New York State’s Opportunity Zones Deadline Is Fast Approaching

New York is becoming an exciting place to build, but there’s an opportunity for even more.

Gov. Kathy Hochul pledged for the state to invest $25 billion toward creating 100,000 affordable homes over a five-year period that ends next year. Mayor Zohran Mamdani has committed to build 200,000 new affordable homes and preserve another 200,000 over the next decade while working with developers to meet the city’s needs for another half-million units.

State and city officials have overhauled municipal zoning laws, reduced cumbersome environmental reviews, and legalized tax abatements that would allow real estate owners to complete projects more quickly while lowering their costs over the long run. 

But newly permanent federal Opportunity Zones could lure additional investment into less affluent census tracts that have missed out on the state’s multifamily construction boom. Now, developers are eagerly awaiting the state’s recommendations for those new zones, which are due by Sept. 28.

“I believe it’s produced a lot of housing units in a lot of areas around the country where housing is in short supply,” Chris Milner, head of investment management at Cantor Fitzgerald Asset Management, told Commercial Observer. “The fact that the new legislation is making this a permanent part of the tax code is viewed as a long-term validation of the assumption.” 

In 2017, Congress passed legislation allowing investors to defer taxes on previously earned capital gains temporarily when they put their assets into long-term investments called Opportunity Funds, which invest in Opportunity Zones. In addition, if investors put their gains in the funds for five years, their basis on the original investment would increase to 10 percent. But, if they stuck it out for at least 10 years, they would not have to pay taxes for any capital gains that occurred from their investment.

The Trump administration went on to designate 8,764 census tracts, roughly 12 percent of tracts across the country, as eligible for OZ investment. The program was partially successful, recording more than $108 billion in assets by the end of 2024 with an average of about $20 billion invested annually.

But the nation’s poorest areas often didn’t benefit, as investors largely put their gains into urbanized neighborhoods that were on the rebound or growing quickly. Close to 42 percent of all investment into the program poured into just 1 percent of all zones, and 75 percent of OZ funding supported market-rate residential rental projects, according to the National Community Reinvestment Coalition. And the vast majority of investment, 93 percent, went toward metropolitan areas, an Urban Institute study found, indicating that the program’s incentives were not directing it toward areas that needed help the most.

After Congress permanently renewed the Opportunity Zone program, the Treasury Department revised its requirements to ensure more capital would be directed toward underinvested communities. To qualify, the poverty level of the census tract would be 70 percent of area or statewide median income instead of 80 percent, or one out of five people living in the proposed zone would need to have incomes below the poverty level. And investors who put more money in rural areas would get a 30 percent reduction in their capital gains tax. 

The revisions mean about 20 percent fewer communities nationwide will qualify for the federal incentive. In New York, that means only 426 census tracts statewide will be designated as OZs this year, compared with 524 under the original program. 

Over the past few months, the state’s economic development arm, Empire State Development (ESD), has sought to prioritize distressed communities, and balance urban and rural designations, while considering feedback from local communities. They won’t rule out existing OZs that still qualify under the new federal rules, ESD officials said.  

“New York is taking a targeted, statewide approach to Opportunity Zone designations, with a focus on directing investment to communities where it can support economic growth and development,” ESD spokeswoman Emily Mijatovic said. “ESD is evaluating eligible tracts based on factors including community need, housing growth, geographic balance and regional input.”

Which tracts will ultimately be chosen, including any in New York City, is anyone’s guess. 

During the original round, parts of Gowanus, Astoria and Long Island City, along with less wealthy parts of the Bronx, Queens and Brooklyn, were designated as Opportunity Zones. Large swaths of southern and eastern Brooklyn, the borough’s South Williamsburg, Flushing and Corona in Queens, Staten Island’s North Shore, East Harlem, Washington Heights and nearly all of the Bronx are estimated to be eligible this year, according to an analysis by national accounting and real estate tax firm Novogradac. 

But neighborhoods that grew too fast or gentrified too quickly may get left out.

“Developers are most concerned about places they already have projects in the pipeline that they maybe haven’t broken ground on yet,” Jamie Ansorge, principal at law firm Cozen O’Connor, said. “It’s critical to have those zones redesignated under 2.0 to ensure continuity for investors.”

Ansorge would like to see census tracts around Metro-North’s four planned commuter rail stations in the East Bronx designated, since he anticipates more people will want to live there. 

“Anytime you have new transit, you are opening up new development opportunities,” he said.

Outside of New York City, rural census tracts in distressed parts of the state will likely be designated in the next round. But so could deteriorating downtowns in western New York and the Capital Region near Albany, as well as impoverished inner-ring urban suburbs in Westchester County, including Yonkers, Mount Vernon and Port Chester.

Jeffrey Deitrich, head of equity investments at Silverstein Properties, said the OZ incentive has worked only when mayors and town planners are on board to ensure there’s a pathway to get projects off the ground quickly. 

“If someone selects a census tract but it isn’t ready for development because they don’t have as-of-right zoning in that area, they don’t have the infrastructure in place, or their buildings department isn’t ready to handle something of this size and scale, then this project doesn’t typically happen,” Deitrich said. “It’s tough to make a jurisdiction do something it doesn’t want to do.”