The Promise and Perils of Opportunity Zones
Sacramento a surprise top-10 office rental market according to new report
December 19, 2018: A new report on Opportunity Zones has ranked downtown Sacramento in the top 10 in two significant categories – one a positive and the other a signal of risk.
The good news is that it is the nation’s eighth-best Opportunity Zone (out of more than 8,700 nationwide) for office rentals, meaning it offers commercial office investors high rewards but low risk. The other markets in the top ten were much larger centers: New York, Los Angeles, San Francisco Bay Area, Miami, Seattle, Philadelphia, Houston, Portland, and Phoenix.
The more worrying news is that the high reward/low risk index is paired with an index of high social equity and social vulnerability. Although all investment in distressed areas carries the risk of displacement for existing residents, downtown Sacramento’s ranking as the nation’s sixth-highest Opportunity Zone when those indices are combined indicates an extreme risk of its residents being priced out as new developments come to market.
Opportunity Zones are federally designated areas that are eligible for tax incentives designed to funnel trillions of dollars in unrealized capital gains toward investment in the nation’s most distressed census tracts. These are limited to equity investments in businesses, real estate, and business assets that are located in a Qualified Opportunity Zone.
According to the National Opportunity Zones Ranking Report from LOCUS/Smart Growth America, the “US Treasury estimates that at least $1 trillion will be invested in Opportunity Zones over the next 10 years. If true, Opportunity Zones will be the single largest US community development initiative undertaken in the last thirty years.” LOCUS is a national coalition of real estate developers and investors who advocate for sustainable, equitable, walkable development in America’s metropolitan areas.
Given the potential of new investment on that scale to radically transform Opportunity Zones, the report’s authors emphasize “the need for these investments to offer a different path forward for many low-income communities – one that benefits people instead of displacing thousands and propelling more suburban sprawl.” Anyone who has been paying attention to the renaissance of downtown Sacramento would not be surprised by the risk of displacement, but Sacramento’s high ranking among the largest cities in America puts that risk in sharp focus.
Opportunity Zones account for nearly 12 percent of America’s land mass; are home to more than 30 million Americans, 56 percent of whom are minorities; and have an average poverty rate of 30 percent. Of the 879 Opportunity Zones in California, 62 are in the six-county SACOG region, with each county having at least three such zones.
The report includes lists of recommendations for major stakeholders, including state and local governments.