An opportunity zone is a federally designated low-income area targeted for investment in order to revitalize the communities and kick start the economy. Real estate developers are offered tax incentives for reinvesting capital gains into these zones. Recently, LOCUS published a report ranking the top opportunity zones in the U.S. But what does this ranking mean for real estate developers?
An Overview of Opportunity Zones
There are currently more than 8,700 opportunity zones in the continental U.S., district of columbia, and U.S. territories. The LOCUS National Opportunity Zone Ranking Report compares these zones against three primary metrics – Smart Growth Potential, social equity, and a Vulnerability Index score (SEVI).
Smart Growth Potential is a proprietary filter to help investors identify which opportunity zones take priority based on their potential to deliver economic, environmental, and social returns. This filter rests on four identifiable metrics: Walkability, job density, housing diversity, and distance to the nearest top 100 central business district (CBD). Scores range from a minimum of 10 to a maximum of 20. For social equity and SEVI, LOCUS used four variables: transit accessibility, housing, and transportation affordability, diversity of housing tenure, and the Social Vulnerability Index. Again, the minimum score is 10.
Using these metrics and the scoring algorithm, LOCUS made some interesting discoveries. Only 2% of the opportunity zones scored a 10 or higher on these metrics, 13% of the opportunity zones with Smart Growth Potential less than a score of 10 are in rural areas, and only .18% of Americans live in both a high opportunity and a high equity opportunity zone (i.e. they are walkable urban places and socially and economically inclusive).
Where are the Top U.S. Opportunity Zones Located?
According to the report, the top scores for opportunity zones among the top 30 metro areas with the most Smart Growth Potential are New York, Los Angeles, Philadelphia, and Chicago. Charlotte, San Antonio, Orlando, and Dallas received the lowest scores. The states with the highest scores include New York, California, Maryland, New Jersey, Pennsylvania, and Ohio.
According to the report, the top scores for opportunity zones among the top 30 metro areas with the most Smart Growth Potential are New York, Los Angeles, Philadelphia, and Chicago. Charlotte, San Antonio, Orlando, and Dallas received the lowest scores. The states with the highest scores include New York, California, Maryland, New Jersey, Pennsylvania, and Ohio.
The top 11 opportunity zones based on Smart Growth Potential are:
- Downtown Portland (CBD) – Census FIPS 41051010600
- Downtown Oakland
- Downtown Seattle
- Center City East in Philadelphia
- Inner Harbor of Baltimore
- Downtown Newark
- Downtown Portland (CBD) – Census FIPS 41051005100
- Downtown Detroit
- Journal Square in New York
- Downtown St. Paul
- Wilshire Central BID in Los Angeles
The top 10 social equity and vulnerable places with high Smart Growth Potential include:
- Downtown Portland (CBD)
- Downtown Oakland
- Downtown Seattle
- Downtown Newark
- International District in Seattle
- Downtown Sacramento
- Wilshire Central BID in Los Angeles
- Westlake in Los Angeles
- Campus District in Cleveland
- Downtown Honolulu
Top U.S. Opportunity Zones by Product Type
Product types make a difference too. New York, for instance, scored high among offices asking for rent, multifamily properties asking for rent, and retail space asking for rent. Other notable high scorers among office space include Hollywood, San Francisco Bay Area, Miami, and Seattle. Among multifamily properties, Cleveland’s Campus District, various Los Angeles neighborhoods, San Francisco, and Seattle scored high. Rounding out the top five in retail are Miami, San Francisco, Los Angeles, and Seattle.
Top opportunity zones across all product include Hudson Yards/Hell’s Kitchen in Manhattan, East Village in Manhattan, Kips Bay in Manhattan, Williamsburg in Brooklyn, Greater Flushing Queens, Brooklyn Heights, East Harlem, Central Harlem, Downtown Brooklyn, and Williamsburg South in Brooklyn.
The Four Opportunity Zone Quadrants
When scoring, LOCUS categorizes each opportunity zone as either high or low equity and either high or low opportunity, based on their scores in the associated metrics. In that regard, each opportunity may be considered to fall into one of the following four quadrants:
- High Equity / Low Opportunity
- High Opportunity / High Equity
- Low Equity / Low Opportunity
- High Opportunity / High Equity
The report contains a lot of detail on each opportunity zone with each of the metrics analyzed for each opportunity zone. It’s a great read, and developers looking for opportunity zones to invest in would do well to check it out.An opportunity zone is a federally designated low-income area targeted for investment in order to revitalize the communities and kick start the economy. Real estate developers are offered tax incentives for reinvesting capital gains into these zones. Recently, LOCUS published a report ranking the top opportunity zones in the U.S. But what does this ranking mean for real estate developers?
An Overview of Opportunity Zones
There are currently more than 8,700 opportunity zones in the continental U.S., district of columbia, and U.S. territories. The LOCUS National Opportunity Zone Ranking Report compares these zones against three primary metrics – Smart Growth Potential, social equity, and a Vulnerability Index score (SEVI).
Smart Growth Potential is a proprietary filter to help investors identify which opportunity zones take priority based on their potential to deliver economic, environmental, and social returns. This filter rests on four identifiable metrics: Walkability, job density, housing diversity, and distance to the nearest top 100 central business district (CBD). Scores range from a minimum of 10 to a maximum of 20. For social equity and SEVI, LOCUS used four variables: transit accessibility, housing, and transportation affordability, diversity of housing tenure, and the Social Vulnerability Index. Again, the minimum score is 10.
Using these metrics and the scoring algorithm, LOCUS made some interesting discoveries. Only 2% of the opportunity zones scored a 10 or higher on these metrics, 13% of the opportunity zones with Smart Growth Potential less than a score of 10 are in rural areas, and only .18% of Americans live in both a high opportunity and a high equity opportunity zone (i.e. they are walkable urban places and socially and economically inclusive).
Where are the Top U.S. Opportunity Zones Located?
According to the report, the top scores for opportunity zones among the top 30 metro areas with the most Smart Growth Potential are New York, Los Angeles, Philadelphia, and Chicago. Charlotte, San Antonio, Orlando, and Dallas received the lowest scores. The states with the highest scores include New York, California, Maryland, New Jersey, Pennsylvania, and Ohio.
According to the report, the top scores for opportunity zones among the top 30 metro areas with the most Smart Growth Potential are New York, Los Angeles, Philadelphia, and Chicago. Charlotte, San Antonio, Orlando, and Dallas received the lowest scores. The states with the highest scores include New York, California, Maryland, New Jersey, Pennsylvania, and Ohio.
The top 11 opportunity zones based on Smart Growth Potential are:
- Downtown Portland (CBD) – Census FIPS 41051010600
- Downtown Oakland
- Downtown Seattle
- Center City East in Philadelphia
- Inner Harbor of Baltimore
- Downtown Newark
- Downtown Portland (CBD) – Census FIPS 41051005100
- Downtown Detroit
- Journal Square in New York
- Downtown St. Paul
- Wilshire Central BID in Los Angeles
The top 10 social equity and vulnerable places with high Smart Growth Potential include:
- Downtown Portland (CBD)
- Downtown Oakland
- Downtown Seattle
- Downtown Newark
- International District in Seattle
- Downtown Sacramento
- Wilshire Central BID in Los Angeles
- Westlake in Los Angeles
- Campus District in Cleveland
- Downtown Honolulu
Top U.S. Opportunity Zones by Product Type
Product types make a difference too. New York, for instance, scored high among offices asking for rent, multifamily properties asking for rent, and retail space asking for rent. Other notable high scorers among office space include Hollywood, San Francisco Bay Area, Miami, and Seattle. Among multifamily properties, Cleveland’s Campus District, various Los Angeles neighborhoods, San Francisco, and Seattle scored high. Rounding out the top five in retail are Miami, San Francisco, Los Angeles, and Seattle.
Top opportunity zones across all product include Hudson Yards/Hell’s Kitchen in Manhattan, East Village in Manhattan, Kips Bay in Manhattan, Williamsburg in Brooklyn, Greater Flushing Queens, Brooklyn Heights, East Harlem, Central Harlem, Downtown Brooklyn, and Williamsburg South in Brooklyn.
The Four Opportunity Zone Quadrants
When scoring, LOCUS categorizes each opportunity zone as either high or low equity and either high or low opportunity, based on their scores in the associated metrics. In that regard, each opportunity may be considered to fall into one of the following four quadrants:
- High Equity / Low Opportunity
- High Opportunity / High Equity
- Low Equity / Low Opportunity
- High Opportunity / High Equity
The report contains a lot of detail on each opportunity zone with each of the metrics analyzed for each opportunity zone. It’s a great read, and developers looking for opportunity zones to invest in would do well to check it out.
