The passage of the Tax Cuts and Jobs Act at the end of 2017 brought with it a new investment vehicle for commercial real estate players—Opportunity Zones, or qualifying low-income census tracks designated by state governors as areas for investment that could benefit local communities. The 8,700 designated Opportunity Zones nationwide offer real estate investors attractive tax breaks, including reduced or deferred capital gains taxes, as long as they are willing to keep their money tied in for the long-term (the cost of the improvement to the Opportunity Zone property must also exceed the original investment).
Multiple new funds aimed at investing in Opportunity Zones were being formed as early as June, with Virtua Partners targeting a capital raise of $200 million, for example.
However, market experts warn that investing in Opportunity Zones also comes with a fair amount of risk, since there can be no guarantee that local property values will, in fact, go up. They recommend considering specific neighborhoods and properties carefully, to make sure they show a good probability of a return on investment.