.” But he said the program can work as intended in rapidly growing coastal cities.

“We’re a tech hub,” he said. “We’re in need of affordable housing. We might be in need of more student housing. I think our tech executives want to participate in this program and benefit the city that they live in.”