Much has been reported on the creation of Opportunity Zones and even more on their tax advantages, but, less has been written about the specific Opportunity Zones that are now found in all 50 states. Although there are more than 8,700 designated census tracts in the Opportunity Zone program, some offer more potential for immediate positive impact for both investors and residents than others. Here we take a look at Opportunity Zone areas in major metropolitan markets with the most promising near-term growth potential.
What Makes them Promising?
Opportunity Zones were designed to encourage private investment generally in economically distressed, low-income census tracts through capital gains tax incentives. Under the Opportunity Zone program, up to 25% of census tracts that met income requirements of the Opportunity Zone program were eligible to be nominated as Opportunity Zones. Additionally, up to 5% of census tracts that didn’t meet income requirements of the Opportunity Zone program, but satisfied other qualifications were also eligible to be nominated as Opportunity Zones.
The end result: 57% of all neighborhoods in America were up for consideration as Opportunity Zones, and more than 8,700 census tracts are now designated as Opportunity Zones according to the Brookings Institute. The Brookings Institute also found that 19% of designated Opportunity Zones were found to be in already-gentrifying areas (areas with the highest rates of home price appreciation).
The expansive reach of the Opportunity Zone program throughout the country now offers many new tax-advantaged options for investors and entrepreneurs to explore diverse Opportunity Zone investment options intended to benefit these distressed communities. With many Opportunity Zones based in or adjacent to growing neighborhoods, in our view, here are the top 10 Opportunity Zones in the country with more immediate growth potential.
1. Oakland: West Oakland, Uptown, Jingletown, and Coliseum Industrial
- Home value increase over the past year: 11%1
- Home value increase over the past 5 years: 48%2
Many California Opportunity Zones offer immense opportunities for residential and commercial real estate. While very little of San Francisco falls into qualified Opportunity Zones, much of Oakland and parts of the East Bay do. Oakland and the East Bay have experienced rapid growth and neighborhood improvements over recent years. The city’s population has been increasing since 2011, and job growth has outpaced housing development in the Bay Area.
On the residential development side, due to high (and still climbing) housing costs in San Francisco, housing in Oakland is in demand and home prices are on the rise. A 24-story, 402-unit apartment tower is set to open near the MacArthur Bart Station in 2020. West Oakland, Uptown, Jingletown, and Coliseum Industrial are all experiencing active residential development as the West Oakland, 19th Street, Fruitvale, and Coliseum BART stations have all become convenient hubs for job and residential growth.
2. Los Angeles: Downtown and South Los Angeles
- Home value increase over the past year: 8.9%1
- Home value increase over the past 5 years: 36%2
Many parts of Los Angeles now fall into Opportunity Zones. Downtown Los Angeles and the LA Arts District, plus the surrounding areas directly south and east make up the largest contiguous section of Opportunity Zones in the city. Between May 2013 and May 2018, Downtown Los Angeles home prices kept pace with Los Angeles levels overall with a nearly 32% increase in prices. Downtown Los Angeles is undergoing a revival and attracting new residents and businesses. Several new apartment buildings with 150+ units and hotels are set to open in 2018 alone. A 125,000 square-foot shopping center and office complex, At Mateo, opened in 2018 in the Arts District of Downtown Los Angeles, and Spotify and Soylent are planning on opening offices in the new building.
West of Downtown Los Angeles, multiple emerging neighborhoods along the 10 Freeway have received Opportunity Zone designation as well. These areas are attractive not only because they have easy access to the 10 Freeway, but also with the extension of the Expo line from Downtown Los Angeles to Santa Monica, they are more connected to the city and convenient than ever. With the addition and extension of more Metro lines across the city, these areas will become increasingly accessible and in demand.
Further South, housing is more affordable than in many other parts of the city, and has access to several freeways. Now that many areas of South Los Angeles fall into Opportunity Zones, entrepreneurs and builders have even greater incentives to develop more housing and local amenities in these emerging neighborhoods.
Fundrise has invested or committed approximately $100 million in neighborhoods in and along the areas now designated as Opportunity Zones in Los Angeles. We have long been believers in investing in high-growth-potential neighborhoods that now define many Opportunity Zone throughout the nation.
3. San Jose: Market Almaden, Washington Guadalupe, East Northside, Jackson Taylor, and Mayfair
- Home value increase over the past year: 23.3%1
- Home value increase over the past 5 years: 39%2
Building in San Jose, and the Bay Area in general, is challenging due to zoning, land costs, and land entitlement procedures. However, with the introduction of Opportunity Zones, there are new opportunities available to builders and entrepreneurs. The city is experiencing rapid housing and business growth as regions of the Bay Area further north near Mountain View, Palo Alto and San Francisco become increasingly expensive.
Many key parts of San Jose, including portions of downtown San Jose now fall into designated Opportunity Zones. Downtown San Jose is home to the Civic Center, San Jose State University, Adobe, the regional multi-modal transit center, and will soon be home to a new Google campus which is expected to add one million square feet of office space. From these communities alone, real estate investors can expect demand for walkable businesses and housing options to support students and employees. Other neighborhoods offer opportunities to take advantage of transit as well as urban infill.
4. San Diego: Golden Hill, South Park, and Barrio Logan
- Home value increase over the past year: 8.1%1
- Home value increase over the past 5 years: 30%2
Last but not least for California Opportunity Zones, is the most southern city: San Diego. Like other cities in California, San Diego is growing rapidly and experiencing an affordability crisis. Many central parts of the city, including neighborhoods less than 10 miles to both the Pacific Ocean and the San Diego International airport are now included in Opportunity Zones.
While adding new development to San Diego has proved to be difficult for developers, the introduction of Opportunity Zones offers investors new incentives to combat the affordability crisis in neighborhoods previously bypassed. Areas already in demand, such as South Park and Golden Hill, now sit between Opportunity Zones, the Bay and bustling Balboa Park. Many parts of Barrio Logan also now fall into Opportunity Zones, which offers its central location even greater advantages.
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