In the five years since the Opportunity Zones program was launched, thousands of investors have poured $34 billion into projects in zones across the country, proving the program’s appeal as an investment vehicle.

However, the program was set up in 2017 because there is little data on how exactly the funds are spent and whether development within the zone really benefits underserved communities. It is still unknown whether it has achieved its community development goals.

“The program has been around for five years, but there is still very little published data about what is actually being catalyzed in communities across the country,” says Kennan, research director of the Economic Innovation Group. Fikri said.

Created by the Federal Tax Cuts and Jobs Act, Opportunity Zones are intended to “encourage economic growth and job creation in low-income communities while providing tax incentives for investors.” According to the National Tax Agency website.

About 21,000 individual taxpayers and 4,000 legal entities have invested in OZ.

March, EIG Releases Brief Citing recent research reports by other organizations about OZ and its impact: A paper by two economists Using tax data to treasury departments and other Economist, University of California, Berkeley We use building permit data.

“What we can say is that from the most recent data available, this is just through the end of 2020, the first year of the program. It’s been a long time since I’ve been in the middle of a long time,” says Fikri. It is not concentrated in any city or rural area, or any part of the country.

“We were able to see investments in Opportunity Zones at scale and in diverse locations,” says Fikri. “We don’t know exactly what it does. But we know it’s not just a big city phenomenon.”

Reporting requirements for investors are: Excluded from the original language of the billhas never been added, leaving the program “flying in the dark,” as the Government Accountability Office said in 2020.

The most recent attempt to modify the program to include more reporting requirements was made almost a year ago. Opportunity Zone Improvements, Transparency, and Expansion Methods, in both the U.S. House and Senate. The bill was rejected by committees in both houses.

New Jersey Democrat Cory Booker and South Carolina Republican Senator Tim Scott, who first brought the idea to Congress, Bissnow about their plans to move reform forward.

OZ’s investments within the universe tend to be skewed toward wealthier locations. Treasury Department economists David Coyne and Craig Johnson found that his invested OZs were generally more financially advantaged than uninvested zones, had higher levels of education, and had higher median household income and We are noticing high house values. The top 10% of resident income receives 20% or more of the investment amount, and the bottom 10% receives his 10%.

Still, some investment is directed to the bottom third of the zone, which “counts among the lowest income 10% of census tracts across the country.” Revealing that it has unlocked billions of dollars in equity capital for its shares, Coyne and Johnson write:

Opportunity Zones were largely the brainchild of EIG, a group founded in 2013, and the organization still stands by them today.

OZ incentives are strong enough to influence investor behavior, according to a JTC Americas and Opportunity survey of 145 existing and aspiring investors. According to the survey, nearly 70% of those surveyed believe the program’s incentives are sufficient to make them consider investments they otherwise would not have made.

Fifty-four percent of those surveyed said they would be willing to accept lower financial returns when investing in projects that benefit their communities.

“Most Opportunity Zone fund investors are motivated by the economic returns from their investments, including tax benefits,” said Lewis Rogers, CEO of Capital Square.

“Other factors, such as improving the economy and creating jobs in economically distressed areas, are important to investment but are of secondary importance to many investors,” Rogers said.

Capital Square is an early participant in the OZ development, which includes three properties supported by three separate OZ funds in the Scotts Addition neighborhood of Richmond, Virginia, all of which are now completed and stable. increase.

The first Ink will be 80 units of market-priced apartments with rents ranging from $1.4 million to $2.3 million.

Urban Pacific Group’s 538 Golden Avenue project is located in a Designated Opportunity Zone adjacent to Cesar E. Chavez Park in Long Beach, California.

“As far as I know, I think we were one of the first developers in the nation to get this far with OZ development, but calling it a complete cycle is not correct,” said Chief Development Officer at Capital Square. author Adam Stifel said. “We’re not quite there yet because that usually refers to what’s sold. But we’ve done everything we said we’d do, and we’ve gotten a little better.”

The project was in the planning stages when OZ appeared. Stifel’s tax incentives can be characterized as an investment “cherry”. Capital Square has long been interested in investing in Scott’s Addition, an emerging neighborhood in the growing city.

“We raised money and invested it in developments that came out of the ground during Covid. Stifel said, “We actually made more money than we originally expected.”

Scott’s Addition is a historic district in the heart of Richmond that, like many historic districts, has experienced a renaissance in recent years with trendy retailers and boutique businesses moving in. Virginia — $54,000 each for $80,000 — Scott’s additions are one of the most from 2017-2021. Expensive area for city renters.

Ultimately, the benefits that OZ will provide to the affected areas remain uncertain.

Treasury Department officials Coyne and Johnson said: “It is too early to draw any conclusions about the effectiveness of the OZ tax incentives.

For example, so far we have found little evidence that employment increases simply because the region is in OZ. Census districts designated as OZs were already trending toward increased employment and poverty reduction compared to districts that might have been named OZs but were not.

Commercial real estate data show little difference in property prices between OZs and similar non-OZ parcels, although vacant lots and older properties within OZs that may be redeveloped have increased in value. there is evidence that it does.

“While this evidence suggests that these parcels are priced in potential tax benefits, there is not yet evidence of future economic growth expected across the zone that would benefit other parcels.” wrote Coyne and Johnson.

On the other hand, Harrison Wheeler, an economist at the University of California, Berkeley, found no evidence in his working paper of a difference in new construction between OZ and comparable areas in the four years before the program. However, after OZ was approved, the impact was immediate.

For opportunity zones, Wheeler found that median home prices increased 3.4% in OZ by 2020 compared to 2017, despite an increase in housing supply.

One anecdotal criticism of the program is that OZ-turned tracts aren’t necessarily the ones that, economically speaking, require the most powerful shots to the arm.

Carmen Hill, an adjunct real estate professor at Cerritos College in Southern California, says as a real estate broker and local advocate for the program, he believes some neighborhoods that need zones are being overlooked.

“At least in Los Angeles and the surrounding areas, there are no opportunity zones in economically distressed areas such as the Adams area, Hollywood, Koreatown, the Crenshaw area, the USC area,” Hill said.

One reason may be that when Opportunity Zones are created, they rely on increasingly outdated data and have a way of rapidly evolving neighborhoods.

“Perhaps the Census demographics have changed since Opportunity Zones were created,” she said.

Land Advisors Organization Northern Arizona Advisor Capri Barney, who recently represented the seller of about 26.6 acres of land in Yavapai County, Arizona, said a location within the Opportunity Zone can help drive deals.

“The Opportunity Zone designation for this parcel in Camp Verde, Arizona contributed to the strong interest we had in the parcel and was ultimately a major factor in buyer purchases,” she said.

“This is the second closure of the four parcels we currently represent in the Yavapai County Opportunity Zone, both within a few months,” Barney said. “Based on the interest received for parcels within OZ, we have seen how this designation can help spur economic development.”