Opportunity Zone Investment Activity Mixed in Midwest Cities
Since 2017, the Chicago area has seen a slight increase in investment within Opportunity Zones, while values in those areas have decreased.
CLEVELAND—A new report on Opportunity Zones by real estate data firm Reonomy has found that investment activity in these zones has actually declined since the incentive program went into effect.
The analysis indicated that the federal tax incentive program has yet to spark significant investment activity in many distressed communities across the nation.
In terms of the Midwest, the results of the OZ program have been mixed. In Cleveland, Realogy reports that the city has 14% of its commercial assets in Opportunity Zones, above the national average. Investment share in Opportunity Zones was decreasing until 2018, where it leveled off, leading to a slight increase in the first quarter of this year. Declining asset values do not necessarily point to more competition, but could be a matter of rising sales volumes, given the nature of Opportunity Zone tracts, Reonomy notes.
The Chicago-Naperville-Elgin, IL-IN-WI MSA has 11.9% of its commercial assets located in Opportunity Zones—slightly above the national average. “Investment share in these qualified tracts (in Chicago) has remained stagnant after a heavy decrease leading into 2012. Since 2017, the MSA has seen a slight increase in investment within Opportunity Zones, while values in those areas have decreased,” the report states.
Another Midwest city where the OZ program has yet to take hold is Kansas City, MO. The Kansas City, MO-KS MSA has 13.8% of its commercial assets in Opportunity Zones, above the national average. Investment share in Opportunity Zones has seen a general decrease for many years, with the first quarter of 2019 posting the lowest share of investments in these areas since the turn of the century (5.6%). The Reonomy report notes that Kansas City asset values are a bit more volatile than other markets, but have remained mostly steady.
OZ investment in Minneapolis and St. Louis are seeing some improvement or potential for increased activity. The Minneapolis-St. Paul-Bloomington, MN-WI MSA has 7.9% of its commercial assets in Opportunity Zones, well below the national average. Decreasing investment share in Opportunity Zone qualified tracts slowed just before the enactment of the legislation, and in the first quarter of 2019, saw a very slight increase. Though, as values decreased a bit throughout 2018, the effects of Opportunity Zones remain in question, the Reonomy report notes.
In the Oklahoma City, OK MSA, only 8.1% of commercial properties are located in qualified Opportunity Zones. Although investment share saw a small upward tick in the first quarter of this year within Opportunity Zones, “asset value has remained stagnant in recent quarters in and outside of Opportunity Zones, only slightly depreciating (with April 2017 – March 2018 showing incredibly prominent year-over-year increases),” the report states.
The St. Louis, MO-IL MSA has 12.3% of its commercial assets in Opportunity Zones, slightly above the national average. In terms of investment share within Opportunity Zones, the region has closely followed the national trend in recent years, showing a small but potential positive result of the Opportunity Zone program in the first quarter of this year.