September 2026
Opportunity Zones, Round Two.
What changes when the new zones take effect in 2027, plus the Fed's first rate hike since 2023, Saudi Arabia pausing The Line, and what GLP-1 drugs could mean for food-related retail tenants.
IN THE MARKET
The New Opportunity Zones
Opportunity Zones are now permanent, and the next ten-year map is being drawn this fall.
We're entering the next stage of Opportunity Zones. Congress created Opportunity Zones in 2017 to steer private capital into low-income census tracts, with the program originally set to wind down after 2026. The program achieved some initial success, and through 2024 (the latest Treasury data available), Opportunity Zone funds held $112 billion in qualifying property, about three-quarters of it in real estate. Last year's tax bill made the program permanent, with a new map of eligible census tracts drawn every ten years. The first redraw is now underway, and the new zones take effect January 1, 2027.
HOW IT WORKS
An investor who sells an asset at a gain can reinvest that gain in a Qualified Opportunity Fund within 180 days. The fund must hold at least 90% of its assets in property or businesses located in designated tracts. The investor defers tax on the original gain and, if the fund investment is held ten years, its appreciation is tax-free. Existing buildings must be substantially improved to qualify, so most real estate capital has gone into new construction and major renovations.
WHAT CHANGES IN 2027
For investments made after December 31, 2026, tax deferral runs five years from the investment date. At year five, the deferred gain is reduced by 10%, or 30% in rural zones. The ten-year exclusion on appreciation remains, capped at 30 years, and funds face new annual reporting requirements.
Eligibility is tighter and the map is shrinking. For instance, Colorado can nominate up to 90 of its 360 eligible tracts, down from 126 zones today, while Minnesota expects to designate about 73 of 289, down from 128. Current zones remain in effect through 2028.
WHAT TO WATCH
The lists. States must submit nominations by September 28, or October 28 with a 30-day extension, and some have already filed. Treasury certification is expected by year-end. Owners of land or redevelopment candidates in eligible tracts should find out soon whether they made the cut. Stay tuned as designated tracts will gain a new set of buyers with a tax reason to build there.
The 2026 gap. Gains invested this year fall under the old rules, with deferral ending December 31, 2026. Fundraising has slowed as investors wait: funds tracked by Novogradac raised $264 million in the second quarter, among the lowest quarterly totals since 2019. Because of the 180-day window, gains realized in the second half of 2026 can generally be invested in early 2027 under the new rules.
The December 31 tax bill. First-round investors owe tax on their deferred gains for 2026, due next April, even though they haven't sold anything. Treasury counted $75 billion in deferred gains held in Opportunity Zone funds at the end of 2024. Most investors planned for this, but some will need cash, which could bring fund interests or properties to market.
Concentration. In the first round, roughly a fifth of tracts drew about 90% of the capital. Money went where development was already feasible. With the redrawn map, states are using their nominations to steer capital toward their own priorities. Colorado's scoring weights the need for market-rate housing, while New Mexico is favoring tracts with available land and proximity to economic anchors.
The first round of Opportunity Zones disproportionately benefited projects in locations that were already close to penciling. We expect similar results this time, with a small set of tracts drawing most of the capital. The time to identify those tracts is now, so owners and investors are ready to act once the lists are final.
ON OUR MINDS
i. Extend and pretend.
The Fed raised rates on September 16 for the first time since 2023, a unanimous quarter-point move to 3.75%-4%. Sixteen of nineteen committee members expect at least one more hike before year-end, and the 10-year closed above 5% the same week for the first time since 2007. In June we noted that waiting out a maturing loan had become a position with a cost, and that cost keeps climbing. Owners who extended into 2026 expecting cuts may now be refinancing into a rate path moving the wrong way. How many of this year's extensions get extended again, and how many finally trade?
ii. The Line, redrawn.
We love a bold real estate vision, and it's hard to top Saudi Arabia's The Line, pitched as a 170-kilometer mirrored city meant to house 1.5 million people by 2030 and once projected to cost more than $1 trillion. In May, NEOM reportedly paused further work until at least after 2030 as the kingdom's sovereign wealth fund shifts spending toward ports and data centers. Cost overruns and pressure on oil revenue likely did more to stall the project than data center demand did. Still, it's a striking contrast to the U.S., where communities are fighting data centers while a sovereign fund is choosing them over a city.
iii. Smaller baskets.
Retail fundamentals have been the strongest in a decade, but there may be speed bumps ahead. Novo Nordisk says its Wegovy pill has passed 5 million prescriptions since launching in January, and roughly one in eight U.S. adults report taking a GLP-1. Cornell researchers found that households with a GLP-1 user cut grocery spending 5.3% within six months, while their spending at fast-food restaurants and coffee shops fell about 8%. McDonald’s and others have already noted changes in their customers’ behavior. The market-wide effect is still small, but adoption is climbing. If it keeps climbing, how long before food-related tenants start feeling the pressure?
We remain grateful for your continued partnership and trust. If any of these topics hit close to home - whether it's a lease decision on the horizon, an acquisition or disposition question, or just a conversation about where the market is headed - we'd welcome the chance to think through it with you.
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