The opportunity zone guessing game is over.
On Thursday, the Treasury Department released the official list of census tracts eligible for the federal tax incentive program's second iteration, giving investors sitting in Park Avenue towers a new map to pore over.
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“About $100B was deployed in the last decade to the program, probably half of that was quote-unquote institutional capital,” Ackman-Ziff Real Estate Group Director Andrew Rudy said. “I wouldn't be surprised if there was a doubling of capital formation for this iteration of the law versus the last.”
Leading up to the release, New York was among the few states to publicize little information about the process. Stricter requirements for census tracts qualifying as “economically distressed” and Congress’ aim of funneling more money toward rural areas raised concerns over which New York City neighborhoods would be selected.
The final deadline for states to submit their opportunity zone nominations was Oct. 28, after which Treasury reviewed them before releasing the full list. New York ultimately had 430 census tracts designated as opportunity zones, 210 of which are in the five boroughs.
Brooklyn and the Bronx received the greatest number of designations, with 67 and 57, respectively. Another 41 are in Manhattan, 35 are in Queens and 10 are on Staten Island.
The program allows investors to defer capital gains taxes and lower the basis on which they are taxed by investing in real estate projects or businesses that spur economic growth in select low-income communities.
OZ 1.0, created under the Tax Cuts and Jobs Act of 2017, used 2010 census data, allowing several neighborhoods already booming with development to qualify. It also gave benefits to projects in tracts adjacent to qualifying zones — a loophole that was removed from 2.0 — further drawing investment to highly developed neighborhoods.
Because OZ 2.0 is based on the 2020 census, many areas that benefited the most under the program’s predecessor no longer qualify. Still, New York City’s density, alongside public housing developments and rent-stabilized units, means that some neighborhoods that don’t seem blighted qualify under the poverty threshold.
The new map includes parts of Manhattan’s Lower East Side, Harlem and the Upper West Side, but the more appealing sites may be in areas where developers can layer subsidies, according to Ackman-Ziff Director Jordan Brustein.
“For example, Yonkers, which is a more emerging area, is still well located on the transportation line and near the city. Developers are able to get unique incentives that yield better returns, which ultimately end up attracting more equity,” Brustein said. “So to us, we're more interested there than maybe even some of these better-located assets that have thinner return profiles.”
Prized areas of the outer boroughs include Brooklyn’s Bedford-Stuyvesant, which has become increasingly gentrified, and areas of the East Bronx near the Metro-North’s station expansion.
Queens’ Sunnyside Yards, where Mayor Zohran Mamdani is seeking to advance a 12,000-unit residential development, also received designation, despite not being on the initial list of eligible tracts. It is only one of two tracts nationwide to do so, with the other being in Hawaii.
But unlike rural areas of the country, where the primary issue for development is attracting capital interest, New York City developers struggle with policies that make building more difficult. Under 485-x, higher construction wage requirements kick in for larger housing projects. As a result, the vast majority of proposals filed in the last two years are for buildings with 99 units or less.
Rudy and Brustein said many investors are gravitating toward shovel-ready sites eligible under 1.0 as they raise capital for 2.0. Despite stronger markets like Long Island City no longer being included, the two-year transition period allows developers to continue accepting funds.
Faced with higher interest rates and stricter lending standards, some developers in OZ 1.0 zones have pushed through the predevelopment process only to stall out before getting shovels in the ground. As long as they’ve followed compliance, those projects are likely to be among the first to be injected with OZ 2.0 funds.
“Think about it this way: There’s a reason why they’re not in 2.0 maps,” Brustein said. “The capital markets have been challenging, and the one bright spot right now in the market is opportunity zones.”
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