As federal and state officials hash out the specifics of the updated opportunity zone program under July’s One Big Beautiful Bill Act, commercial real estate players are seizing the chance to make the revamped program work for them.
Bisnow/Joseph Pimentel
Fontana, California, planner DiTanyon Johnson shows a map of the designated opportunity zones in the city.
The maps that underpin the program remain in flux, leaving an opportunity for politically savvy investors to lobby for their projects to be included.
Before OZ 2.0 goes into effect at the start of 2027, federal officials will determine which census tracts in each state might be eligible for the extensive investor tax advantages.
Governors will then pick about 25% of those areas to be included in the program, Duane Morris LLP partner Brad Molotsky said during Bisnow’s Philadelphia State of the Market summit at Live Casino & Hotel on Tuesday. He expects that process to begin sometime in the first quarter.
Investors are already working to curry favor with officials.
“There’s a little bit of horse trading,” KPMG Senior Tax Lead Joe Scalio said. “Start that conversation as soon as possible. We didn’t have that opportunity in 1.0.”
Courtesy of Marikate Venuto Photography
TitleEQ’s Matt Einheber, Ballers’ David Gutstadt, Duane Morris LLP’s Brad Molotsky, Arden Group’s Craig Spencer, KPMG’s Joe Scalio and the Philadelphia Department of Commerce’s Maddie Gee.
The first iteration of the program was passed in December 2017 and finalized two years later. The rollout of the new version is happening in a more predictable and transparent manner.
The update passed via the OBBBA this summer was tailored to funnel more investment into affordable housing and underserved communities.
The income threshold to qualify was lowered from 80% to 70% of the area median income, and census tracts can no longer qualify just because they are adjacent to a distressed area.
“Now is the time to be talking to people,” Molotsky said. “Waiting for that to come to you is not a grand idea.”
Courtesy of Marikate Venuto Photography
KLA’s George Kotridis, Post Brothers’ Matthew Pestronk, Center City District’s Clint Randall, Hines’ Brandon Segal, Scannapieco Development’s Michael Scannapieco and Alterra Property Group’s Leo Addimando.
He is working on the One City Marina proposal in Tacony, where Rodan Enterprises LLC aims to build a dining and entertainment complex with 200 boat slips in an opportunity zone along the Delaware River.
The developers held a community meeting attended by several state lawmakers, who were encouraged to ask Mayor Cherelle Parker to throw her support behind the project.
“They’re also talking to people down in D.C. to make sure that it’s on the map that comes out of the Treasury,” Molotsky said.
Investors stand to gain a great deal if they have the right project in an opportunity zone, but it isn’t a magic potion.
Courtesy of Marikate Venuto Photography
Make Advisory Services’ Anne Fadullon, WSFS Bank’s Neil Orechiwsky, Mosaic Development Partners’ Maria Sourbeer, Avison Young’s Adam Gillespie, Tester Construction Group’s Michael Tester and University Place Associates’ Anthony Maher.
Arden Group has made extensive use of the program, but CEO Craig Spencer said he still wouldn’t build something financially volatile like a hotel through opportunity zone tax credits.
“A bad deal is a bad deal,” he said. “It doesn’t matter what the incentives are.”
Part of what makes the opportunity zone program so powerful for investors is the way it can be layered in with other tax credits when building capital stacks.
That includes Pennsylvania’s version of the program, called the “Keystone opportunity zone,” administered by the Philadelphia Department of Commerce within city limits.
Courtesy of Marikate Venuto Photography
Citrin Cooperman’s Matt Lakofsky, GREA’s Ken Wellar, Newmark’s Lauren Gilchrist, Cresa’s Tony Juliano and Colliers’ Brian Hilger.
Roadblocks developers face while navigating Philadelphia City Council and the bureaucracy that carries out its wishes were a common topic at Tuesday’s event. Permitting and the city’s councilmanic prerogative rule are at the top of that list.
Department of Commerce Strategy and Incentive Manager Maddie Gee, who administers KOZ in Philly, said the state and federal programs can help mitigate those struggles.
“KOZ is one thing that we try to offer to mitigate those factors,” she said. “It’s a major marketing tool for Philadelphia.”