As officials work to roll out the second iteration of the opportunity zone program, the generation of Philadelphia multifamily projects that utilized the first is showing a mixed track record.

While the program can modestly boost investor returns, developers and insiders told Bisnow this wasn’t enough to outweigh the post-pandemic market disruptions and the apartment supply surge some markets like Philadelphia experienced.

“The mistake was a little bit of overexuberance about opportunity zones and this capital flowing in,” Linden Lane Capital Partners Managing Principal Michael Wachs said. “People did more aggressive deals than they should have.”

Some fund managers say they are having to work hard to get investors on board for OZ 2.0 due to underwhelming outcomes nationwide for investments tied to OZ 1.0. The program allows developers to defer their capital gains taxes and avoid them altogether if a property is held for 10 years.

The program did help incentivize apartment construction in underserved areas across the country, which made it a success from the federal government’s perspective, according to FisherBroyles partner Brad Molotsky, a real estate attorney specializing in OZs.

But that dynamic is also depressing returns for some multifamily investors.

In Philadelphia, OZ investors funded projects in a series of eligible census tracts north of Center City linking Fishtown and the Delaware River to Brewerytown and Fairmount Park.

Alterra Property Group utilized the program for its 426-unit LVL North building on Broad and Spring Garden streets.

While the project was 95% full when Alterra Managing Partner Leo Addimando spoke to Bisnow in April, he said the lease-up was a challenge.

“Our original rent projections, original occupancy projections, we’ve fallen short of those,” he said.

The firm was pursuing a $140M refinancing of the building at the time, in part so the company could reach the full decadelong hold encouraged by the OZ program.

MM Partners used the OZ program with at least two of its mixed-use projects: the 88-unit Civic at 1600 Girard St. in Fairmount and its 161-unit adaptive reuse of the former Poth Brewery at 3145 W. Jefferson St. in Brewerytown. Both were financed in part through commercial mortgage-backed securities.

MMP fell delinquent on the $34.8M loan underpinning the Poth project in June 2024 before it entered special servicing the following February, according to the CMBS monitoring platform Morningstar. The servicer hasn’t issued a new report on it since April 2025.

The developer faced a similar situation with the $19M loan underpinning the Civic, which entered special servicing in June 2025, according to Morningstar. 

Linden Lane Capital Partners completed two OZ projects in an eligible tract immediately north of the Vine Street Expressway.

The Hannah, a 181-unit project at 13th and Callowhill streets, is 97% leased, while the 144-unit Via at Callowhill, a block away, is 60% full after it delivered in March, Wachs said. He expects the smaller building to be 95% leased by the end of next month. Both projects are targeting the higher end of the market and don’t include any affordable units.

Conditions have become more tenant-favorable in that submarket, and landlords today are having to offer two months free on a 14-month lease, Wachs said.

"Most people like us underwrote one month free on 12," he said. "So the lease-up was as fast, but the cash flow didn't catch up as fast. It's just slightly off."

Many OZ developers underwrote these projects at 5% cap rates and “real rent growth” that didn’t come to pass, Wachs said earlier this month at Bisnow’s Philadelphia Opportunity Zone Summit.

“Guys that thought they were getting back enough capital to pay their capital gains tax after stabilization found out they had to write a new check to get in there or give the keys to the property back to the lender,” he added.

Molotsky said the challenges many OZ developers faced in Philly were due to broad market conditions and not flaws in the program itself.

“There was a massive erosion of economics on these projects,” he said. 

In Philadelphia, a glut of new apartments delivered by developers rushing to qualify projects for a 10-year tax abatement led to sluggish rent growth and the rise of concessions as owners scrambled to lease up properties.

The wave of completions peaked last year, when more than 8,000 units were delivered across greater Philadelphia, according to Northmarq.

Regionwide, apartment owners experienced average year-over-year rent growth of about 9% in 2022, but the metric had fallen to 2.6% by last quarter, according to a report from Institutional Property Advisors.

Similar dynamics occurred in markets across the country, especially in fast-developing Sun Belt cities that have even experienced rent declines.

Nationwide, rental vacancy rates grew from 5.6% to 7.3% between the end of 2021 and last quarter, according to the Federal Reserve Bank of St. Louis.

While these dynamics have depressed returns for some OZ investors, they have represented a success for the program's policy goal of creating more attainable housing, Arctaris Impact Advisors Managing Director of Real Estate Andrew Gibbs said.

“I think it’s important to give a shout for how effective OZs have been. A lot of the deals we look at in OZ census tracts, these markets have been overbuilt,” he said

“A lot of developers went into these markets thinking these rents would be 120%, 140% AMI. We’re seeing these now naturally affordable at 60% to 80% AMI,” Gibbs said.

Incomes in the census tract where Linden Lane’s projects are located have grown so much that it will not be eligible for OZ 2.0.

But the program also created a wave of enthusiasm about outlying neighborhoods whose futures were much less certain, Wachs said. He thinks some OZ projects in those parts of the city floundered due to a lack of momentum.

“Are you in an area that’s getting better? … Is it a bridge too far?” he said.

“They didn’t build in those neighborhoods to institutional exit because the institutions aren’t buying 120 units in Kensington or Harrowgate.”

There are also developers who built on OZ-eligible properties without utilizing the program.

Riverwards Group sold the 200-unit second phase of its Avenue V project at 1635 N. Fifth St. to the Philadelphia Housing Authority for $49.1M in March.

Riverwards Managing Partner Mo Rushdy considered taking advantage of the OZ before construction began in 2023 but ultimately determined that the 10-year timeline was too long for the firm’s investors.

While he is a fan of the OZ program, Rushdy said he wishes it was more accommodating of merchant builders.

“At the end of the day, an investment is an investment,” he said.

“These middle markets, very rarely do you see the same owner stay for 10 years, because whoever is building these deep in the neighborhood are smaller, not deep-pocketed developers who will be dependent on the sale to make back their money and repay their investors,” he added.

The developer was also skeptical about the program’s potential impact going forward, given how expensive it has become to build in Philly since the pandemic. 

“Today, where construction costs are, the benefit of opportunity zones won’t make a dent,” Rushdy said.