No impact on the investor. It mainly meant that governors could designate areas that already improved as Opportunity Zones.
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What does it mean for investors that the OZ designation was partly based on old census data?
How can it impact me as an investor to not know if an area has undergone substantial change and development?
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If a census tract has been designated as a QOZ, the current status of the development in the census tract is irrelevant to whether or not you have a qualified investment. If you have concerns related to the true impact of your investment, there is data available from multiple impact investing sources that can help you identify what regions could benefit from the investment most. I'd suggest looking at EIG for state level detail or enterprise for information that you can narrow down by census tract.
OZ designations were entirely based on “old” (i.e., 2010) census data. Going forward, this doesn’t have any special implications for investors. The designations aren’t going to change. Of course, it does mean that some census tracts have already made progress between 2010 and 2019, and are possibly safer investments. I say possibly because acquisition and development in already improved areas may have higher costs than areas that are still derelict nine years after the 2010 census. As an investor, your job is to try to find good investments! So, regardless of whether the tract’s economic situation has changed since 2010, it’s important to find projects and locations that you think will become more valuable by 10 years after your investment. That may or may not be a project located in an area that has already seen improvement since 2010.
I wouldn't say it was partly on old census data; it was based on old census data on tracts from 2010. Some areas have improved since then and may not be "as bad" as others and some might have seen some very solid positive development. How would that impact you? Valuation and what you might do to improve a tract is based on location, location, location. If the area around where you develop improves, your valuation for 10-year exit and basis step-up may be good. If the area doesn't improve much, that will impact the FMV of your property and what step up might exist later. Some will only want to develop in areas on the uptick. I still think there are opportunities for industrial or brownfield sites. It all depends on what use the land will be put to.
The economic data available regarding OZs is pretty robust, though you have to pay for the best information. You're correct in saying some of the areas have already undergone significant gentrification. Evaluate your investments carefully. When entering markets you don't know, pair with local players who can give you the ins and outs. If you're looking to invest in real estate, pick up a copy of "The Real Estate Game" by William Poorvu, the best primer on real estate investing ever written.
Opportunity Zones were selected based upon the 2010 census. After the 2020 census, new zones will be created based upon that census. A census tract that no longer qualifies after 2020 will be given an additional five-year life. If developing in an improving area, get the project started before 2025.
It may mean that the area may not be as distressed as they might think. That is, improvement and development may have happened since. Investors should always perform due diligence in order to determine if the area meets their requirements and objectives.
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