Over $2 trillion of unrealized capital gains sat on the books at the start of 2018. Fast-forward to today, and a long list of investors are diverting gains into Opportunity Zone (OZ) investments to minimize their long-term tax obligations.
The big question, of course, is where is all that money going (and why)? For this month’s Berkadia Top 5 we aimed to answer that question by ranking the top five Opportunity Zone submarkets by multifamily investing. We outline why these submarkets have been on the radar of OZ investors since the start of 2019.
5. South Lakefront (Chicago, Illinois)
- $295.5 million YTD
Chicago’s South Lakefront submarket is located close to the city’s growth-friendly central business district, Soldier Stadium, and the University of Chicago’s Mitchell Hospital near Hyde Park. It is also home to several economically distressed neighborhoods, meaning that two Opportunity Zone tracks run adjacent to an area where rent is growing faster than almost anywhere else in the city.
Developers are in talks to develop the area further. In fact, there are multiple reasons that the submarket is so tempting to Opportunity Zone investors. One example, the $20 billion One Central development, would transform a nearby 34-acre rail yard into a bonafide megadevelopment featuring several stories of office space, a mixed-use transit hub, and multiple acres of pedestrian-oriented public space.
4. Crystal City (Arlington, Virginia)
- $299.9 million YTD
Two nearby designated OZs and the rapid approach of a new Amazon headquarters has had investors dialed into Arlington’s Crystal City submarket. The newly dubbed National Landing neighborhood runs directly through the center of the submarket and already boasts significant, growth-friendly infrastructure, like commuter-rail access via three metro stations and a surge of office space flanking Amazon’s planned, new headquarters.
Additionally, Arlington County is in the process of several smart and timely investments into the nearby Columbia Pike and Green Valley OZ tracts, including streetscape upgrades and a premium transportation service to make these areas even more attractive to potential investors.
3. Koreatown (Los Angeles, California)
- $307.0 million YTD
A longtime bastion of relative affordability in South Los Angeles, the Koreatown submarket has captured even more investor interest as of late, thanks to the presence of over a dozen Opportunity Zone tracts. Rent growth may not skyrocket soon, but Koreatown remains alluring to investors due to nearby employment centers supporting steady, inelastic demand. This trend is most evident along the Wilshire Corridor, where over 980,000 square feet of mixed-used space, 6,000 apartment units, 1,200 hotel rooms, two museums, and close to a dozen restaurants are either planned, in review, or under construction.
2. Bushwick (New York City, New York)
- $397.5 million YTD
Bushwick’s prime location, sandwiched between Brooklyn’s red-hot downtown and Williamsburg, has made it an attractive target for Opportunity Zone investors. There are approximately 12 designated tracts located within Bushwick, and dozens more in adjacent neighborhoods. Nearly 2,000 units are under construction to feed the market’s demand for new apartment housing. Investors would be wise to keep an eye on rent growth if this submarket, still a hub for affordability-minded, young professionals and artist types, is on their short list.
1. Tempe (Phoenix, Arizona)
- $451.8 million YTD
The dominating catalyst for OZ investments in Tempe has been the area’s Valley Metro Rail, as the system travels through four of the submarket’s half-dozen OZ tracts. Increased potential for job access driven by improved transportation has supported apartment construction along the metro rail, so much so that 75% of all units delivered since 2017 have been within about a 10-minute walking distance of the Metro.
More recently, investors have turned their attention back to the Arizona State University campus and the area’s growing pool of affluent, off-campus renters. Tempe’s OZ tracts have presented an ideal opportunity to capture the demand created by luxury-minded students attending ASU and young professionals employed at one of several major finance firms with office space directly adjacent to campus.
*Note: Year-to-date sales volume totals reflect value add transactions in designated Opportunity Zones but do not necessary reflect transactions by Opportunity Zone funds.