For the commercial real estate community, there’s no avoiding the topic Opportunity Zones.
Since their release in 2018, they’ve been the industry’s hottest topic. And rightfully so—with over $6 trillion in unrealized capital gains in the United States, the potential market for reinvestment in real estate is absolutely massive. That has given rise, quite literally, to a new world of opportunities for those looking to invest in commercial real estate.
If you’re looking to learn more about Opportunity Zones, their impact on the CRE community and how to invest in them, keep reading. Below is everything you need to know.
In trying to take advantage of this incredibly large sum of unrealized capital, the U.S. Congress introduced the Opportunity Zones program in the Tax Cuts and Jobs Act of 2017.
Opportunity Zones can be found in every state in the nation, as well as the District of Columbia (DC) and Puerto Rico. While the program is in place to benefit low-income communities across the country, it also stands to bring substantially greater earnings to long-term commercial real estate investors.
In this article, we’re going to discuss how to find your ideal investment in any Opportunity Zone nationwide. Along the way, we’ll discuss what Opportunity Zones are, how they work, why they are valuable to invest in, and how you can search and find Opp Zone properties and their owners using Reonomy.
What are Opportunity Zones?
Opportunity Zones (OZs) are part of a developmental program that promotes the long-term investment in and development of low-income urban and rural real estate across the United States.
Each OZ is a selected census tract that has “high need as well as high potential” for revitalization.
OZ eligibility requires a census tract to have a poverty rate of 20%, yet the average poverty rate of the actual 8,762 designated Opportunity Zones is much higher, sitting at 31%. At the same time, these zones already contain 24 million jobs and 1.6 million places of business, thus signaling potential for growth. (Source: EIG)
The program incentivizes reinvestment in distressed communities by giving investors substantial tax breaks on their capital gains. The tax breaks are based on how long an investment is held with a qualified Opportunity Fund.
What are Opportunity Funds?
An Opportunity Zone Fund (OF or QOF) is an investment vehicle for those that would like to invest in Opportunity Zone assets.
For a partnership, corporation, or LLC to qualify as an Opportunity Fund, they must intend to hold 90% of their total assets within Qualified Opportunity Zones. They can simply self-certify by filling out an application and attaching it to their federal income tax return for the year at-hand.
With all of that in mind, let’s dive in a bit deeper and look at what it actually takes to invest in an Opportunity Zone, and what the ensuing tax benefits look like.
How to Invest in Opportunity Zones
The basic requirements of investing in an Opportunity Zone are as follows:
- Anyone that would like to invest in a Qualified Opportunity Zone (QOZ) must do so by reinvesting existing, realized capital gains.
- To be eligible for tax breaks, they must invest those capital gains through a Qualified Opportunity Fund (QOF).
- They must reinvest their capital gains in a QOF within 180 days of the realized exchange date of those gains.
Once capital gains are reinvested in an Opportunity Fund, investors qualify for a temporary tax deferral on their realized, reinvested gains. Taxes can be deferred until the sale date of their OZ asset, or until December 31, 2026, whichever comes first.
From there, increasingly large tax breaks are earned at three distinct milestones. Investors hit those milestones based on how many years they’ve held their asset in an Opportunity Zone.
State-Specific Opportunity Zone Deep-Dives:
The Benefits of Investing in Opportunity Zones
Plain and simply, the longer someone holds an investment in an Opportunity Fund, the larger their tax break becomes.
The first tax break comes when an investor has held their asset for at least 5 years. A larger tax break comes when they’ve held that asset for 7 years. The largest possible tax break comes when they’ve held that asset for at least 10 years.
If someone decides to sell their OZ asset after 5 years, 10% of their original deferred gain is excluded from taxation. If they sell after 7 years, 15% of their original deferred gain is excluded from taxation.
More explicitly, since the taxes of their original gains are being deferred until 2026, the basis of their original investment can be increased, or stepped-up, when their taxable income is eventually determined. The cost basis of the original investment is increased, theoretically decreasing their taxable capital gains.
If they hold the asset for 10 years, they qualify for “permanent exclusion from taxable income” on their Opportunity Zone gains, not the original deferred gains, as those can only be deferred until 2026, as previously mentioned.
Simply put, when selling at 5 or 7 years, an investor receives a tax break on their original capital gains (i.e. the gains that they reinvested in an Opportunity Zone). At 10 years, however, the tax breaks are applied to the capital that’s been gained from the Opportunity Zone investment itself.
What does this mean for Commercial Real Estate?
All of these tax breaks present a huge new opportunity for those looking to invest in commercial real estate throughout the United States.
The current issue with investing in commercial real estate in Opportunity Zones, however, is the difficulty in actually finding target properties within them. While it’s clear that there are, in fact, opportunities to be had within QOZs, it’s not often clear where those opportunities lie on a property-level basis.
City-Specific Opportunity Zone Deep-Dives:
By using Reonomy’s in-depth property search platform, opportunities can be identified in and outside of Opportunity Zones very quickly and easily.
Below, we’ll show you how to search for commercial properties within Opportunity Zones using Reonomy.
How to Find Opportunity Zone Investments
As we mentioned earlier, there are 8,762 Opportunity Zones in the United States, and each one of those locations are census tracts.
Census tracts are based on total population, not density, which means the sizes, shapes, and layouts of each and every Opportunity Zone can differ from the next. It also means that properties in these locations are very hard to search for—unless you’re using the right tools.
Reonomy Opportunity Zone Property Search
With Reonomy, you can search and gather multiple layers of property and owner data on both on and off-market properties, anywhere in the United States—rural, urban, metropolitan, or otherwise.
That includes every Opportunity Zone nationwide.
You can run a property search any of the nation’s 8,762 Opportunity Zones by various layers of location, asset type, sales, debt, and ownership details.
To start, you’ll likely want to add a location of some kind.
Opportunity Zone Property Search by Location
Even though a QOZ is what you’re truly focused on in terms of location, you can start by adding a state, city, county, zip code, or street.
Since Opp Zones are based on census tract numbers, they’re not always going to align with your location search.
A single city, even a single county might contain multiple Opportunity Zones within it. Use Reonomy’s location filters to add your desired location specs.
Opportunity Zone Property Search by Asset Type
Once you have your location, you can also filter your search by asset type.
Simply click the “Asset Type” tab on the Reonomy search page. Here, you can add filters for industrial, multi-family, and a bevy of other commercial property types.
Below, see how you can add a “Multifamily” asset class filter to your search, for example.
At this point, you may already want to see the properties in your list of results that are located in Opportunity Zones. To skip ahead to see how to do so, click here.
Read on to see how to add sales and debt filters to your Opp Zone search.
Opportunity Zone Property Search by Sales History
You can also filter your search by the sales history of a property. In the “Sales” tab, you can add filters for most recent sale date and most recent sale amount.
To identify properties that are more likely to sell, you can use the “Most recent sale date” filter, and weed out the properties that have been sold within last seven years or so.
Opportunity Zone Property Search by Debt History
It is also possible to filter your search based on a properties specific debt history. Within the “Debt” tab, you can add filters for most recent mortgage amount, mortgage origination and maturity dates, as well as most recent mortgage lender.
Market-Specific Opportunity Zone Overviews:
Opportunity Zone Property Search by Owner Name
If you know the name of a property owner, but aren’t sure if they own properties in an Opportunity Zone, or aren’t sure how many properties they own in OZs, you can search by owner name or entity.
In the “Ownership” tab of Reonomy’s search page, enter the name of your desired owner in the “Trueowner name” search bar and see all of the properties they own.
Regardless of the combination of filters you use from those mentioned above, at this point, you’d be ready to see the properties within Opportunity Zones.
Find Properties Specifically Within Opportunity Zones
Whether you’ve merely added an asset type or location, or have multiple layers of filters added, seeing properties in Opp Zones can be done very simply by visiting the Building and Lot tab of filters.
In the Building and Lot tab, you can add filters to identify properties by building size (in square footage or number of units), lot size (in square footage or acres), year built, property renovations, and whether or not they lie in an Opportunity Zone or not.
As you can see above, there are more than 10,000 Opp Zone properties in Oakland alone.
It is as simple as clicking yes or no. From there, you can work on self-certifying as an Opportunity Fund (if you haven’t already), and begin getting in touch with property owners.
How to Find the Owner of an Opportunity Zone Property
Once you have target properties in your sights, you can then see the owners of those properties to begin your outreach process.
By simply clicking into an individual property profile page from your list of results, you can visit the “Ownership” tab to see who the reported owner of that property is.
To do so, first click into the profile page of an individual property from your list of results:
Once you’ve entered the profile page, you can visit the “Ownership” tab to see who the reported owner of the property is. Then, by clicking “Get Contact Information,” you can see the people associated with the owning entity of the property, along with their phone numbers, email address, and mailing address.
You can also export a list of properties and property owners in bulk, in case you find multiple properties in an Opportunity Zone that you’d like to pursue, and want to use Reonomy as your leads list builder.
Opportunity Zone Mapping Tools
Also worth noting are the bevy of Opportunity Zone mapping tools available to investors and the general public across the country.
In any state nationwide, even non-contiguous states, there are custom-made or government-supplied QOZ mapping tools.
All-in-all, Opportunity Zones present very substantial benefits to those who invest in them for the long haul, making it important to begin your property search sooner rather than later, as these areas are likely to become saturated.
With the help of Reonomy, however, identifying the perfect opportunity in any Opportunity Zone is just a few clicks away.