Opportunity zones have set off a frenzy since they were tucked into President Donald Trump's 2017 federal tax overhaul. Even so, fundraising for projects in the low-income areas has been slow, in part because investors were waiting for more complete regulations from the government on how the incentives would work. Last month, the US Treasury Department released a set of guidelines that cleared up much of the lingering uncertainty.

That's given more encouragement to firms—including Starwood Capital Group, Bridge Investment Group and RXR Realty LLC—that are setting up funds to take advantage of the tax breaks. If Brookfield succeeds in raising $1 billion, it would be among the largest such pools of capital.

Brookfield had already been working on several projects in areas that have been designated as opportunity zones, including a 22-acre site in Brooklyn, not far from where Amazon.com Inc. was planning to build a new headquarters. The developer is also behind a shopping center in a zone in Norwalk, CT, that would be anchored by a Nordstrom and Bloomingdale's. Both properties are slated to be part of the new fund, one of the people said.

While investors are just beginning to fund developments in opportunity zones, the tax breaks have inspired fierce debate. Backers say the incentives will draw much-needed money to struggling communities. Critics counter they could end up being a handout to the wealthy, benefiting projects that were already in the works while doing little for low-income residents.

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