The commercial real estate world has been buzzing with excitement about the Opportunity Zones ever since Congress passed the 2017 Tax Cuts and Jobs Act.
Designed to stimulate economic growth in low-income, distressed communities, Opportunity Zones offer substantial tax breaks on capital gains in designated areas. High demand for Opportunity Zone investment has prompted sophisticated funds to capitalize on this trend, but as more investors look toward Opportunity Zone investing, the competition to source new properties will only stiffen.
Reliance on on-market data will no longer be sufficient in this hyper-competitive investing climate. Leveraging off-market data, the entire universe of commercial assets – not just listed, marketed properties will become an imperative component to Opportunity Zone deal sourcing – especially for investors in Central Pennsylvania.
Currently, there are 300 Opportunity Zone tracts across Pennsylvania, 17 of which are located across Dauphin, Lancaster and York Counties. Within these 17 qualified Opportunity Zones are almost 9,000 commercial assets and land parcels with potential for reinvestment.
Multifamily assets, vacant land on rise
Dauphin, Lancaster and York counties have experienced positive population growth in the past 10 years according to census data. Considering this upward slope, the demand for multifamily housing will only continue to increase. Lancaster, for example, has experienced a 0.76 percent population growth rate, and multifamily assets make up a staggering 72 percent of total Opportunity Zone properties. York County comes in second, with 64 percent of its Opportunity Zone properties classified as multifamily. By contrast, multifamily assets only make up 18 percent of Dauphin County’s Opportunity Zone properties. With over 4,400 multifamily properties located within Opportunity Zones across Lancaster, York and Dauphin counties, the possibilities for high-return investments are not only plentiful, but also favorable.
Population growth across all three counties is also a promising factor developers can take into account when considering potential projects. The combination of steady population growth and an ample number of vacant properties within Opportunity Zones shows that there is a significant amount of potential for developing vacant land parcels. Currently, there are over 1,400 Opportunity Zone vacant land tracts across Dauphin, Lancaster, and York counties– the majority of which (884) are located in Dauphin County. Lancaster and York counties, on the other hand, have an even distribution of vacant land opportunities – around 280 each. The sheer supply of vacant land in Dauphin makes the Harrisburg area a winner in terms of more vacant land investment options.
The availability of Opportunity Zone investment options in Central Pennsylvania is undeniable. Those who are able to seize these opportunities before their competition are likely utilizing tech tools to optimize their prospecting processes to secure the best, high-yielding investments as possible.
Leveraging off-market data
Historically, commercial real estate data has been closely controlled by dominant players in primary markets. As a result “mom and pop” shops in secondary and tertiary markets were forced to allocate a significant portion of their time and resources toward tediously collecting and analyzing publicly available data, such as transaction history, zoning regulations and owner contact information. But in the age of digital disruption, the antiquated ways of prospecting and conducting due diligence are no longer so painstakingly difficult and expensive. The emergence of affordable and accessible technology tools has ushered in a new era of deal-making, saving precious time and money in the process.
So how does one go about identifying potential Opportunity Zone investments in the digital age? The answer lies in leveraging off-market data sources and utilizing the technology tools being developed to facilitate Opportunity Zone deal-making. Before the advent of these technologies, commercial real estate professionals relied heavily on on-market information that only represented properties for sale – a mere fraction of the entire commercial real estate universe.
But in the past five years, the democratization of market data has allowed for an unprecedented amount of transparency in the off-market data space, granting real estate professionals access to unlisted, unmarketed properties. With this newfound transparency and access to data, commercial real estate professionals have been able to obtain nuanced property details, enabling a more seamless negotiation experience.
Listings platforms might be an adequate place to begin an initial search for target acquisitions, but they provide only on-market opportunities – a myopic view at best of every option available in a given market. An incomplete view of a market, especially one located within a Qualified Opportunity Zone can limit your investment options in a high-demand market. Fortunately, commercial real estate data aggregation platforms offer a multitude of search filters – including ones that identify Opportunity Zone properties, as well as property owner contact information – that empower investors and developers to examine an entire market with precision and accuracy.
Crowdfunding platforms are also lowering the barriers to entry for commercial real estate investment. And when used in conjunction with off-market data platforms, the investment process is streamlined from due diligence all the way through closing. As Central Pennsylvania investors seek to deploy their capital gains into qualified Opportunity Zones, leveraging the right off-market data sources and tech tools will become increasingly important to not only meet demand, but also to drive actionable insights.
Rich Sarkis is CEO and co-founder of Reonomy, a commercial real estate data and analytics firm based in New York.