• Suitability for Multifamily: Encourages new construction rather than acquisitions due to the “substantial improvement” requirement—perfect for multifamily development.

2. Multifamily Performance & Trends

• Acceleration in Construction:
  • From 2017–2024, multifamily completions in OZs grew by 151%, compared to 63% nationally.
  • In 2023, new apartment units in OZs more than doubled the national growth rate.
• Capital Flow:
  • Over $100 billion has been invested OZs since 2018, with roughly $40 billion to multifamily projects.
  • In Q1 2025, QOFs raised $810 million — less than 2021’s peak but still strong.
• Investor Strategy:
  • Firms like Altes Capital emphasize long-hold multifamily development with net-zero or workforce housing components.

3. Challenges & Considerations

• Positioning & Execution Risk:
  • Not all OZ locations are viable. Rising build costs, labor shortages, and the need for strong fundamentals are hurdles.
• Market Sensitivity:
  • Programs face headwinds from inflation, higher interest rates (which inflate construction costs and tighten financing), and the looming 2026 sunset.
• Geographic Bias & Social Impact Limits:
  • CZ‑type critiques argue investments concentrate in higher‑growth, not distressed zones. 66% of OZ tracts got investments, but mostly in stronger markets .
  • Academic studies show limited measurable effects on employment, poverty, or small business growth.
• Holding Period Constraints:
  • Goal is 10+ years, but actual hold periods are often shorter, reducing tax efficiencies.

4. Best Practices & Strategies

• Project Fundamentals First:
  • Build on core underwriting—not just OZ benefits. Location, cash flow, and market fit matter.
• Partner with Local Expertise:
  • Develop joint ventures with experienced local developers—essential for entitlements, contractors, and community acceptance.
• Leverage Tax Stacking:
  • Combine OZ benefits with LIHTCs, Historic Tax Credits, or renewable energy incentives to boost returns and subsidy value.
• Prepare for Policy Changes:
  • Senate draft legislation (June 25, 2025) proposes permanent rolling 10-year OZ programs post‑2026, annual step‑up increases, and enhanced reporting.
  • Extensions (“OZ 2.0”) are likely; be ready to adapt fund timelines and capital deployment strategies.
• Plan Exit Horizons & Investor Communication:
  • Align fund life with 10-year hold to secure full tax exclusion.
  • Transparent phased capital calls and clear impact disclosure build investor trust.

5. Case Studies & Scenarios

• Success – Altes Capital:
  • Focused on multifamily in high-growth metros like DC, Charlotte, Albuquerque, integrating workforce and net-zero strategies via strong JVs.
• Failure – Cherry Bekaert Case:
  • A mixed-use OZ project with multifamily and hotel components failed mid‑build due to cost overruns. The firm helped mitigate tax fallout by analyzing COD income and reorganizing at QOF/investor levels.

Conclusion

Opportunity Zones remain a critical tool for stimulating multifamily development through tax incentives driven by 10-year appreciation exclusion. With over $100 billion deployed and housing output doubling in OZ tracts, the program has delivered both scale and speed. Still, real estate fundamentals, financing conditions, geographic selectivity, and impact limitations underscore the need for rigorous underwriting, smart partnerships, and prudent strategy.

With significant legislative movement, including a potential permanent OZ framework under Senate review, 2025 presents both urgency and opportunity. Professionals who integrate core real estate acumen with OZ‑focused structuring, risk management, and exit planning will harness value for investors and communities alike.