3 Things You Don't Know About Houston's Opportunity Zones - CXRE

Check out the Ultimate Opportunity Zone Guide for Houston Commercial Real Estate Investors Here.

Houston’s Opportunity Zones

As a real estate investor, you may have heard of Opportunity Zones, but what are they exactly? These designated investment areas originated from the 2017 Tax Cuts and Jobs Act. In general, the goal of these Zones is to stimulate economic growth in distressed areas. In the end, these investments have the potential to transform certain parts of Houston, especially those affected by Hurricane Harvey. Not only that, but these areas will remain designated Opportunity Zones (or O-Zones) for a decade. However, one of the best aspects of O-Zones for investors are the tax benefits offered through these investments.

3 Things To Know About Houston’s Opportunity Zones Locations

Although you may be aware that Houston has areas, you may now know the details. Below are three specific things you might not know about Houston’s Opportunity Zones.

1. Houston has 150 Opportunity Zones

Throughout Houston, many areas have the ‘Opportunity Zones’ designation. In fact, altogether there are 150 Houston O-Zones. Texas Governor Greg Abbott said in a press release that he hopes these 150 Opportunity Zones can boost local communities. Especially the areas that were hit hard by Hurricane Harvey. In brief, Gov. Abbot hopes that billions of investment dollars will flow into Houston, as well as other parts of Texas like Dallas-Ft. Worth and San Antonio.

Some specific Houston Opportunity Zones that could benefit from investment are New Caney, Downtown Houston, and East Downtown Houston. A number of industries could benefit from these designations including real estate development, manufacturing, restaurants, and service business, among others.

2. There is a Houston Opportunity Zones Map

The Treasury Department has designed these Opportunity Zones to spur investment in economically-distressed communities. Because of this, the parts of Houston hit the hardest by Hurricane Harvey could experience significant improvement from O-Zone investments.

In March 2018, Texas Governor Greg Abbott submitted the state’s 628 Opportunity Zone designations to the Treasury Department. As stated above, 150 of these Opportunity Zones are in Houston. To help real estate professionals and investors,CXRE Research Team posted the following Opportunity Zone Map. (Rice previously published this map: Houston Opportunity Zones Map).

The blue highlighted areas indicate designated Opportunity Zones. As you can see, this map shows many blue sections in and around Downtown Houston and East Downtown Houston. Consequently, these highlighted areas indicate places where investors could invest their capital.

3. There Are Tax Benefits for Investing in Houston O-Zones

Opportunity Funds (O-Funds) are the primary vehicle for investing in Opportunity Zones. In particular, new investments in these areas could qualify for tax benefits under certain conditions. Qualified O-Funds offer the following tax benefits to investors:

  • Deferred Capital Gains Tax —Sell current assets and invest the taxable capital gains in Opportunity Funds. Do this within 180 days of selling the assets to avoid paying capital gains tax (until the fund is divested or until December 31, 2026).
  • Basis Step—Ups – Increase rolled-over capital gains:
    • 5-year O-Funds holding produces a 10% basis step-up
    • 7-year O-Funds holding produces 5% more (15% total)
  • Tax Exempt Potential — Hold Opportunity Funds for 10 years – they grow tax-free and are exempt from capital gains
  • Fewer Limits — O-Fund investments have fewer limits than other investments. There are no limits on:
    • The amount invested
    • How much tax you avoid
    • The type of taxes you avoid
    • The amount of time that gains compound tax-free

Check out the Ultimate Opportunity Zone Guide for Houston Commercial Real Estate Investors Here.

Current and Upcoming O-Zone Projects

Below are four projects in the development which lie within one of Houston’s 150 O-Zones:

The Preston

Hines has plans to develop The Preston. Once completed, the 373-unit luxury tower will be Downtown Houston’s tallest residential development. Construction began in March and the project should be completed sometime in 2020. Due to its location in a Houston Opportunity Zone, Hines will receive favorable tax benefits from this project.

Over the past few years, Downtown Houston has made a concerted effort to attract more residents. Because of this push, the number of Downtown residents grew from about 3,800 residents in 2013 to over 9,000. Downtown Houston would like to see this number continue to rise, with possibly as many as 30,000 residents by 2040. The Preston fits nicely into Downtown Houston’s plan to become more residential and will add new units to attract even more residents.

The Cameron

Acquired by Kaldis last November along with two adjacent parcels, this renewal project will revive a historic 1930s Art Deco-style building. At 60,000 SF, The Cameron was originally built for Cameron Iron Works. Overall, the plan is for a mixed-use development that will house professionals and creatives. Kaldis plans to complete and open the property by fall 2019.

East River Houston

Kayaking under the Hill Street (Jensen) Bridge over Buffalo Bayou, Houston

East River/ Midway Sites

Midway’s five-phase 150-acre East River redevelopment project will create a walkable live-work-play community. Located along 6,000 feet of the Buffalo Bayou waterfront, the finished project will have a wide range of amenities. Specifically, the completed development will have almost 9 million SF of Class-A office space, about half a million SF of retail, over 475 single-family homes, 1,400+ multifamily units, and 12 acres of green space.

Valley Ranch in Porter, TX

Valley Ranch, Porter

A map of the Valley Ranch community – courtesy of Valley Ranch

Not all of great Houston’s Opportunity Zones are located near the urban core. About 25 miles northeast of Downtown Houston is Porter, an ideal North Houston Opportunity Zone. Many people consider Porter and the surrounding areas to be the third best Opportunity Zone in Texas, behind only Downtown and East Downtown Houston. Located at the intersection of I-69 (US-59) and the Grand Parkway, the area is a straight shot to Downtown Houston.

At the moment, the main development taking advantage of Porter’s Opportunity Zones is Valley Ranch. This 1,400-acre master-planned community is a new ‘village’ being developed by The Signorelli Co. is one of Texas and Oklahoma’s leading real estate developers. Once completed, it will have residential areas, retail, offices, healthcare facilities, and entertainment.

Giving Houston a Boost with Opportunity Zones

As Houston continues its post-Harvey recovery, many people hope that Houston’s Opportunity Zones will boost many local communities. For example, Governor Abbott says there is the potential for billions of investment dollars to flow into Houston. 

Ready to learn more about investing in Opportunity Zones? Read CXRE’s Opportunity Zone Fund Guide for Texas. Then, for additional details on Houston commercial real estate investments, Contact Us today.

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