Opportunity Zone Investment Has Soured as Program's End Nears

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The Opportunity Zone program has seen a sharp decline in investment as its 2026 end nears, leading to calls for reform and an uncertain future. Also, with interest rates dropping, real estate owners face added complexity in multifamily financing; join our October 10th webinar to hear from experts on bridging, HUD, and Commercial Property Assessed Clean Energy (C-PACE) strategies.

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Opportunity Zone Investment Has Soured as Program's End Nears

The Opportunity Zone (OZ) program, a federal initiative signed into law in 2017 by former President Donald Trump to spur more development in struggling neighborhoods around the country in need of economic development, experienced a major drop in investment over the past several months, as the program’s sunset in 2026 grows nearer. 

First conceptualized in a 2015 white paper by the Economic Innovation Group (EIG), the Opportunity Zone (OZ) program gained support in Congress and was enacted through the Tax Cuts and Jobs Act of 2017. The program aimed to spur new development projects to help revitalize disinvested communities by offering tax advantages to qualified investments. It identified 8,764 opportunity zones across the U.S., each defined by individual census data and nominated for inclusion in the initiative by state governors.

The EIG’s original roadmap for the program used the country’s recovery from the Great Recession as a guide to identify areas most in need of investment. For example, cities like Fresno, California, and Detroit, Michigan, had high unemployment rates, which often lead to cascading effects on residents, including increases in death, suicide, and even cancer rates. Revitalizing neighborhoods in these struggling cities could have a significant positive impact on the country as a whole.

Recent data from the accounting and consulting firm Novogradac shows that the program raised $38 billion in total equity by funds investing via the program since its inception. But in the second quarter of this year, only $446 million was raised, a significant drop from the $1.3 billion raised a year earlier. According to Novogradac, the investment slowdown began in the fourth quarter of 2023, when just $414 million was invested in projects in the program. The dwindling investment in OZ projects coincides with an overall decline in investment and development activity in the real estate market over the last two years due to high interest rates.

While there have been notable success stories from the OZ program, like the revitalization of downtown Erie, PA, there has been criticism that the program is benefiting only a narrow number of areas designated as Opportunity Zones, and those areas were already improving before the program was launched. One of the key aims of the program was to help new businesses get off the ground, but data has shown that the vast majority of projects that have taken place in the zones have been real estate developments. A bipartisan group of lawmakers has proposed reforms to the program that would increase transparency around reporting and extend the timeline for the program. 

Many expect to see investment in Opportunity Zones increase with the anticipated rate cut. While there is speculation that the program will be extended and modified, its future remains uncertain with the upcoming presidential election. Former President Trump, who was in office when the OZ program was created, has spoken highly of the initiative. In contrast, Vice President Kamala Harris has not made any public statements or proposals regarding the program.

Presented by NYSERDA

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Insider Insights

Pick of the C-PACE
The global private equity firm, the Carlyle Group has pledged $1 billion in funding to the lender North Bridge ESG to boost the origination of commercial property-assessed clean energy(C-PAVE) loans.

Who pays the bill?
The Brookings Institute has published a new paper that examines the equity issues that are brought up by the question, who pays for the needed investment in green infrastructure?

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