'We're In A Different Cycle': Fund Managers Try To Convince Investors OZ 2.0 Will Be Better

The first iteration of the opportunity zone program ran headfirst into a tough real estate cycle, as the pandemic and the spike in interest rates disrupted the market and made it hard for investors to generate profits.

Now, as opportunity zone fund managers prepare for the second iteration, they are working to convince investors that a revamped program and different market timing will lead to stronger results. 

"There are quite a few opportunity zone funds out there that are struggling because they invested at the top of the cycle," GTIS Partners partner Peter Ciganik said.

GTIS raised two opportunity zone funds in 2020 and 2022, and it is now preparing for its third fund, which will invest under the upcoming OZ 2.0 rules.

The program, initially signed into law in 2017 during President Donald Trump’s first term, offers tax incentives to investors that put money into real estate projects or operating businesses in economically distressed areas. 

With Trump's One Big Beautiful Bill Act in July, the opportunity zone program was turned into a permanent fixture in the tax code and will offer tax breaks on a rolling basis, rather than at set deadlines.

OZ 2.0 will also feature a new map of qualified census tracts, which states are scheduled to select next quarter, and it is slated to go into effect at the beginning of next year.

Ciganik said investors should be thinking now about what capital gains they can realize in the coming months and deploy into opportunity zone funds. Given that the program has a 180-day reinvestment window, gains that investors realize after July 1 can flow into OZ 2.0 next year.

He said now is the time to educate investors about the new program and what they can expect.

"Advisers should start educating themselves on how the new program works so that they are ready in January when it kicks off," he said. "Just because the cycle wasn't very favorable when OZ 1.0 came out shouldn't taint the program going forward. We're in a different cycle."

Under OZ 1.0, many funds entered into an uncertain market. The program took time to get up and running, with zones not officially designated until 2018 and final regulations not issued until 2019.

By the time the program was underway, the pandemic arrived, and then construction costs and interest rates began to rise, making it hard for some investors to achieve the returns they had underwritten in a different market.

More than $43.6B has been raised into opportunity zone funds since the program’s inception, but fundraising slowed down last year, according to Novogradac. The 2025 fundraising total of $2.6B was the second lowest since the firm began tracking the program.

Investment picked up in the first quarter this year, reaching $850.8M, and Novogradac expects that momentum to continue this quarter as investors realize gains and look to deploy them before the end of OZ 1.0. But after July 1, gains can be held and rolled into OZ 2.0 next year, so it projects a “sharp decrease” in fundraising in the second half of the year.

Last month, Peakline Real Estate Funds launched its fourth opportunity zone-focused fund, seeking to raise $1.3B in equity to be deployed under OZ 2.0.

The fund will focus on urban and suburban development, including multifamily, mixed-use and infill industrial assets. There will also be a concurrent rural fund focused on lower-density residential, industrial and energy infrastructure assets.

“As the Opportunity Zone market has evolved into a permanent part of the tax code, we see a significant opportunity to deliver differentiated investment solutions that combine strong real estate fundamentals with meaningful tax advantages,” co-founder and CEO Michael Miller said in a statement.

GTIS closed its first OZ fund in 2022 with $630M raised, making it one of the five largest OZ funds raised at the time. Its second fund closed in late 2025. It didn’t disclose the fundraising total at the time, but a source said the second fund raised $245M.

The third fund hasn’t yet launched, but it is expected to have a target of $500M, the source said. 

Ciganik said GTIS' strategy isn't much different from the last two funds it raised, largely targeting investments in multifamily, student housing and industrial. Its first fund attracted more than 1,600 investors.

As he courts investors for the third fund, Ciganik said he is educating them on the differences in the program.

OZ 2.0 seeks to steer more money to rural areas. Investors in rural opportunity zones will receive a 30% basis step-up — essentially allowing investors to write off 30% of their deferred capital gains — compared to a 10% basis step-up in nonrural zones. 

The new program lowers the income threshold for a census tract to qualify as an opportunity zone from 80% of the area median income to 70%, focusing on more distressed areas. It also doesn't allow tracts adjacent to low-income areas to be eligible, which had been a controversial part of the last program, as it allowed wealthier communities to benefit.

The program has a two-year transition period starting Jan. 1, in which investors can deploy funds into zones from either iteration of the program. The OZ 1.0 map will expire at the end of 2028.

Ciganik also said he is talking with investors about the real estate cycle and arguing the performance from OZ 1.0 funds was more a result of the market than the program.

"It's not an opportunity zone factor," Ciganik said. "It's a vintage or a cyclical factor, but it will probably be a challenge for us to explain that vintages in cycles happen. It doesn't negate the benefits of the opportunity zone program that it unfortunately happened to coincide with a pretty bad down cycle."