State of the Multifamily Market in Opportunity Zones

At the end of Q1, our research indicated the Opportunity Zone (OZ) legislation seemed to have little to no influence on the market for assets in designated areas. Now, with the program more established, we decided to investigate if this declining trend has continued in individual asset classes and identify any standout markets investors should look toward.

First on the list: Multifamily. Given the hype we’ve seen around the continued success of the multifamily market, we examined the performance of multifamily assets in Opportunity Zones across the U.S.

Backed by our trove of proprietary transactional data, this report provides comprehensive analysis on how multifamily investments are trending inside Opportunity Zones compared to non-designated areas, other asset classes, and across various geographical markets.

Key Takeaways:

Multifamily is thriving in OZs.

Since legislation passed in 2017, 7.08% of multifamily properties have transacted in OZs. In non-OZs, only 6.51% have transacted. Read more here.

Compared to other asset classes, multifamily stands out.

Since 2018, 19.25% of all OZ transactions were multifamily properties—the second largest proportion of sales across all asset classes. Read more here.

Multifamily investment is driving tertiary markets.

Based on cumulative sales price growth, the top-performing markets for OZ multifamily investments are in unassuming states like Nevada, Oklahoma, and Kentucky. Read more here.

The True Bull of the Market: Multifamily

The multifamily sector’s growing success is no secret. A report from Newmark noted that Q2 2019 was the ninth consecutive quarter in which the multifamily sector had the highest sales volume of all major property types.

BBG reported that last year alone, the multifamily market saw dramatic growth, including a 15% jump in apartment transactions totaling nearly $168 billion.

Earlier this year, Freddie Mac’s 2019 multifamily outlook reported that new supply will remain elevated through 2019, but rents and vacancies will continue outperforming historical averages due to robust demand.

But what is driving this continued investment success?

The substantial increase in new supply, consistency of rent growth, and vacancy decline are directly related to the rising cost of homeownership, changing demographics and consumer preferences.

Unsurprisingly, millennials can’t afford to purchase homes. Because of that, they’re driving multifamily markets everywhere—not just in large cities, but in emerging markets and even suburban markets, too.

The 2019 Multifamily Investment Forecast by Marcus & Millichap indicates that job creation during 2018 drove the unemployment rate of adults between the ages of 20 and 34 down to a 48-year low of 4.5%.

About two-thirds of this age group currently live in rental housing, and with a strong job market, apartment demand has only increased.

So, how does this all affect opportunity zone markets?

Opportunity Zone markets were designated to encourage investment in economically depressed areas that need capital to revitalize.

For an in-depth understanding of all things Opportunity Zones, their impact on the CRE community, and how to invest in them, go here.

And with over $6 trillion in unrealized capital gains in the United States, they’ve given rise to a new world of opportunity for commercial real estate investors—especially those on the multifamily front.

Attention is Turning to Tertiary Markets

Investors take a multitude of factors into account before making an Opportunity Zone acquisition. MSA growth can be a significant factor, or indicator, in making informed investment decisions.

Earlier this year, Bisnow reported that supporters of the program say a lack of clear rules has caused the activity to gravitate to places like New York City and other gateway markets that already attract a lot of capital.

It’s likely investors’ attentions will turn to grow secondary and tertiary markets next, however, it’s largely contingent on the clarity of program regulations.

The purpose of the OZ legislation is to encourage development in low-income areas, especially in underdeveloped markets, but the need for in-depth research and understanding of community needs, in combination with compliance to the OZ rules and regulations, means a greater risk for less-seasoned investors.

Investing in low-income neighborhoods often comes with nuances that inexperienced investors may be ill-equipped to handle, creating a higher barrier to entry than perhaps intended by lawmakers.

While there are opportunities in larger cities, the most significant investments that will simultaneously benefit investors and respective communities, are expected to fall in secondary and tertiary market MSAs with burgeoning employment and population rates, but limited infrastructure and affordable housing to support such growth.

If investors are properly informed and can get past the somewhat high barriers of entry, many markets offer ample opportunity (which we’ll dive into throughout this report).

In OZs, Multifamily Shines

In exploring our multifamily data (which covers over 4.3M properties across the country, duplex and above), 6.51% of all multifamily assets have transacted in the time since the OZ legislation was passed.

But which of those assets are in opportunity zones?!

6.41% of multifamily properties NOT in OZs have transacted since the legislation’s implementation in December of 2017.

Of the multifamily properties IN OZs, 7.08% have transacted in that same period.

How Does this Compare to all Multifamily Sales?

A larger proportion of multifamily assets are selling in Opportunity Zones.


While only 15.15% of multifamily assets are located in OZs, 17.36% of all multifamily assets sold since the announcement have been in designated Opportunity Zones.

Multifamily is (Almost) the Best Asset Class



This is somewhat consistent with non-Opportunity Zone sales, as the multifamily market has been performing well. While the largest proportion of total sales across all asset classes is vacant land, there is a much larger proportion of vacant land parcels (28M) than multifamily parcels (4.3M) across the U.S.



The Bottom Line

So, what does all this mean?

Collectively, it’s difficult to gauge just how much of an impact the Opportunity Zone policy program is making across the country. For multifamily properties in OZs at least, it appears activity is flowing—more so than most other asset classes.

While OZs are not necessarily driving a major increase in multifamily investments in large markets, they are having a tangible impact on non-traditional players. This is likely a result of the economic shifts and lifestyle changes that are causing more people and companies to venture outside of major primary metros. Nothing is ever guaranteed in real estate, but based on our data and individual market analysis in the following pages, it’s likely these OZs will continue attracting capital.


Individual Market Analysis

Large states, gateway markets see more deal volume

Where exactly is the most investment occurring? In the last two years, over 70% of all multifamily transactions in OZs were conducted in just five states.

New York leads the pack with 20.28% of all multifamily transactions in OZs over the past 2 years. However, New York also contains the most properties in OZ of any state, with over 110K properties.

After New York, the top states for the number of transactions in OZs are California, Illinois, Florida, and Ohio (all of which have the highest number of multifamily properties of any state, so no shock there).


Top States for Increased Investment Activity

Though our data indicates the OZ legislation hardly catalyzed any sales or development in OZ markets, it does seem that multifamily is performing better than any other asset class, and at a proportionally higher rate than non-OZs.

Gateway and emerging markets receive the most attention in multifamily reports, but we wanted to expand our scope of research to better understand where exactly multifamily seemed to be thriving since the OZ legislation was passed.

To do this, we explore data at the state level to determine larger trends in multifamily markets, and isolated markets that seem to be thriving over a longer term. Below is a map representing the percentage of all multifamily assets in OZs state-by-state that have sold since 2018.



The standout states are Nevada (21.6%), Tennessee (17.51%), Illinois (16.94%), Georgia (16.41%) and Minnesota (14.95%). That means that in the past 2 years, one-fifth of all multifamily assets in Nevada Opportunity Zones have transacted.


High-Growth Markets

To identify top-performing multifamily markets in OZs, we looked at the consistency of year-over-year (YoY) growth in average sales price, and overall growth in average sales price state by state. The top-performing states witnessed an increase in average sales price, but the proportion of Opportunity Zone sales remained almost constant, with slight increases in certain states.



Before we explore each of these markets, some things to note:

  • It’s possible lack of clarity and the confusing nature of the incentive program may still be hampering initial investments.
  • Although there is success in some markets that are designated Opportunity Zones, it’s clear that the OZ legislation alone has not been enough to sway tons of new investors to these following areas.
  • But, combined with local government support and initiatives, the incentives that the OZ legislation provides could give another boost to motivate investment.

Based on these findings, investors looking for high growth markets may want to target the following states and MSAs:

Nevada – Reno and Las Vegas

It’s widely noted that Nevada is a hot market—specifically outside of Las Vegas and Reno, which both have growing tech markets and steadily increasing populations.

The U.S. Census Bureau named Nevada the second-fastest growing state in the nation for its rate of population growth. But how does a classically ‘hot market’ affect the sales within OZs? It looks positive; Nevada not only had the largest proportion of OZ assets sold than any other state, but also had a consistent rise in average sales price.



In an interview with CBRE: Capital Watch this past May, CBRE’s Head of Multifamily Research in the Americas Jenette Rice noted that one of her favorite markets for 2019 is Las Vegas:

“Las Vegas slowly came back to the party after getting hit very hard by the economy in the last recession, but the economic population growth is back on fire which allows the multifamily market to perform well.”

Nevada has been working on growth for quite some time, with over 276,800 private sector jobs created over the past 8 years and continued investment by the Nevada Governor’s Office of Economic Development board in funding for the Workforce Innovation for the New Nevada (WINN) program.

The tech sector, specifically, has also thrived due to a few key players moving to Nevada headquarters.

This includes the Tesla Gigafactory, which cost $5B and employs 6,500 people just outside of Reno, three huge data centers including Switch’s SUPERNAP, Rackspace’s $422M data center, and the OG—Apple’s $100M data center that continues to expand. Amazon also has its hand in the Reno market, with a 630,000 square foot fulfillment center.

To pile on the Nevada benefits, it has no corporate income tax, no personal income tax and no estate tax, making it an ideal state for companies to relocate to.

Most expensive Multifamily Property sold in Nevada OZ:

Oklahoma – Oklahoma City

The Oklahoma City MSA’s multifamily sales in OZs have skyrocketed in value over the past 4 years, from an average of 800K a property to consistent multi-millions.

A couple of key transactions have brought this average up, like 101 53rd St, Oklahoma City, OK 73105, which sold in April of 2019 for $49.79M.



Why might OZ sales be improving in Oklahoma City and not elsewhere?

Oklahoma’s City Council has been implementing MAPS3 and soon MAPS4. These are Capital Improvements Programs that use a one-cent, limited term sales tax to pay for debt free projects to improve the quality of life and to revitalize the area. Obviously, both of these initiatives were intended to improve the quality of life in Oklahoma City, and have been in place for nearly 10 years.

The recent spike in sales price and volume may have to do with the OZ incentives, but is likely spurred from an increase in government supported projects like modern transit systems, park developments, health and wellness centers and improved public facilities intended to offer a better quality of life for employees, which encourage movement of businesses to the area.

When cities work to encourage investment in these areas, it makes those MSA’s more attractive to potential investors, and removes some of the risk involved.

In the first half of 2019, 38 businesses, many focused on the aerospace industry, have announced plans to make investments in Oklahoma. Commerce Department officials estimate that these investments will create more than 3,100 new jobs in Oklahoma with average salaries of around $61,000.

Much of this movement is spurred by another Oklahoma initiative, the Quality Jobs Program, a tax incentive program that offsets 5% of new payroll costs.

Most Expensive Multifamily Property Sold in Oklahoma OZ:


Kentucky – Cincinnati & Louisville MSAs

The top performing MSAs in Kentucky are Cincinnati and Louisville.



When looking at potential impacts other than the OZ initiative, Amazon announced in January of 2017 that they will build a $1.46B shipping hub outside of Cincinnati, creating 2,700 full and part-time jobs for the area. The Prime Air hub will likely create thousands more induced and indirect jobs.

In combination with direct jobs, the total annual payroll and benefits associated with the project will be hundreds of millions of dollars. Similarly, the project’s economic impact will add hundreds of millions of dollars annually to the state GDP.

Another investment in Kentucky was made by Toyota, creating a $1.3B plant that added 700 jobs to the Georgetown area.

Most Expensive Multifamily Property Sold in Kentucky OZ:


Illinois – Chicago MSA



One of the factors that are influencing development and improvements across Illinois comes from the Illinois Growth and Innovation Fund.

The impact investment fund has put over $700M in capital from the State’s existing portfolio into Illinois venture capital, growth equity and debt investment firms. In 2016, Illinois had 434 economic development projects and saw $3.8 billion in investments and 50,000 new jobs.

In 2018, Illinois announced a $500 million proposal to build an innovation hub in Peoria. The innovation hub is part of a statewide initiative led by Illinois Innovation Network, whose goal is to facilitate research, create new jobs, and grow the state economy.

Initiatives such as these, paired with the hefty OZ incentives, could play a role in why there is such strong growth in these areas.

Most Expensive Multifamily Property Sold in Illinois OZ:


Delaware – Dover and Philadelphia-Wilmington MSA


The Downtown Development Districts (DDD) Act of 2014 was enacted by the General Assembly to leverage the resources of state government in a limited number of designated areas in Delaware’s cities, towns, and unincorporated areas.

This was in an effort to make neighborhoods and downtown more attractive to live and work in.

The first areas selected to stimulate job growth and spur private investment in commercial businesses were Dover, Wilmington and Seaford.

The largest amount of investment growth and increase in sales price that we saw was in Wilmington. The prices have been increasing YoY, but in 2019 have seen an especially large increase in value. Dover has seen less dramatic, more consistent growth over the past four years of investment activity.

Most Expensive Multifamily Property Sold in Delaware OZ:

South Carolina – Greenville-Anderson-Mauldin MSA


In 2018, Duke Energy helped recruit $1.8 billion in capital investments and more than 3,900 jobs in South Carolina.

In a report released by Marcus & Millichap at the end of 2018, it was noted that unemployment in each of South Carolina’s major metros fell below 3.5%.

Due to expanding metro employment bases, there is a large growth in multifamily housing demand within the metro areas of Charleston, Columbia and Greenville-Spartanburg. In 2018, apartment demand outpaced supply, allowing for continued rent growth and unprecedented vacancy rates.

Most Expensive Multifamily Property Sold in South Carolina OZ:

Final Thoughts

With over 675,000 multifamily assets in nominated Opportunity Zones across the country, there’s plenty of potential for investors and developers to explore.

While rules and regulations are still a bit blurry, the CRE community’s interest is piqued. But only time will tell which markets will come out on top. Until then, we will continue to investigate and report any and all OZ trends and market changes across the nation.

For more information on Opportunity Zones and an extensive analysis across all 50 states, read our report here.

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