Real Estate Agents and Brokers have a prime opportunity to increase their business via the increased interest and transaction volumes that will occur in Opportunity Zones. If you already work in or would like to work in Opportunity Zones, here are some quick tips:

Value-Add Projects: Opportunity Zones were designed to create investment and development of under-resourced neighborhoods. In order to dissuade investor from simply buying existing assets and sitting on them, the legislation requires that real estate projects meet a 1:1 additional capital test. This is based on the value of the existing structure vs. the entire acquisition cost of a project. Think of it this way. If a fund buys a warehouse for $1 million, and the value of the land is $400,000 and the value of the existing structure is $600,000, the fund would need to put in another $600,000 of renovation/redevelopment dollars for the project to qualify. This means that stabilized assets (apartment buildings that are fully rented, retail buildings with a long term-lease, etc) are not good opportunities for an Opportunity Fund (Although they may be good deals for someone).

Deal Quality: Being in an Opportunity Zone doesn’t make a bad deal good. Investors in Opportunity Funds are looking to make money. They’re not going to be able to do that by buying overpriced properties, even with the tax advantages. In talking with potential sellers, it’s a good idea to set realistic expectations.

Additional Incentives: Many states and municipalities are striving to take maximum advantage of the program by adding additional incentives for things like low-income housing, workforce development, grocery stores in food deserts, and other needed services and amenities. Often, the inclusion of these incentives can make the difference between a deal working and not working. Understanding the local incentives and creating relationships with your local Economic Development Agency can create huge opportunities to find and create great projects.

Community Involvement: In many jurisdictions, there is a significant community input requirement before a project gets approved. Understanding a community’s needs and wants is a great step to understanding how a piece of property can help support neighborhoods and communities.

Zoning, Zoning, Zoning: One of the most critical aspects of a property’s value is its underlying zoning. this governs what and how much can be built on any given site. In some cases, the tallest building in the immediate vicinity is a good guide for what can be built on a site, but in others, zoning changes or underutilized land can mean a two story retail building can be a skyscraper. In other cases, the skyscraper next door was built under old rules or an exception and your project may be limited. Things like historical overlays, flood plain location, and a host of other issues may affect what can be built. It’s a great idea to familiarize yourself with local zoning ordnances and the process for getting exceptions. Consider developing a relationship with local zoning attorneys who can help you determine what a project could be.

If you represent a property in an Opportunity Zone, and would like to have our acquisition team review it, please  submit it using the form below