Investment Tax Incentive

Yardi Matrix on Opportunity Zones

By Joel Nelson on Mar 25, 2019 in News

A new white paper from Yardi Matrix offers insight into the impact of a U.S. real estate investment tax incentive.

Tax reform passed in December 2017 designated more than 8,700 low-income “opportunity zones” where capital gains taxes may be lowered or eliminated depending on how long an investment is held. Opportunity zones encompass about 10% of the U.S. population and 12% of the country’s land.

The white paper notes that opportunity zones have attracted intense interest from real estate investors because they “draw from a new base of largely untapped investors” and offer value-add opportunities in “new markets that were thought to be too small or risky as investment strategies.”

Among the opportunity zone facts reported in the white paper:

• 9 million multifamily units, 960 million square feet of office space and 180 million square feet of self storage space are either in place or under construction
• The development pipeline—projects approved but not begun—includes another 450,000 multifamily units, 120 million square feet of office space and 12 million square feet of self storage space
• As a percentage of total space, properties in place or under construction in opportunity zones represent 13.1% of total multifamily units nationwide, 13.7% of total office space and 11.4% of total self storage space
• Ground-up development is likely to be a major focus of opportunity fund capital, since the law requires investors to significantly increase the basis of assets purchased. For properties in place, that would mean buildings in need of wholesale improvements, limiting the pool of assets that would qualify
• Washington, D.C., Phoenix and Brooklyn, N.Y., have the most multifamily units in place and under construction
• Houston, Detroit and Portland, Ore., are the leaders in office square feet in place and under construction
• Metros with the most planned and prospective self storage space are Richmond, Va., Phoenix and California’s Inland Empire

Learn more about this still-developing investment vehicle in the white paper, titled “The Big Opportunity for Investors in Opportunity Zones.”