By Anayat Durrani
California remains golden in the top spot for states with the most investments in Opportunity Zones through June 2022, as well as total equity raised. The state grew tax-advantaged investments by $485.9 million, per a report by Novogradac.
Arizona is in second place, having increased investments by $441.6 million. New York, Texas and Florida follow to make up the top five states for opportunity zone investments. Number six on the list was Washington, D.C, followed by Washington, Colorado, Maryland and Tennessee.
“Novogradac ranked the states based on equity infusions into Qualified Opportunity Funds located in these states,” says Blake Christian, Partner at Holthouse Carlin & Van Trigt. LLP. “There is certainly a partial correlation of this Top 10 list based on the most populous states; however, Arizona, Colorado, Tennessee, Washington DC, Maryland and Washington state are outliers and their ability to attract OZ investments are attributable to attractive OZ census tracts, state and local support, and/or attractive real estate markets in those states.”
States taking in most Opportunity Zone investments
There are more than 8,700 Opportunity Zones in the continental US, the District of Columbia and US territories. The Tax Cuts and Jobs Act of 2017 created the Opportunity Zones program as a way to offer tax incentives for investment in designated census tracts.
“The top states that have been identified by Novogradac offer diverse opportunities and long-term growth,” says Roy Carrasquillo of Carrasquillo Law Group. “For instance, Tennessee is becoming a business hub, therefore attracting more people to its cities. And the state has state-of-the-art airports and highways that make commuting easy. Maryland is well-positioned as an alternative to DC, with business flowing into the state.”
Carrasquillo says Arizona continues to expand and grow their population and that while New York and California are the most densely populated, they “have areas of their respective states that can use investment in order to garner long-term opportunities and economic development.”
How Opportunity Zone investors can benefit from these top states
Knowing the top states for OZ investments can help investors have a better understanding of the factors they should look at when it comes to where to geographically place their OZ investments.
Christian suggests that investors begin by first evaluating Opportunity Zone areas that already have synergistic growth happening, since it raises the possibility that the general region will likely improve and will experience increases in property values.
He also says investors should look at the regulatory environment in that particular state and local jurisdictions, since that will dictate the timeline required to develop real estate or start a business. He says state and local tax structure is also something to consider, since during the 10+ year operating period, it can be expected there will be operating profits and taxes to pay.
“Conformity with the OZ statute at the state level is also important and interestingly California is a non-conforming state yet is always at or near the top OZ fundraising position due to its strong real estate market and wealthy concentration of OZ investors,” says Christian.
California has 879 opportunity zone census tracks in some 57 counties. The state’s Governor’s Office of Business and Economic Development (GO-Biz) recently updated its Opportunity Zone website and it features resources, best practices, and tools to support economic and business development in economically-distressed communities.
“When looking at OZ investments, it is important to look at the infrastructure, such as highways, transportation, etc., that already exists,” says Carrasquillo. “If that baseline is there, it helps to justify the investment as it will attract a growing population over time, adding to the commerce and income that the state receives.”
An additional factor to consider, Christian says, is the make-up and education levels of the local workforce and their availability, keeping in mind the unemployment rate.
“Finally, the affordability of housing, flights and transportation need to be factored in for those OZ funds relying on visitors or needing to attract a workforce from other locations,” says Christian.
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