In mid-April, the Treasury Department announced new rules for the U.S. “opportunity zone” program that will make it easier for fund managers to raise capital and for developers to begin construction.
Here’s a closer look at opportunity zones and why they matter for the CRE industry.
Opportunity zones are areas designed to bring long-term investment to low-income communities through tax incentives for private businesses. President Donald Trump signed the program into law as part of the Tax Cuts and Jobs Act of 2017.
Nearly 9,000 opportunity zones are in place across all 50 states, five U.S. territories, and the District of Columbia. They cover roughly 12% of the U.S. and 35 million Americans live in these areas.
Many of these areas need economic investment, and opportunity zones can reshape neighborhoods for years to come. CRE developers fill the investment gap by building retail, office, and multifamily spaces. Through the opportunity zone program, developers in these areas receive generous tax benefits for capital gains.
As of May 2019, opportunity zone funds expect to raise $28 billion in investment. Out of 130 opportunity zone funds in the NCHSA Opportunity Zone Fund Directory, 91% reported investment in CRE properties.
Brooklyn is one borough in New York City that’s seeing the sort of difference opportunity zone investments can make. Over one million square feet of CRE development is being built in these Brooklyn zones within the next few years—that’s about the size of 17 football fields.
CRE developers aren’t the only ones expected to benefit from opportunity zones. Everyone in the industry can pay close attention to these zones as they look for potential business.
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