The Sept. 28 list won’t decide where OZ money lands

The developers waiting on New York State's recommended Opportunity Zone tracts, due to Washington by Sept. 28, are underwriting into a program that no longer expires. That permanence is a larger input to capital formation than any census tract the state names, because an incentive without a sunset can be financed as an ongoing business rather than a countdown.

The mechanics carry over from the 2017 legislation: capital gains are deferred when rolled into a qualified Opportunity Fund, a five-year hold lifts the investor's basis by 10 percent, and a ten-year hold escapes tax on the fund's appreciation. The federal map now covers 8,764 census tracts, roughly 12 percent of the national total, and by the end of 2024 the incentives had accumulated more than $108 billion in assets, an average of about $20 billion of investment a year.

The distribution is where the record gets uncomfortable. Close to 42 percent of all program money landed in just 1 percent of eligible zones, and 75 percent of the funding backed market-rate residential rentals, according to the National Community Reinvestment Coalition; an Urban Institute study found 93 percent of the dollars went to metropolitan areas. The tracts the program was sold on helping are close to the ones the money skipped.

New York is stacking its own housing targets on top of that federal flow. Gov. Kathy Hochul pledged $25 billion toward 100,000 affordable homes across a five-year period that ends next year, and Mayor Zohran Mamdani has committed to building 200,000 affordable homes, preserving another 200,000 over the next decade, and working with developers on a further half-million units. The city and state have rewritten zoning, shortened environmental review, and restored tax abatements that lower an owner's long-run costs, without which a ten-year hold rarely clears the federal exclusion's hurdle.

Chris Milner, head of investment management at Cantor Fitzgerald Asset Management, told Commercial Observer the program has “produced a lot of housing units in a lot of areas around the country where housing is in short supply,” and he called permanence a “long-term validation of the assumption.”

Milner is right about the direction, provided the abatement stack carries the deal. PNC's $92 million Carr loan, as this publication has reported, leaned on two decades of abated taxes to hold a five-year term against a 2028 delivery — the same arithmetic a permanent OZ exclusion now makes available to a sponsor willing to underwrite the full ten years. The Sept. 28 list will be read as the map of where the next tranche of roughly $20 billion a year goes. It is better read as a test of whether the state selects tracts where the stacked after-tax yield works, or simply blesses the neighborhoods that already pencil on market rents.