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Opportunity Zones’ Tax Breaks Off to a Sluggish Start

For investors, Opportunity Zones offer one of the best real estate tax breaks ever – but so far they’ve only raised 15% of the total private capital predicted.

NEW YORK – Opportunity Zones may be one of the biggest real estate tax breaks ever offered, but a study finds that investors have hesitated to take advantage.

The tax breaks – which spawned from the 2017 federal tax overhaul – aim to spur economic growth in nearly 9,000 designated low-income communities across the country. Investors who hold onto Opportunity Zone investments for 10 years receive the greatest tax breaks.

Last fall, Treasury Secretary Steven Mnuchin predicted that Opportunity Zones would attract more than $100 billion in private capital.

So far, however, Opportunity Zone funds have raised less than 15% of their goals, according to an analysis by San Francisco accounting firm Novogradac & Co. The firm reviewed 103 funds that were created to invest in Opportunity Zones. Those funds have raised a combined $3 billion of the $22.7 billion they’re seeking, The Wall Street Journal reports.

“Every manager I talk to is saying gaining traction is slower than expected,” says John Lettieri, chief executive of the Economic Innovation Group, a nonpartisan think tank.

One investor concern: The length of time they have to commit to revitalizing an area. It’s 10 years to achieve the maximum benefit, Chris Loeffler, chief executive of Caliber Cos., says Caliber has raised about $50 million towards its $500 million goal.

Housing analysts say that investors have been slow to embrace Opportunity Zones because regulations are not yet finalized. In addition, the markets pegged for revitalization are new for many investors. The Treasury Department released its second set of guidelines this spring.

“As investors continue to learn more about this policy, the amount of capital flowing to new and expanding businesses in those communities will only increase,” a Treasury spokesman says.

California has the most opportunity zones in the country at 374, according to a study by ATTOM Data Solutions, which analyzed 3,073 federal opportunity zone areas. Following California, Florida has the most at 317; Texas has 164; Pennsylvania has 154; North Carolina has 145; and Tennessee has 138.

Source: “Opportunity-Zone Funds Are Off to a Slow Start, Lagging Behind Heady Expectations,” The Wall Street Journal (Oct. 22, 2019) [Log-in required.]

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