Created a year ago under the 2017 Tax Cuts and Jobs Act, the Opportunity Zones (OZ) incentive, which is intended to spur economic redevelopment in distressed communities while offering capital gains tax relief to investors, continues to gain momentum.

President Donald Trump boosted his support for the program with an executive order on Tuesday to establish the White House Opportunity and Revitalization Council, a group of 13 federal member agencies, to engage with governments at all levels to improve revitalization efforts in the 8,761 designated OZs in all 50 states, District of Columbia, and five U.S. territories.

HUD secretary Ben Carson
U.S. Department of Housing and Urban Development HUD secretary Ben Carson

Chaired by Department of Housing and Urban Development (HUD) secretary Ben Carson, the council will focus on ways to more effectively use taxpayer dollars in these underserved communities and will work to streamline, coordinate, and target existing federal programs to the OZs. In addition, the council will consider legislative proposals and undertake regulatory reform to remove barriers to OZ communities’ revitalization efforts.

“The White House’s new executive order for agencies to prioritize OZs is a positive first step to transform more communities into walkable, equitable, and thriving places and repair the mistakes of the 20th century that led to sprawl and disinvestment,” said Christopher Coes, director of LOCUS, a program of Smart Growth America. “Most importantly, this new council must encourage greater transparency to ensure any federal investment in OZs achieves equitable development outcomes that are good for both local residents and businesses.”

Shortly after the White House announcement, LOCUS and The Center for Real Estate and Urban Analysis at George Washington University issued a new report that ranks each of the 7,824 designated OZs in the United States and District of Columbia and provides recommendations for federal, state, and local governments to ensure equitable and inclusive developments.

The LOCUS National OZ Ranking Report identifies the OZs best positioned to spur economic development in inclusive walkable communities, finding that only 2% of the designated communities are ready to deliver on the triple bottom line to ensure positive social, environmental, and economic returns. According to the report, 98% of the designated OZs scored less than 10—out of 20 possible points—on Smart Growth Potential.

Some of the key findings include:

  • On the state level, California, Maryland, New Jersey, New York, and Pennsylvania have the greatest share of top-scoring OZs.
  • Among the top 30 metros, Chicago, Los Angeles, New York City, and Philadelphia have top scores for OZs with the most smart growth investment potential.
  • The metros receiving the lowest scores for smart growth investment potential include Charlotte, N.C.; Dallas; Orlando, Fla.; and San Antonio.
  • While 13% of OZs with scores less than 10 are rural, the vast majority with limited smart growth investment potential are in small towns, suburbs, and urban areas. The report calls for aggressive federal, state, and local policies to retrofit auto-oriented urban form and revitalize rural town centers into vibrant and inclusive communities.
  • The OZs that scored at the top of the Smart Growth Potential with high social equity and vulnerability attributes that could lead to gentrification include downtown Newark, N.J.; downtown Oakland, Calif.; downtown Portland, Ore.; and downtown as well as the International District in Seattle.

The report also encourages the federal government to increase funding for transit and neighborhood revitalization while encouraging greater reporting and transparency in OZs, localities to introduce smart growth policies, philanthropies to leverage their expertise in shaping place-based strategies, and the private sector to normalize equitable project development by prioritizing investments for projects that are transit-oriented and will help to create walkable and vibrant neighborhoods.

“The success of an OZ will be multiple investment success stories coupled with strong public policy for existing residents and business that result in deliberate managed change for the place,” said Jair Lynch, president and CEO of Jair Lynch Real Estate Partners. “Inclusive walkable urban places don’t happen overnight nor in silos. OZs are the cross-section of public policy and private thinking.”

The National Council of State Housing Agencies (NCSHA) also is keeping a close eye on OZs. It released earlier in December an expanded third edition of its OZ Fund Directory, with 53 Qualified Opportunity Funds (QOFs) representing nearly $15 billion in anticipated investment.

During NCSHA’s review, it found that 89% of the 53 QOFs predominantly target commercial real estate, such as hospitality, mixed-use, multifamily, or student housing. In addition, 42% target community development, such as affordable and workforce housing or community revitalization, 42% target economic or small business development, and 17% are focused on infrastructure or renewable energy development.

“The Treasury Department’s recent release of regulations [in October] clarifying many important aspects of OZ investing has spurred further interest in the program among fund managers,” said Stockton Williams, NCSHA executive director. “With additional regulatory clarity that we hope is forthcoming soon, the program will be even better able to achieve its promise to revitalize rural as well as urban areas.”