If you’re a local New Yorker busy day to day, you may have vaguely noticed the spur of non-stop condo development going on in this city. You can drop off your dry cleaning in the morning, and pick it up in two days all while a new building sprouts up on your block. In fact thew NY Times published a great article, Moving this Summer? Consider a Hard Hat - outlining how many feet in distance one can expect to be next to a job site and construction zone. “At the closest distance measured, about 160 feet, East Williamsburg in Brooklyn had the highest share of listings, at 34 percent. It was followed by Bedford-Stuyvesant (27 percent) and Hudson Yards in Manhattan (26 percent).” Surprise, Surprise - it’s no longer a surprise! These neighborhoods where the most development is happening have been deemed Opportunity Zones!

Opportunity zones are state designated areas carved out to be in need of new residential and community space. In order to spur developers to build in these areas, money from capital gains can be used to buy in these neighborhoods as a means of deferring taxes. Consider it a 1031 exchange but in a neighborhood that is undervalued, in need of money to create new “sexy” real estate and you can differ taxes until dec 2026.

in fact, I recently did an analysis of the Hudson Square Neighborhood. A new branding of the neighborhood which is between Tribecca and the West Village. (Yes, New York City has started to name new corridors of the island and cater to them). Hudson Square is a Business Improvement District, which means there is a designated group or a neighborhood watch committee who makes a sure the area is clean, presentable, and acknowledged. This neighborhood, once factories, and abandoned warehouses has turned to being more walkable, romantic, and house people.

Basis is your cost to acquire the property. In fact the basis and acquisition costs in some of these neighborhoods is very low. Look at Long Island City, an industrial waste land, where brownfields and contaminated soil laid for years. Now it’s the next hot neighborhood. Similarly to Hudson Square, and Bushwick or Crown Heights, neighborhoods are being rezoned and populated.

While investing your money in these zones, after 7 year you get a 15% step up in basis or your original cost is increased so your capital gains amount decreases. This is the most magical form of accounting and a huge reason why developers are enticed to move their money into an Opp Zone. In fact, the first 5 years you get a 10% step up, and after 10 years you pay NO taxes on the new asset!
You don’t pay taxes on the on the cost underlying asset, the original one you bought.

Opp Zones also allow for a reduction in taxes because you putting it in an opportunity zone fund which is tax deferred. That step up in basis shields more of your money in cap gains. These perk only assist developers or whose acquiring very large properties, BUT as a residential Broker it’s vital to understand how this will affect people living or considering to live in those neighborhoods.

Key Terms:

Loan to Value = LTV and this designates the amount of money you can borrow given the amount of money you’re able to put down as a downpayment. LTV is determined by credit and bank relationship.

Bank lends $700,000 and you have to put 30% down, thats a 70% LTV. LTC is the percentage of the loan to the total value of the project.