CBRE Report: Opportunity Zone Impact Mixed, Influenced by Cyclical Factors

The Opportunity Zone program has been in place for almost two years. As such, it’s still a new initiative, but reports have been trickling out as to the early impact of such investments. One such report, “Multifamily Development: A Bright Spot in Opportunity Zone Initiative,” was recently released by CBRE. The report offered two takeaways:

Investment volumes are being influenced by cyclical factors. Specifically, total investment in O-Zones since the creation of incentives since Q1 2018 accounted for 10.5% of overall U.S. volume. This is mostly unchanged from the 10.7% reported from the zones during the 18 months prior to the program. However, the type of demand has shifted, which is noted in the second point, below.

As noted in the name of the brief, multifamily developments/investments are being targeted. “Although it’s not investment in multifamily acqsuisitions that is the most popular, but investment in development sites of multifamily properties that’s the most popular,” noted George Entis, CBRE’s Senior Research Analyst, Investment Services. In other words, he told Connect Media, of all the land site acquisitions in O-Zones, much of the growth is coming from multifamily land sites, from an acquisition volume perspective.

The report indicated that multifamily development site acquisitions increased by 66.2% during the period, versus the 18 months leading up to the program. In the meantime, “development sites for all other property types experienced either losses or only moderate gains over the same time period,” the brief pointed out.

Entis went on to say that the value of construction starts also shows a strong preference for multifamily development, as well. “What’s probably driving this is the broader demand for more affordable housing,” he added.

The brief pointed out that New York City, Los Angeles and San Jose were the investment leaders when it came to investments in development sites since the start of the Opportunity Zone program. Additionally, secondary markets, including Salt Lake City, Denver and the Inland Empire also “had strong showings in terms of absolute gains, as well as total volumes,” the brief commented, adding that these areas all had attractively-located Opportuniity Zones.

Furthermore, added the brief, the increased buying activity of development sites in these areas would have occurred, regardless of incentives. However, “significant multifamily development is taking place in Opportunity Zones, and tax incentives will only help steer more capital into blighted areas,” the brief concluded.

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