Cory Loviglio

Irving, CA —The Opportunity Zone program could be successful at increasing housing development in certain areas, though whether this will include more affordable housing is not clear and will vary from metro to metro. Significant investments in these areas should help trigger and sustain economic development as the program offers greater incentives for longer investment periods.

“The Opportunity Zone program appears to be attracting significant amounts of capital, and many investors we have spoken to have mentioned multifamily as perhaps the best property segment for investment under the program,” says Cory Loviglio, Quantitative Strategist, Ten-X Research. “However it remains to be seen how much affordable housing this program will actually provide.” In many cities, he explains, adding affordable housing is a challenge closely tied to elevated construction costs, specifically related to the rising cost of materials and labor, not just land or taxes. And in more rural areas, there already tend to be fewer apartment buildings so it appears less likely that they will be inserted into spaces dominated by single-family housing. “Nonetheless, the program should add to housing stock judging by the attention it has already drawn from investors, specifically those with multifamily interest,” he says.

The investment activity in Opportunity Zones will likely depend on various criteria set forth by investors that do not necessarily apply to economic distress levels. Factors include risk profiles, geographic preferences, real estate sector preferences, and time horizon. These factors will inevitably lead to some opportunity zones drawing significantly greater investment and development than others, as based on the criteria, some are better suited for investment, Loviglio tells

Of course, since opportunity zones vary across the country and certainly within cities, no two opportunity zones are alike. For example, some of these zones are in very small census tracts with a high variance in economic, demographic, and housing conditions; while others are already in the process of being developed and still some have not seen any movement in recent years. Investment activity, as a result, can vary based on factors beyond such conditions.

“Areas with prime access to transportation offer upside in development. Jamaica, Queens, for example, has already attracted plans from multiple opportunity funds thanks to its public transit infrastructure,” says Loviglio.

Long Island City similarly offers public transit options and has already seen development activity in recent years, making Amazon’s announcement to establish part of its HQ2 there a logical move.

“We are likely to see more companies take advantage of the tax benefits under the program, though it should be noted that while parts of Long Island City are designated opportunity zones, the area has been undergoing a development boom and is hardly economically challenged. While such expansion into opportunity zones may not become the norm and the vast majority of these zones are much more economically distressed, they do provide opportunities for massive redevelopment, so we should see many other companies at least considering the benefits when expanding or relocating,” explains Loviglio.