CRE in the Land of Opportunity (Zones)

A look at asset supply, investment share, and average sale prices in and outside of Opp Zones in the nation's top 50 MSAs (excluding NYC).

In this report, we’ll take a look at:


Overall Opp Zone Investment
1. Opp Zone Asset Investment Share (Q1 ’00 – Q1 ’19)
2. Opp Zone Asset Average Sales Price (Last 5 Years)
Opp Zone Investment by MSA
1. Chicago
2. Los Angeles
3. Boston
4. Houston
5. Washington D.C.
6. Miami
7. Dallas
8. Philadelphia
9. Atlanta
10. Denver
11. Detroit
12. Phoenix
13. Tampa
14. San Francisco
15. Las Vegas
16. Pittsburgh
17. Riverside
18. St. Louis
19. Cincinnati
20. Minneapolis
21. Cleveland
22. Kansas City
23. San Antonio
24. Indianapolis
25. Seattle
26. Nashville
27. Charlotte
28. Orlando
29. San Diego
30. Columbus
31. Baltimore
32. New Orleans
33. Portland
34. Austin
35. Memphis
36. Raleigh
37. Richmond
38. Providence
39. Sacramento
40. Louisville
41. Birmingham
42. Oklahoma City
43. Milwaukee
44. Jacksonville
45. Virginia Beach
46. Salt Lake City
47. San Jose
48. Buffalo
49. Hartford
50. Albuquerque

Is a turnaround possible?

When looking at the top 50 MSAs in the U.S. by population (excluding NYC), over the last 10 years, census tracts currently designated as Opportunity Zones have continued to see a declining proportion of total commercial investments.

In 2009, 14.6% of all commercial transactions activity in the top 50 MSAs took place in what are now designated Opportunity Zones.

At the tail-end of 2017, the initial Opportunity Zone legislation was put in place.

But, in 2018, the share of investments in Opp Zone tracts was down to just 10.5%. The U.S. in its entirety shows a similar trend, though the top 50 MSAs saw a much steeper decline from 2017 to 2018.

This trend points to a few possible arguments to be made.

The first argument is that this is precisely why the Opportunity Zone program was put in place—to shift investment back into these areas.

Although it appears that the beginning of 2019 could be curtailing the previous decline in investment in the top 50 MSAs, when combining that with the overall national trend, the argument can be made that the Opp Zone legislation has yet to have its intended impact on commercial investment.

If Q1 of 2019 is any indication of things to come, however, it could be that the program is beginning to have an impact in more prominent commercial real estate markets first (i.e. risk-averse markets), or that the program will only have an impact in the more distressed areas of already risk-averse markets.

Fluctuating Acceleration of Price Appreciation

In short, although price appreciation accelerated for assets in Opportunity Zones leading up to legislation, that spike was short-lived, followed by deceleration of price appreciation.

In Q1 2019, we are beginning to see another reversal of that trend, albeit minor, back towards acceleration of price appreciation.

From early 2014 to the end of 2015, Opportunity Zone assets outperformed non-Opportunity Zones in sales price appreciation. This was followed by a period of stagnation in 2016 and 2017, which then led into the aforementioned spike.

National Opportunity Zone Asset Breakdown

Out of the 52+ million commercial assets in the nation, about 6.5 million lie within qualified Opportunity Zone census tracts.

Of all commercial asset types, the highest total supply of assets in Opportunity Zones is multifamily (656,000), while the asset type with the highest percentage of its supply in Opportunity Zones is mixed-use (18.73%). The industrial asset type comes in a very close second with 18.72% of its national supply in Opp Zones.

To continue adding context to the Opportunity Zone commercial real estate market, below, we dive into the top 50 MSAs in the U.S. (by population), taking a look at supply of assets, investment share, and the average sales prices of assets in and outside of Opportunity Zones.

Chicago MSA

The Chicago-Naperville-Elgin, IL-IN-WI MSA has 11.9% of its commercial assets located in Opportunity Zones—just barely above the national average. Investment share in these qualified tracts has remained stagnant after a heavy decrease leading into 2012. Since 2017, the MSA has seen a slight increase in investment within Opp Zones, while values in those areas have decreased.

Los Angeles MSA

The Los Angeles-Long Beach-Anaheim, CA MSA has 11.2% of its commercial assets in Opportunity Zones – slightly lower than the national average. The investment share in Opportunity Zones has continuously decreased since 2012, following the trend of the national average. Interestingly, in the past year, price appreciation on OZ assets has accelerated, whereas non-OZ assets’ prices have remained steady, suggesting that the legislation has begun to function as designed in LA.

Boston MSA

The Boston-Cambridge-Newton, MA-NH MSA has only 7.4% of its total commercial assets in Opportunity Zones, much lower than than the national average. Investment share has remained unaffected since the release of the Opp Zone program, declining at a similar rate over the past three years. Average prices, interestingly enough, have seen a consistent decrease since the onset of the Opp Zone program.

Houston MSA

The Houston-The Woodlands-Sugar Land, TX MSA has 21.7% of its assets located in Opportunity Zones, easily the most of any of the top 50 MSAs. Despite continuously rising investment share in these areas leading up to 2017, however, shortly before the release of Opp Zones, and through to the present, investment share in Opp Zones has decreased dramatically. In that time, average Opp Zone prices have increased with some volatility, while non-Opp Zone prices have risen sightly.

Washington D.C. MSA

The Washington-Arlington-Alexandria, DC-VA-MD-WV MSA has 10.6% of its commercial assets located in Opportunity Zones. Since 2015, the MSA has seen a similar timeline of decrease of Opp Zone investment share (compared to the national average), only at a slightly steeper rate. Q1 of 2019 has shown a slight uptick in investment, speaking to the potential affect of Opp Zones. Average sale prices in and outside of Opp Zones have seen slight decreases at the start of 2019.

Miami MSA

The Miami-Fort Lauderdale-West Palm Beach, FL MSA has 15.9% of its commercial assets within Opportunity Zones, one of the highest rates among the top MSAs. And, while average prices in these areas remain stagnant, the share of commercial investments within qualified Opportunity Zones has seen a noticeable uptick since the date of legislation.

Dallas MSA

The Dallas-Fort Worth-Arlington, TX MSA has just 8.4% of its commercial assets in Opportunity Zones. Interestingly enough, after a few years of decline, investment share within Opportunity Zones has risen since the release of the program—especially intriguing when considering the fact that average values for non-Opp Zone sales have decreased quite a bit in that same time period.

Philadelphia MSA

The Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA has 14.8% of its total commercial assets in Opportunity Zones – higher than the national average. Interestingly, the investment share in Opportunity Zones has increased in the past 5 years, whereas the national average has decreased.

Although there was an immediate spike in price appreciation after legislation was released, all assets depreciated over the past year – OZ assets, however, have spiked in Q1 2019.

Atlanta MSA

The Atlanta-Sandy Springs-Roswell, GA MSA only has 6.7% of its total commercial assets in Opportunity Zones – much lower than the national average. The investment share in Opportunity Zones remains stagnant, whereas the national average has decreased in the past 5 years – demonstrating that Atlanta perhaps doesn’t have the same need for the Opportunity Zone legislation as other cities.

Denver MSA

The Denver-Aurora-Lakewood MSA has only 5.9% of its commercial assets located in Opportunity Zones, the lowest rate of any of the top 50 MSAs. Investment share in these areas did see a bounce back after a decline to only 3.7% in 2018.

Detroit MSA

The Detroit-Warren-Dearborn, MI MSA has over 300,000 commercial assets located in designated Opportunity Zones, which is 15.8% of all CRE assets – slightly above the national average. Detroit has seen a decrease in OZ investment share, with more than a 5% decrease in the past 4 years. Compared to non-OZ properties, assets in OZ have experienced slight price depreciation, although turbulent month-over-month.

Phoenix MSA

The Phoenix-Mesa-Scottsdale, AZ MSA has 15.1% of its commercial assets in Opportunity Zones, another fairly high number, well above the national average. That being said, share of investments in qualified census tracts has continued to decrease since 2014. Despite small increases in asset value in Opp Zones, it looks as though the trend is not going to reverse just yet for Phoenix.

Tampa MSA

The Tampa-St. Petersburg-Clearwater, FL MSA has 10.7% of its commercial assets in Opportunity Zones. The beginning of 2019 has shown positive signs for the Opportunity Zone program in Tampa, as the previously declining investment share in those zones saw a rise for the first time since 2016, and the average value of Opp Zone assets appreciated through Q1.

San Francisco MSA

The San Francisco-Oakland-Hayward, CA MSA has roughly 9.4% of its commercial assets in Opportunity Zones. Since the Opp Zone legislation, the market has seen a leveling off of its previously declining investment share in these zones, while asset values have also risen a fair bit.

Las Vegas MSA

In the Las Vegas-Henderson-Paradise, NV MSA, 12.9% of commercial properties are located within qualified Opportunity Zones, just above the national average. Interestingly enough, asset values in Opp Zones have appreciated since the legislation was passed, and non-Opp Zone asset values have depreciated. More interesting, and a bit conflicting, is that commercial investment share within these areas has actually decreased quite a bit since 2017.

Pittsburgh MSA

The Pittsburgh, PA MSA has 10.4% of its commercial assets in Opportunity Zones, slightly below the national average. Since roughly 2011, investment share of assets in these tracts has continued to decrease, with no immediate curtailing since the onset of Opp Zones. Just before the time of legislation, Non Opp Zone properties began to see an increase in value, which has not been slowed.

Riverside MSA

The Riverside-San Bernardino-Ontario, CA MSA has 14.2% of its commercial assets in Opportunity Zones, easily above the national average. Over the past few years, the MSA has seen decreasing investment share in OZ qualified census tracts, a trend thats continued thus far in 2019. Since the Opp Zone legislation, asset values in and outside of those areas have remained mostly stagnant.

St. Louis MSA

The St. Louis, MO-IL MSA has 12.3% of its commercial assets in Opportunity Zones, slightly above the national average. In terms of investment share within Opportunity Zones, the MSA has closely followed the national trend in recent years, showing a small but potential positive result of the Opp Zone program in Q1 of 2019.

Cincinnati MSA

The Cincinnati, OH-KY-IN MSA has 12% of its commercial assets in Opportunity Zones, just a touch above the national average. Investment share in those qualified tracts has seen a similar trajectory to the national average, only with a more prominent uptick in Q1 2019, where OZ investments returned to 10% of all investments—potentially showing the program having its desired effect.

Minneapolis MSA

The Minneapolis-St. Paul-Bloomington, MN-WI MSA has 7.9% of its commercial assets in Opportunity Zones, well below the national average. Decreasing investment share in Opp Zone qualified tracts slowed just before legislation, and in Q1 of 2019, saw a very slight increase. Though, as values decreased a bit throughout 2018, the effects of Opp Zones remain in question.

Cleveland MSA

The Cleveland-Elyria, OH MSA has 14% of its commercial assets in Opportunity Zones, above the national average. Investment share in Opp Zones was decreasing until 2018, where it leveled off, leading into a slight increase in Q1 of 2019. Declining asset values do not necessarily point to more competition, but could be a matter of rising sales volumes, given the nature of Opp Zone tracts.

Kansas City MSA

The Kansas City, MO-KS MSA has 13.8% of its commercial assets in Opportunity Zones, above the national average. Investment share in Opp Zones has seen a general decrease for many years, with Q1 2019 seeing the lowest share of investments in these areas since the turn of the century (5.6%). Asset values are a bit more volatile in KC than other markets, but have remained mostly steady.

San Antonio MSA

The San Antonio-New Braunfels, TX MSA has only 7.3% of its commercial assets within Opportunity Zones, one of the lowest rates among the Top MSAs. Investment share in the MSA has mimicked that of the national average, with a very slight uptick to begin 2019, showing that the Opp Zone program may be serving its intended purpose in San Antonio. As we’ve seen in many MSAs, since the onset of the Opp Zone program, asset value in San Antonio has decreased a bit.

Indianapolis MSA

The Indianapolis-Carmel-Anderson, IN MSA sits right at the national average with 11.9% of its commercial assets within Opportunity Zones. Still, the MSA has seen a declining share of investments in these areas for a long time, despite slight upticks in 2010 and 2017. Since legislation, Indianapolis has seen steady asset values but declining investment share in Opp Zone properties.

Seattle MSA

The Seattle-Tacoma-Bellevue, WA MSA has only 7.9% of its commercial assets within qualified Opportunity Zones. And while assets within these zones climbed in Q1 of 2019, early indications do not point to the fact that the recent legislation is having an immediate noticeable impact on investment in the MSA. Overall, activity has remained steady throughout.

Nashville MSA

The Nashville-Davidson-Murfreesboro-Franklin, TN MSA has 8.8% of its total commercial assets within Opportunity Zones, sitting below the national average. After many years of slow but generally declining investment share in these areas, the beginning of 2019 has seen that number climb—granted only to 6.6%. More so, the average value of assets in Opp Zones rose through the second half of 2018 and into 2019, while Non-Opp Zone asset value remained consistent.

Charlotte MSA

The Charlotte-Concord-Gastonia, NC-SC MSA has 12.1% of its commercial assets in qualified Opportunity Zones, slightly ahead of the national average. Otherwise, it looks as though the Opp Zone program may be settling in, only at a slower rate than other MSAs. Investment share in these areas rose slightly, but leveled off to start 2019. Average asset values in Opp Zones actually depreciated as the legislation was rolled out, though saw an upward turn in Q1 of 2019.

Orlando MSA

The Opportunity Zone program appears to be having its intended effect on the Orlando-Kissimmee-Sanford, FL MSA in the early going. 10.4% of the MSA’s assets are within Opportunity Zones—those assets saw a nice lift in investment share in Q1 of 2019. Following the legislation, Opp Zone asset value also increased alongside slightly decreasing average values for Non-Opp Zone assets, though that increase did subside a bit to start 2019.

San Diego MSA

The San Diego-Carlsbad, CA MSA has just 8.6% of its total commercial assets within Opportunity Zones, well below the national average. Even so, the early signs point to Opp Zone legislation having its intended effect, as depreciating asset values and decreasing investment share in 2018 have seemingly been curtailed to begin 2019.

Columbus MSA

The Columbus, OH MSA has just over 12% of its commercial assets within Opportunity Zones, just a touch ahead of the national average. While average sales prices both in and outside of Opp Zones have followed a similar trajectory, there was a recent jump in investment share within Opportunity Zones, showing the potential impact of the program.

Baltimore MSA

The Baltimore-Columbia-Towson, MD MSA has 9.6% of its commercial assets in qualified Opportunity Zones, below the national average. After declining each year from 2015 to 2018, investment share thus far in 2019 has risen. While average sales prices in Opp Zones remained low throughout 2018, Q1 of 2019 showed a slight improvement over previous months.

New Orleans MSA

The New Orleans-Metairie, LA MSA has 13.6% of its total commercial assets in Opportunity Zones, which sits above the national average. New Orleans has been averse to trends compared to most, as investment share within now-qualified Opp Zones has risen over time from 3.8% in 2000, to 14% in 2019. Investment share peaked at 14.7% in both 2011 and 2016.

Portland MSA

The Portland-Vancouver-Hillsboro, OR-WA MSA has 11.2% of its commercial assets in Opportunity Zones, just below the national average. The story has not changed for the declining share of investments within the qualified zones leading up to the legislation, as Q1 of 2019 continued to see a decrease. On the flip-side of things, average asset values did appreciate both in and outside of Opp Zones throughout 2018, though Opp Zone assets did see a dip in Q1 of 2019.

Austin MSA

The Austin-Round Rock, TX MSA has 14.1% of its total commercial assets within qualified Opportunity Zones, well above the national average.

Average prices in Opp Zones have increased just prior to and since the initial legislation (until a depreciation to begin 2019), while non-Opp Zone assets have depreciated in the same time frame. Still, investment share shows the continuous decline of Opportunity Zone tract investments since 2017.

Memphis MSA

The Memphis, TN-MS-AR MSA has 18.6% of its commercial assets in Opportunity Zones, the second highest mark of any of the top 50 MSAs, sitting only behind Houston (21.7%). On top of such a high percentage of its supply being in these areas, the MSA has also seen a year-over-year increase in investment share in Opp Zones in both 2018 and 2019, and steady but appreciating asset values.

Raleigh MSA

The Raleigh, NC MSA has 10.9% of its commercial assets within Opportunity Zones, sitting just below the national average. While investment share within Opp Zones has remained mostly stagnant from 2005 to 2016, that number did see a fairly steep drop to 8.4% in 2017, which was then followed by year-over-year increases in both 2018 and 2019. Assets both in and outside of Opp Zones have appreciated in value in Raleigh since the second half of 2017.

Richmond MSA

The Richmond, VA MSA has 17.1% of all of its commercial properties sitting within qualified Opportunity Zone tracts. Only Houston (21.7%) and Memphis (18.6%) have higher percentages. While the MSA saw a dip in Opp Zone areas in 2018, as did many MSAs, there was a slight rebound in Q1 of 2019.

Providence MSA

The Providence-Warwick, RI-MA MSA has 12% of its commercial assets within Opportunity Zones, very close to but slightly ahead of the national average. While average asset value in Opp Zones in Providence have declined a bit, investment share in these areas saw an increase in Q1 of 2019, after many years of stagnation.

Sacramento MSA

The Sacramento—Roseville—Arden-Arcade, CA MSA has 14.6% of its commercial assets within qualified Opportunity Zone census tracts, well above the national average. Despite this, however, after rising investment share asset value across 2017 in these areas, the start of 2019 has shown that Opp Zones may not be having their desired impact just yet.

Louisville MSA

In the Louisville/Jefferson County, KY-IN MSA, 10.0% of commercial assets lie within qualified Opportunity Zones, slightly below the national average. And while investment share in these areas increased slightly to begin 2019, average asset values in and outside of Opp Zones tell a story that shows the legislation not yet having its intended impact.

Birmingham MSA

The Birmingham-Hoover, AL MSA has 15.7% of its commercial assets within Opportunity Zones, well ahead of the national average. And while investment share seems to show a slight increase in Opp Zones investment to start 2019, since the legislation was passed, commercial asset value in these areas has actually depreciated a bit, while non-Opp Zone assets have appreciated.

Oklahoma City MSA

In the Oklahoma City, OK MSA, only 8.1% of commercial properties are located in qualified Opportunity Zones. And while investment share saw a small upward tick in Q1 within Opp Zones, asset value has remained stagnant in recent quarters in and outside of Opp Zones, only slightly depreciating (with April 2017 – March 2018 showing incredibly prominent year-over-year increases).

Milwaukee MSA

The Milwaukee-Waukesha-West Allis, WI MSA has 9.6% of its commercial assets in Opportunity Zones, below the national average. The early signs, however, are that the Opp Zone legislation is having its intended impact on the MSA, as 2019 saw a notable increase in share of commercial investments within these areas. Average asset value also appreciated in Opp Zones in the latter half of 2018 and into 2019, while non-Opp Zone asset values depreciated.

Jacksonville MSA

The Jacksonville, FL MSA has 14.1% of its total commercial assets within Opportunity Zones, well above the national average of 11.8%. And while investment share has shown nothing notable, Opp Zone asset values in Jacksonville have appreciated greatly in value since legislation, all while non-Opp Zone asset values have depreciated.

Virginia Beach MSA

The Virginia Beach-Norfolk-Newport News, VA-NC MSA has 16.6% of its total commercial properties within qualified Opportunity Zones, well above the national average. While average commercial asset values in the MSA have risen a bit both in and outside of Opp Zones since the initial Opp Zone legislation, investment share attests that perhaps the program has not caught traction yet.

Salt Lake City MSA

In the Salt Lake City, UT MSA, roughly 12.9% of commercial properties are located in qualified Opportunity Zones—that’s slightly above the national average of 11.8%. While investment share in Opp Zones in Salt Lake City saw a decline from 2015 to 2017, since legislation, that rate has risen moderately. Asset values in Opp Zones also saw very positive appreciation in late 2017 through 2018, though have seen a depreciation thus far in 2019.

San Jose MSA

The San Jose-Sunnyvale-Santa Clara, CA MSA has just 8% of its commercial assets in Opportunity Zones, well below the national average. More than most MSAs, San Jose is especially hard to see any notable trends in either direction with regards to Opportunity Zone investment.

Buffalo MSA

The Buffalo-Cheektowaga-Niagara Falls, NY MSA has 16.2% of its commercial assets in Opportunity Zones, well above the national average. While March of 2019 showed some depreciating asset values both in and outside of Opp Zones, post-legislation investment share and asset value show positive initial signs for the legislation.

Hartford MSA

The Hartford-West Hartford-East Hartford, CT MSA has 9.5% of its total commercial assets in Opportunity Zones, lower than the national average. The investment share in OZs has fluctuated throughout the past 2 decades, however has dropped in 2019 thus far. Lastly, the price appreciation of both assets in and not in Opportunity Zones has appreciated. Overall, it seems as though the Opportunity Zone legislation has not had a significant effect on the Hartford MSA thus far.

Albuquerque MSA

The Albuquerque MSA has 13.8% of its commercial assets in Opportunity Zones, which sits a fair amount above the top 50 MSA average of 11.8%.

While the average sale price of assets in these tracts has seemingly stabilized a bit thus far in 2019 (after a noticeable decrease shortly after the initial legislation), prices seem to be following the natural fluctuation of the market.

Combining that with a stagnant share of investments in Opp Zones, it doesn’t seem as though the legislation has had any effect on Albuquerque quite yet.

 

Find Your Next Opp Zone Investment with Reonomy