It’s rare that a policy program aimed at low-income areas across the country garners extensive attention and capital. But the opportunity zone program does just that—making it significantly less expensive for taxable investors to back real estate projects. Opportunity zone prices are already rising 14% (redevelopment) and 20% (land sites).
Timing is key! The clock starts ticking once capital gains are realized—funds should be invested within 180 days. Investors can still contribute new capital to the program until 2026 and avoid capital gains on the fund investment itself, which can grow tax-free until 2047.
Capital inflows are expected to increase anywhere from $100 billion to more than $6 trillion. Cushman & Wakefield is tracking 138 large CRE funds targeting more than $44B in equity, most with national mandates. These funds intend to invest in multiple product types:
- 82% for multifamily investments
- 60% for office
- 49% for retail
The 2018 Tax Cuts and Jobs Acts created a program that incentivizes investment in economically distressed areas of the country. Commonly referred to as Opportunity Zones, the program enables any investor—foreign or domestic, retail and intuitional—to defer and ultimately to reduce capital gains taxes on any asset by reinvesting the gain in underfunded communities. The program is widely viewed as favoring commercial real estate investments where eligible investments include ground-up development and asset renovations under some conditions.