funds plan to invest nationwide, while the remaining 64 percent target specific states or regions. The West/Southwest region is the target of 19 percent of the funds (22 of 117), followed by the North- east/Mid-Atlantic region with 15 percent (18 of 117), the Southeast region with 13 percent (15 of 117), and the Midwest region with 7 percent (8 of 117). The remaining funds target multiple states and/ or regions.” Tassos adds that “while it is difficult at this early stage of Opportunity Zone capital raising to estimate the potential size of the market, the Treasury Department estimates approximately $100 billion in private capital could be invested in Opportunity Zones.” THE NEED FOR SPEED Roughly $25 billion has already been committed to the Opportunity Zone concept even without final regulations. We don’t know what
forgiveness on appreciation in op- portunity zone investments if they invest after 2019, as long as they do so by December 31, 2026.” It may be that such deadlines are at least in part responsible for the rush to invest as well as the sudden price rises seen designat- ed areas. “In the months immediately following the final selection of Opportunity Zones,” Zillow reported in March, “the price trajectories diverged. Sale prices in eligible but not selected tracts began growing more slowly and by single digits, whereas sale prices in Opportuni- ty Zones started growing by more than 20 percent year-over-year.” THE CASE FOR OPPORTUNITY ZONES While tax breaks are attrac- tive, the real question is whether O-zone investments will produce good returns after inflation. We don’t have enough experience to
the rules will ultimately say and it’s possible that, in the end, the regu- lations might have some nasty sur- prises. For this reason, it might be expected that investors would wait until more is known. That hasn’t been the case and here’s why. The Economic Innovation Group (EIG) points out that the deferred gain must be recognized when an O-zone investment has been sold or by December 31, 2026, whichev- er comes first. That’s a little more than seven years from now, a very tight deadline for investors as the program is currently designed. The Center on Budget and Policy Priorities explains that “an in- vestor must invest in opportunity zones by December 31, 2019 to obtain the full benefit of the tax break, because opportunity zone investments must be held for seven years to qualify for the full 15 percent cut in capital gains taxes and investors must realize their deferred capital gain by 2027. Investors can still benefit from tax
In the months immediately following the final selection of Opportunity Zones, the price trajectories diverged. Sale prices in eligible but not selected tracts began growing more slowly and by single digits, whereas sale prices in Opportunity Zones started growing by more than 20 percent year-over-year.”
ZILLOW
july 2019 11
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