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

What are Opportunity Zones? Opportunity Zones originate from the 2017 Tax Cuts and Jobs Act. In general, the goal of these Zones is stimulating economic growth. In the end, these investments have the potential to transform many areas of Houston, especially area affected by Hurricane Harvey. Not only that, but these areas will keep remain designated Opportunity Zones (or O-Zones) for a full decade. What’s more, investors can benefit from tax benefits offered through O-Zone investments.

3 Things To Know About Houston’s Opportunity Zones Locations

Although you may be generally familiar with these Zones, below are three specific things you might not know about Houston’s Opportunity Zones.

1. Houston has 150 Opportunity Zones

Throughout Houston, many have the ‘Opportunity Zones’ designation. In fact, there are 150 altogether. Texas Governor Greg Abbott said in a press release that he hopes these 150 Opportunity Zones can boost local communities. Specifically, he highlighted 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 industry stand to benefit from these designations including real estate development, manufacturing, restaurants, and service business, among others.

2. There is a Houston Opportunity Zones Map

Moreover, the Treasury Department has designed these Opportunity Zones to hopefully spur investment in economically-distressed communities. As a result, parts of Houston that suffered the worst of hurricane Harvey could experience significant renewal 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 three 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. As Downtown Houston seeks to become more residential, The Preston 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.

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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