On Thursday, the Treasury Department released the official census list of those eligible for a second round of federal tax incentive programs, giving investors sitting on Park Avenue a new map tower to dig into.
Bedford-Stuyvesant Brooklyn is one of the neighborhoods designated as an opportunity zone.
“About $100B was distributed in the last decade to the program, probably half of that was institutional capital quotes,” said Ackman-Ziff Real Estate Group Director Andrew Rudy. “I wouldn’t be surprised if there is double the capital formation for this iteration of the law than the last one.”
Until the release, New York is among the few states that have released information about the process. Stricter requirements for census tracts to qualify as “economic nuisances” and Congressional intent to funnel more money to rural areas have raised concerns about which New York City neighborhoods will be selected.
The deadline for countries to submit opportunity zone nominations is October 28, after the Treasury reviews them before releasing the full list. New York ultimately has 430 census tracts designated as opportunity zones, 210 of which are in the five boroughs.
Brooklyn and the Bronx received the most mentions, with 67 and 57 respectively. Another 41 were in Manhattan, 35 in Queens and 10 in Staten Island.
The program allows investors to defer capital gains taxes and lower their taxable bases by investing in real estate projects or businesses that drive economic growth in selected low-income communities.
OZ 1.0, created under the Tax Cuts and Jobs Act of 2017, used 2010 census data, so some neighborhoods have boomed with development to qualify. It also provides benefits for projects in tracts adjacent to the qualification zone – a loophole that was removed from 2.0 – more drawing investment for highly developed neighborhoods.
Because OZ 2.0 is based on the 2020 census, many areas that benefited the most under the previous program are no longer eligible. Still, the density of New York City, along with the development of public housing and rent-stabilized units, means that some invisible neighborhoods do not escape the brink of poverty.
The new map includes parts of Manhattan’s Lower East Side, Harlem and Upper West Side, but the more interesting sites may be in areas where developers can apply, according to Ackman-Ziff Director Jordan Brustein.
“For example, Yonkers, which is a more developed area, is still on the transportation line and close to the city. Developers can get unique incentives that produce better results, which ultimately attracts more people,” said Brustein. “So for us, we’re more interested in that than some of the better assets that have a thinner return profile.”
The gentrified areas of the outer boroughs include Brooklyn’s Bedford-Stuyvesant, which has become increasingly gentrified, and the East Bronx area near the expansion of the Metro-North station.
Queens’ Sunnyside Yards, where Mayor Zohran Mamdani is seeking to develop a 12,000-unit housing development, also received a designation, although it was not on the initial list of eligible tracts. It is one of only two tracts in the entire country, the other being in Hawaii.
But unlike rural areas of the country, where the main problem for development is attracting capital interest, New York City developers are struggling with policies that make building more difficult. In 485-x, higher construction wage requirements began for larger housing projects. As a result, most of the proposals submitted in the last two years are for buildings with 99 units or less.
Rudy and Brustein said many investors are gravitating towards shovel-ready sites that are feasible in 1.0 as they raise capital for 2.0. Although stronger markets like Long Island City are no longer included, a two-year transition period allows developers to continue receiving funding.
Faced with higher interest rates and stricter credit standards, some developers in the OZ 1.0 zone have pushed back the pre-development process only to stop before taking shovels into the ground. As long as it follows compliance, the project may be one of the first to be injected with OZ 2.0 funds.
“Think about it: There’s a reason why they’re not on the 2.0 map,” Brustein said. “The capital markets have been challenging, and the current bright spot in the market is the opportunity zone.”