August 8, 2025 • 32 mins
The original Opportunity Zone program drove more than $100B into real estate and business investment, but it also faced criticism it missed its mark, failing to spur development in the areas that needed it most.
The One Big Beautiful Bill Act just made OZs permanent and it aims to fix all that, tightening the rules on what areas may be designated OZs, lowering the area median income threshold and heavily incentivizing rural development.
On this week’s First Draft Live, Steve Glickman — co-author of the original OZ program and CEO of Statt — said OZs have been a wild success, especially at spurring much-needed housing.
“You’re talking bang for the buck that’s unparalleled,” he said.
Glickman said the new rules will make OZ 2.0 even better, though how much it drives rural development all comes down to designating sites at “the nexus between need and investability.”
Register on Bisnow.com to join next Friday's conversation live, or check back here for the conversation after it airs.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mark Bonner (00:10):
Okay. Welcome to First Draft Live. It's Friday,
August 8. I'm Mark Bonner,Biznail's editor in chief coming
to you live from New York. Thankyou to so many of you from for
tuning in across the country andaround the world.
We really appreciate it. Today,opportunity zones are back and
the game has changed. Launchedin 2018, as we all know, OZ's
(00:31):
pulled in over $100,000,000,000of investment from coast to
coast, and it also lit updebates about gentrification,
political favoritism, andwhether the money ever reached
the places it was supposed togo. But it also sparked
thousands of new projects coastto coast from apartment towers
in Downtown Los Angeles tomanufacturing hubs all across
(00:52):
the Midwest. And it also becameone of the largest housing
incentives in the country,funding roughly half of all new
housing starts in thesedesignated zones over the last
five years.
Now, under the one big beautifulbill, OZs are permanent. The map
will get drawn every ten years.The rules are tighter. Rural
(01:13):
America will get juicierincentives. But before it all
kicks in, CRE will face aneighteen month dead zone where
deals are feared to stall out.
A brand new set of US governorswill decide the next map in
2026. And with politics in play,the stakes couldn't be higher.
(01:33):
Our guest, Steve Glickman, CEOof STAT and one of the original
architects of the OZ program,call him the wizard of OZ. He's
here to break down what's reallychanging, who's poised to win
and how investors should berethinking OZs especially as
they get into two point zero.We'll also be hitting some hard
questions.
(01:54):
Will rural America finally seethe capital was promised? Do the
new guardrails actually bite?And how does this reshape the
CRE playbook? Send yourquestions in the chat now. We're
gonna go AMA style a little bitlater in the program.
But, Steve, welcome to the show.Thanks for being here.
Steve Glickman (02:11):
Thanks, Mark. Great to be here. And I think it
was I had mentioned previously,I'm a huge fan of BizNow and
grateful for how consistentlyyou guys have covered this
program over the over the manyyears. So excited to talk with
you today.
Mark Bonner (02:26):
It's our honor. Thank you, Steve. We appreciate
it. So look, let's just jumpright on in. Steve, intro had a
lot of information.
There's a lot of things that arechanging. In your opinion,
especially as the person whohelped to draft this original
Opportunity Zone program allthose years ago, what do you
think is the most the singlemost important change that
investors need to understandright now?
Steve Glickman (02:46):
Well, I think you highlighted one of the most
important things just in yourintro, which is when the program
was started in 2017, 2018, itwas really an experiment in this
new form of economicdevelopment, in private
investment and low incomeplaces. And at the time, we had
no idea whether the programwould be successful in
(03:07):
generating the amount of capitalwe hoped it would generate, and
we didn't know whether it wouldbe, reauthorized or, you know,
if ever made permanent. So, thepermanence of it is critically
important because it creates acertain reliability for both
investors and funds anddevelopers and communities that
this is something they canchannel capital into, build
(03:29):
infrastructure and funds around,build strategies around. So, I
think that's definitely numberone. I think it's worth noting
not much has changed about theprogram in terms of the way it
functions day to day for eitherinvestors, or developers, But
there are a couple other thingsthat are, I think, worth
knowing.
The first is that there's goingbe a whole new set of zones. I
(03:50):
know we'll talk about that. So,that will change the sort of
communities that can benefitfrom the program and also where
investors can invest. Two, theinitial benefits that were tied
to this program, the ability todefer your capital gains that
you reinvest in opportunity zonefunds and to get a 10% step up
or discount on that tax bill,that's going to be now a five
(04:12):
year cycle. No matter when youinvest, five years later, you'll
get the benefit.
That's a big change, because Iknow we'll talk about this
perceived dead zone ofinvestment that should prevent
that from moving forward. And,you know, and we'll talk about
this as well, there's also somenew benefits for rural investing
that may change where the typesof communities in which people
invest.
Mark Bonner (04:32):
Yeah. The first time around, there was great
interest in where all this wasgonna go. And then as it
unfurled, you know, we got 8,700tracks across The United States.
This new set, we don't know, andwe're not gonna know until next
year. That's because that tenyear OZ map will be drawn by a
different set of governors afterthe twenty twenty six elections.
And one point o, as as youdiscussed, many leaders
(04:55):
underestimated the program'sreach. They didn't know what it
was. It took a little bit whilefor the the train to get on the
rails here and then itturbocharged an investment. This
time, no one can claimignorance. Right?
Local coalitions around The USare already mobilizing to lobby
for inclusion. Steve, how do yousee this playing out?
Steve Glickman (05:15):
Well, I mean, from the substantive perspective
in terms of the types ofcommunities that will be
selected, there are going besome big changes there. I mean,
you're going to see a differentmap for a few different reasons.
And, you know, parenthetically,I think that's a good thing.
That was the design of theprogram, because the economy has
changed over the last severalyears, so there are going to be
(05:36):
lots of zones that just simplydon't qualify. And the new
version of the program, thecriteria for being in a low
income community that can be anopportunity zone designation has
strengthened or shrunk, so thatyou have to have 70% of the
median income to qualify.
So, you're just going to have asmaller map overall. You know,
(05:59):
two, there's going to bepolitics this go around much
more so than the first goaround. The governors, you know,
back in 2018 had to pick zonesreally quickly in order to avoid
the sort of lobbying we expectedmight play out. No way you're
going to avoid it this year, andit's going to happen in an
election year for manygovernors, where I expect
opportunity zones to be a partof that political discussion.
(06:20):
But functionally, or sort of theprocess of how it will be
selected, I'm not sure it'sgoing work that much
differently.
And there's a couple reasons forthat. In most states, you saw
governors appeal to communitiesand cities to nominate zones,
both because they're closer towhere there's, you know,
investable activity, but alsobecause it diffused some of that
(06:42):
political accountability forinvestment in communities. So,
the more you're sharing in it,the better information you have
between governors and mayors andcounty leaders and community
developers better informationyou're getting the more you're
diffusing that kind of politicalchallenge. So, I think the
process may look very similar,but the types of zones selected
(07:03):
may be quite different movingforward.
Mark Bonner (07:05):
Look, as you know, the political turmoil in the
country has probably never beenstronger, at least in a
generation. I mean, do you thinkthat these decisions will be
factored in by red state versusblue state, red district by blue
district? Like, does this favoreither of the political parties
at this moment? Do you thinkthat's going to make a
difference here?
Steve Glickman (07:24):
No. I mean, don't think so. There's
obviously some more incentivesfor rural communities. Rural
communities have tended tocorrespond with more Republican
leaning states, and you'recertainly going to see a
difference in makeup. I wouldexpect to see more rural
communities in places like, youknow, the Southeast as opposed
to places in Northeast or theWest.
(07:46):
But every state's got a mixtureof constituencies and
communities that are urban andrural, and I think you're going
to see a pretty healthy mix ofzones. And there's going to be
tons of different communitieswatching this and using it to
evaluate their own votingdecisions going into eight. 20
(08:08):
So I don't see this favoring oneparty over another. I just think
in different regions of thecountry, you might see a
different makeup or focus onwhere those zones are.
Mark Bonner (08:16):
You know, population migration has been a
huge story the last half decadesince the pandemic, right? We're
aware of the Sun Belt, the DeepSouth, how much that's grown.
We're aware that the Northeastand some of the major urban
cores have lost population. Isthis OZ program and this new map
going to follow that? Or is itgoing to go to places that are
the next new thing?
And if so, where do you think onthe map you that we're going to
(08:40):
see the most movement in termsof how these new tracks are
formed?
Steve Glickman (08:44):
Well, I can tell you what I think is the smartest
way to think about zoneselection. And it's not to pick
the zones that are necessarilythe most needy for investment or
could benefit the most from it,because as a program that's
driven through private sectorcapital channels, you need to
make sure there's both astrategy and assets that are
(09:08):
investable for outside privateinvestors to make that
worthwhile. You could pick azone, and they may get no
capital. That didn't happen intoo many zones. This last go
around almost all of the zonesselected got some form of
capital.
But certainly, saw less capitalin places that weren't as
investable. And so, there's thisnexus between economic need and
(09:29):
investability, I think, is areally important matrix to get
right. And the places that didit the best last go around, I
think, did two or three things.One, they really did get that
bottoms up view on what projectsand communities and plans were
the most interesting and forthis program. Two, they had a
(09:49):
real strategy for it.
And three, they did it in a waythat was pretty public and
transparent, so you had buy infrom the get go from both those
community leaders and theinvestors. That should be easy
for every state to accomplish,and if they can do that, I think
you'll get the right mix ofzones. But that's the right way
to think about zone selection isthat nexus in where the private
(10:09):
sector is willing to invest andwhere the state has certain
economic or communitydevelopment priorities.
Mark Bonner (10:15):
Okay, before we move off the map, I just want go
to a question from the audience.What year of AMI data will be
used for the twenty twenty sixzones? Do you know, Steve?
Steve Glickman (10:24):
MR. It's a good question. Yeah, I don't think we
know yet, and one of thealthough it will be different
data than obviously last goaround, the next American
Community Survey is finalized atthe end of this year, and that
was the most important datasource last go around. So, I
expect Treasury to use that asthe data source, but keep in
mind, and you know, we may talkabout this a bit, in the first
(10:46):
go around after OZs were createdin law in 2017, there was a two
year period of writingregulations that really became
the guidelines for how toorganize and invest in and form
funds and build assets in thisprogram. You're not going to see
nearly as much work this goaround because, again, the rules
haven't changed significantly.
(11:08):
But some of those details aroundeconomic data, around how zones
ought to be selected bygovernors, around what will
happen with the transitionbetween the old zones and the
new zones. Some of those detailsare just not in the legislation,
and I think you can have apretty informed view of what
that might look like. But at theend of the day, we need to hear
from Treasury and the IRS intheir rulemaking, which is going
(11:30):
to happen over the rest of thisyear and probably early next.
Mark Bonner (11:33):
Let's talk about the much ballyhoo dead zone. The
current OZ map expires at the2026, but the new one doesn't
take effect until January 2027.That's an eighteen month window
where investors can't be sure iftheir sites will still qualify.
Some OZ funds, as you mightknow, Steve, are already
delaying commitments until theredraw is settled. What's your
(11:54):
view here?
Steve Glickman (11:55):
So, think that premise is a slight misnomer, so
let me take issue with itrespectfully, So, of course,
what has really happened in theprogram is something that was
anticipated when the programstarted, which is that you would
have some period of overlapbetween the selection of new
zones and the qualification ofold zones. In this program, it
(12:17):
was always anticipated you wouldselect new zones roughly every
ten years or so to match up withthe new economic data. What's
happened with the legislation isthat the existing zones have a
few different dates tied to themthat are worth disaggregating.
Investors have until the 2026 toinvest in Qualified Opportunity
Zone Fund under version onepoint zero, let's call it, of
(12:38):
the program. The zonesthemselves stay in force until
2020, the 2028 still.
So that means the funds, oncethey get that capital, will
still have a few years to deployit into those one point zero
zones. And then, they can holdthose investments for up to
thirty years. So, those fundsdon't, you know, go away once
(12:59):
those zones go away. They'rejust responsible for managing
and navigating thoseinvestments, and they can, you
know, hold it up to that thirtyyear period of time. And then in
2027, that's when you can deploynew capital gains into the two
point zero version of theprogram.
What that functionally means forinvestors, if you have capital
gains you realize in 2025 or2026, you're not going to have
(13:22):
the option to hold on to themuntil 2027. You're going to have
to invest them in one point zeroof the program. Now, may not
want to because some of theincentives are weaker now. You
don't get a deferral. You don'tget that 10% step up in basis.
You would get those in 2027. Butthe reality is because it's tied
to realized capital gains, mostinvestors don't have a choice on
the timing when they realize it.A lot of the capital in this
(13:43):
program comes from exits fromcompanies or other projects or
stock market investments wherethey want to take some of the
gains off the table. And so, ifyou want to use the program now,
you have to invest now. And, youknow, there are plenty of funds
around the country that arecontinuing to solicit cash
continuing to raise capital.
(14:04):
There's been billions investedin the first quarter of this
year. Slower than the first fewyears of the program, but this
idea of a dead zone, I don'tthink is particularly true. Just
I think you're just facing thereality of a program where the
initial incentive has gotten alittle bit less attractive and
thus less investors are lookingat it as strongly.
Mark Bonner (14:22):
Well, this dead zone name, okay, it sounds
scary. It's made for headlines,right? But let's just call it a
gap, right? I mean, so you don'tthink this gap could trigger an
early wave of exits orrepositioning in current OZ
portfolios?
Steve Glickman (14:35):
I mean, it should. Remember, the biggest
incentive of this program, ifyou're a rational investor or a
fund, is that you're going tohold on to your OZ investment in
this fund for at least tenyears. The only way you get
forgiveness is if you hit thatten year mark. If you've
invested in the program at all,you know, starting in 2018,
although most investment camelater in 2019, 2020, 'twenty
(14:56):
one, 'twenty two, you've to holdit to 2029, 02/2031. If you exit
now, you don't get that backincentive.
The earlier you invested, theless likely you are to sell in
this program, or it'd be sillyto sell unless there was a real
market reason to do so. Sonothing has fundamentally
changed for investors or fundsin that way. I think it's great
(15:18):
that you have a more valuableincentive going forward and the
deferral and 10% step up is tiedto when you invest, and you
don't have this arbitrarydeadline anymore. I think that's
a great thing for investorsstarting in 2027. But it should
change the dynamics of investingnow.
Most of the value of thisincentive is tied for holding
ten years, and then so there'sstill plenty of reasons for
(15:38):
investors to invest. And ifyou're looking at doing a real
estate project, investing inmanufacturing or infrastructure
or business that would qualifyas an OZ investment, there's no
reason not to do it now and waituntil later because for the most
part, probably can't. Youprobably either need to invest
now because of the deal orbecause of the capital that has
to go into that investment. So,I think it's almost a silly view
(15:59):
to have, although I understandwhy people have it because I
think there's a fair amount ofheadline conversation around,
you know, no investments comingto the program next year. I just
don't think that's what we'regoing to see.
Mark Bonner (16:11):
Dave, you're just tuning in. We're with Steve
Glipman, one of the originalarchitects of the Opportunity
Zone program. We're talkingabout OZs two point o. So send
in your questions, and we canget to them in the second half
of the program. So, Steve, oneof the original promises of
Opportunity Zones was that itwas going to revive rural and
distressed communities coast tocoast.
But as we all know, most of thecapital one point zero flowed
(16:35):
into urban core markets.Politicians doubled down on this
promise to do better this timearound, right, that revive rural
America with rural incentives.Is there any reason to believe
that the balance of investmentwill actually change this time
around?
Steve Glickman (16:53):
So the short answer is yes, but let me unpack
the question a little bit. Theoriginal vision of the program
was to create a large andsustainable asset class that
would tie place based investingin low income places, which
we're ordinary investors,private equity funds,
(17:13):
developers, and others werelooking to make their next
investment. I think undoubtedlythe program has achieved that.
You know, it's become one of thebiggest, if not the biggest,
community and economicdevelopment program on its
books. You mentioned$100,000,000,000 of equity
that's gone in, in just thefirst few years of the program.
Really, number should be muchlarger so much of this
(17:35):
investment went into things likereal estate and infrastructure.
You have a lot of debt marriedup to that equity, so you're
probably talking about more like$200,000,000,000 of investment.
And all of that money has beenput into low income distressed
communities. So, by definition,you need to be a distressed
community to get investment inthis program. There's another
question around ruralcommunities, and, you know,
(17:56):
rural communities in The U.
S. Make up about 20% of wherepeople live. The best data I've
seen show that about 10% of theprogram capital went into rural
communities. So, you're talkingabout ten billion to twenty
billion dollars in ruralcommunities. That's not as good
as I'd hoped the program woulddo, because it's under
representative of our ruralpopulation in The U.
(18:17):
S, but it's still 10,000,000,000to $20,000,000,000 that arguably
wouldn't have gone to thosecommunities otherwise. In the
new version of the program,there are new reasons to invest
in rural zones by design. Andlet me talk about those
incentives real quickly. Ifyou're an investor going into an
investment in a ruralopportunity zone community,
(18:38):
instead of that 10% step up inbasis you would get normally,
you now get a 30% step up inbasis. So that means you get a
30% discount on that tax bill,on that capital gains rollover.
That's not insignificant. That'sa 3X driver of urban markets.
And the second is for fundingthemselves, instead of having to
(18:58):
improve the assets you'reinvesting in by 100% doubling of
the basis of existing assets,which is it's called the
substantial improvement test anda core feature of the program,
you only have to improve them by50%. So, the burden for funds is
lower. I think that will meanmore investment, and I think
success would be, you know,doubling proportionately what
(19:19):
you'll see in the program goingforward from OZ two point zero
to one point zero.
Hopefully, instead of 10% ofmarkets, you're going to see 20%
of markets, you know, be ruralcommunities, and that would be
success. That would beproportionate to what we're
seeing in the country. You'restill going to see the vast
majority of these investments gointo urban areas because that's
just where investors invest andpeople live, and I don't think
(19:40):
anyone should have a differentexpectation. You know, this is a
program that tracks the wayinvestors are structuring their
own investment decisions.
Mark Bonner (19:49):
Yeah. Mean, look, as we know, I mean, upwards of
80% of all of OZ capitalcontinues to flow into those
urban cores, concentrating,multiplying logistics and data
centers. I think that wouldsurprise most people though, who
are not hardcore insidebaseball, commercial real estate
people. The rhetoric frompoliticians has made it seem
like it would be stronger thanthat. Right?
(20:11):
Is this just simply people notunderstanding what the rhetoric
means and how dollars are spent.Like, why is there this
disconnect here, Steve? BecauseI I think this is where the
headlines come in when theystart to dunk on the OZ program.
Steve Glickman (20:26):
Well, it listen. In some ways it's for good
reason, right? Rural communitiesin The US are some of the most
economically disadvantaged,impoverished communities in the
country. They lack a lot of thestrengths that other that urban
communities have in having aconcentration of people and
being homes to, you know, robustsystems of, you know, post
(20:51):
secondary education you know,and having the same type of, you
know, economic vitality thaturban communities have. So, I do
think we should be doing moreacross this country to invest in
rural communities, which are thehome of a lot of important parts
of the economy, oftentimesmanufacturing, infrastructure,
(21:11):
and energy production, farming,and agriculture.
I mean, the, you know, pieces ofthe economy that oftentimes the
rest of the country takes forgranted. With that all being
said, governors are going play abig role in putting their thumb
on the scale of where they wantto see investors go. It's not
just where they pick the zones,it's also what other incentives
(21:34):
and you know, zoning andpermitting and economic
development dollars that theycan put towards effectuating
easier investment in ruralcommunities. And it's going to
take kind of an all hands ondeck, I think, effort here to
push that forward. I thinkthat'd be a great thing.
But again, the data is what thedata is. Most investment in this
(21:56):
country goes to urbancommunities. Most investment in
OZs go to urban communities. Andthat's not a bad thing. There
are lots of worthy distressedand low income communities in
urban areas that we should alsowant to see more capital going
into.
Mark Bonner (22:09):
OZ one point zero had rules but minimal reporting.
OZ two point zero mandatesannual U. S. Treasury
disclosures disclosures oninvestment dollars, jobs, and
housing, allowing the public toactually track and trace where
capital lands, right? Will thattransparency strengthen OZ's
politically or do you think itit could potentially expose it
(22:30):
to an uncomfortable truth aboutwhere the money goes, to your
point earlier about most moneyflows to these urban cores
upwards to 80110%
Steve Glickman (22:39):
helpful. It's one of the biggest frustrations
in this program to first goaround for procedural reasons
based on how the Senate passedits bills around reconciliation.
The original reportingprovisions were stripped out.
It's critically important notjust for Treasury to give us
information, but also for statesso that they know where those
(23:00):
investment dollars are going,and so communities are aware of
where communities where fundsare organizing and aggregating
capital and the sort ofinvestments they're putting in.
Think more data is better, andit's also a, you know, sunshine
is the best disinfectant.
It's a great way to ward offsome of the investments that we
(23:21):
saw in the first, you know,round of the program, which
weren't, you know, arguing thespirit of where this program was
going and made people thinktwice before they invest in
something that, you know,doesn't meet where the program
is trying to deliver. I thinkthat's less likely to happen
anyhow this go around because ofthe new criteria in the program
strengthening the zones that canbe selected to begin with and
(23:43):
raising the bar for economicneed and reducing the ability to
put dollars in those, you know,border communities that might
have been economically a littlestronger to begin with. So, you
know, a lot of those criteriahad been removed between the
first and the second But part ofthe more data, from my
standpoint, you know, you'dprobably guess from our
conversation, is better, andshould want to have that data
(24:06):
and have it be more transparent.
Mark Bonner (24:09):
OZs now fund half of all new housing starts in
these designated communities andrepresent 20% of new market rate
apartments nationwide. From 2019to 2024, OZs areas produced
eight. 9% of all new residentialaddresses, which is almost
double their projected sharewithout the program. Look, we're
in a housing crisis in thiscountry, right? Is more supply
(24:33):
the best tool for easing rents?
And is OZ Capital doing enoughand in the right places? Because
the other criticism here, Steve,is that this is fuel
gentrification.
Steve Glickman (24:45):
So thanks for asking that question. It's a
really important one, and Ithink oftentimes a misunderstood
one in connection with not justthis program, but real estate
development overall, at leastfrom my perspective. So your
numbers are right on. About halfof that new housing starts in OZ
communities came from OZ funds.It represented over 300,000 new
(25:06):
housing units across The U.
S. Importantly, those units costthe taxpayer about $20,000 a
unit on average. So if youcompare that to other types of
low income housing programs, youknow, where it might be more
typical for a unit to cost$500,000 or $1,000,000 per unit,
you're talking about a bank thatthe buck that I would argue is
unparalleled. And the questionof, you know, gentrification and
(25:30):
displacement, I think everymajor study from the Federal
Reserve to the Urban Instituteto everywhere in between has
shown really clearly that themore you build, the less
pressure you put on pricing, andthe less displacement will occur
in communities. And you can onlydo it in two ways.
One, we should not want, whichis that you weaken demand.
(25:51):
That'd be terrible. That meansthat less people want to live in
these communities. That's theopposite of what we should want
for low income places. And theonly other thing you can do is
increase supply.
It's simple economic supply anddemand. There's a great, I
think, recent example of it, youknow, that I just read about,
know, in New Rochelle in NewYork. They've been building
thousands and thousands of newunits over the last few years.
(26:14):
You know, price growth in NewRochelle is about 1.5% on rent.
You compare that to New YorkCity, where over the last few
years, rents have grown 25%.
So, building more, and we shouldbe building more all over the
country and unlocking newbuilding through a number of
things, not just OZs, but theamount of regulatory red tape we
often put on building newhousing should be our number one
(26:35):
public policy goal as a country.And I think OZs obviously have
shown they can contributeheavily to that in these
communities.
Mark Bonner (26:43):
Let's go to a question from the audience. So
for people in OZ one point o whoare picking up their originally
deferred gains on 12/31/2026,can they roll those gains back
into another OZ fund starting in2027?
Steve Glickman (26:58):
No. So in order to invest in the two point o
version of the program, it's gotto come from games that have
realized been realized after01/01/2027. And that's the key,
I think, argument that there'snot going be the dead zone
people expect. Or if to theextent there is, it's because
people weren't aware that thatwas the case. If you want to
invest capital gains that havebeen realized in 2025 or 2026,
(27:22):
you have to invest it in versionone point zero in the program.
If you want to invest in the twopoint zero version of the
program, it's going come fromgains that have been realized in
2027. That's just the way thelaw's written.
Mark Bonner (27:35):
Steve, if you're a developer or fund manager right
now, what's the boldest OZ moveyou can make today that might
not hold up over a ten year MAPcycle?
Steve Glickman (27:46):
Well, I think it I think the boldest thing you
could do and and the mostinteresting thing you can do is
one that will hold up over overthe next ten year cycle, and
that's to think obviously, howyou know, I'm a big proponent of
multifamily housing and OZs, butthere were other interesting
things that happened in the taxbill that should enable a bigger
diversity of asset classes, inparticular things like bonus
(28:09):
depreciation, which as I'm sureyour viewers know in the OZ
program, there's no recapture onbonus depreciation that should
make asset classes likeinfrastructure and renewable
energy and broadband andmanufacturing a lot more
attractive to investors becausethey get a huge additional
boost. There's other parts ofthe PACS code as well now around
(28:31):
qualified production propertyand other things that make those
investments more attractive. So,thinking outside the box, and,
you know, we're going have a bigneed for data centers, we're
going have a big need for newsources of energy are, I think,
really helpful. I, for years,sat on the board of a fund
called Arcterus, which has anall asset class investment
strategy all around the country.
(28:51):
And again, I think thinkinggeographically diverse and asset
class diverse is going to be animportant part. I think also
thinking about this along thelens of investments that are
going have a real impact oncommunities should be a part of
everyone's capitalists becauseof the transparency in this
program, and I think communitiesare going to be looking to hear
that more from investors toalign with incentives they're
(29:11):
going be putting on the table aswell.
Mark Bonner (29:14):
So look, you're the wizard, okay? Is there one
market, one asset class? Isthere one political lever that
everyone should be watching outfor between now and July 2026?
Put me on your crystal ball,Steve.
Steve Glickman (29:27):
I mean, I think there's a couple of things
people should be doing toorganize. One, regulations still
haven't been reading about thisprogram. I think, you know,
anyone who is going to beactively engaged in this should
be engaged in that processactively. That means not just
talking to members of Congress,but also talking to Treasury,
talking to the IRS, and tryingto being part of some of the
important coalitions out therefrom the Economic Innovation
(29:49):
Group and Novogradik and othersthat are trying to organize the
smartest thinking around it.Two, talking with your governors
and your mayors and your countyexecs to ensure that there's a
map that makes sense, andengaging early and educating
them on how this program works.
I think we need to be doing thatin every state so that we align
these zones that are selectedwith where investors are going
(30:11):
to want to put dollars, andthat's going to lead to the
biggest impact in this programoverall. And then, third thing I
do is I just talk to investors.I think both fund managers and
developers are going to know farmore about this program than
investment advisors or retailinvestors. I still think there's
a lot of misinformation outthere, and I think that's how we
build the biggest collectiveprogram. In terms of assets, I
(30:34):
think you're going to see, youknow, more of the same, a lot of
multifamily, and to me, that'san exciting, important asset
class, but I also think you'llsee more infrastructure and
asset heavy industries come outof this program when you combine
the OZ benefits with some of theother new benefits in the tax
Mark Bonner (30:51):
code. Industrial data centers?
Steve Glickman (30:54):
For sure. And those are great investments in
rural communities where you'regoing to have that extra boost
to put in extra dollars. Youyou're going to want to go to
places that have a lot of spaceto build and cheaper energy and,
you know, being able to plug inboth things like broadband
infrastructure, but alsomanufacturing and data centers
and industrial, I think will behuge. And it's been a really
successful asset class overallthe last few years. I would look
(31:16):
at where overall trends aregoing.
I don't think OZs will be anydifferent. Think you're going
see lots of multifamily andindustrial in the years ahead.
Mark Bonner (31:25):
Okay. Well, that's all the time we have for today.
Steve, thanks so much for beinghere.
Steve Glickman (31:30):
Yeah. Thanks for having me. This was great.
Mark Bonner (31:33):
Okay. We have some big news before we let you guys
go. We're about to launch ourbrand new first draft insider
access newsletter, bringing youexclusive intelligence, early
research report access andmarket insights every weekday
written by me and Katie Dixonand Kayla Carmichael and Jay
Rickey. Check it out. You cansign up through the link in the
chat or at bisnell.com undersubscriptions or Email me
(31:57):
directly.
Mark.Bonner@Bisnell.com. I'd behappy to tell you all about it
personally. Steve, Email me.I'll tell you all about it. I
will.
We'll be back. We'll be backwith another episode of First
Draft Live next week. So, don'tmiss out. You can sign up our on
our event page now. You can alsofind today's episode and all of
our past conversations in yourfavorite podcast app.
(32:18):
This is First Draft Live. Have agreat weekend y'all.
Okay. Welcome to First Draft Live. It's Friday,
August 8. I'm Mark Bonner,Biznail's editor in chief coming
to you live from New York. Thankyou to so many of you from for
tuning in across the country andaround the world.
We really appreciate it. Today,opportunity zones are back and
the game has changed. Launchedin 2018, as we all know, OZ's
(00:31):
pulled in over $100,000,000,000of investment from coast to
coast, and it also lit updebates about gentrification,
political favoritism, andwhether the money ever reached
the places it was supposed togo. But it also sparked
thousands of new projects coastto coast from apartment towers
in Downtown Los Angeles tomanufacturing hubs all across
(00:52):
the Midwest. And it also becameone of the largest housing
incentives in the country,funding roughly half of all new
housing starts in thesedesignated zones over the last
five years.
Now, under the one big beautifulbill, OZs are permanent. The map
will get drawn every ten years.The rules are tighter. Rural
(01:13):
America will get juicierincentives. But before it all
kicks in, CRE will face aneighteen month dead zone where
deals are feared to stall out.
A brand new set of US governorswill decide the next map in
2026. And with politics in play,the stakes couldn't be higher.
(01:33):
Our guest, Steve Glickman, CEOof STAT and one of the original
architects of the OZ program,call him the wizard of OZ. He's
here to break down what's reallychanging, who's poised to win
and how investors should berethinking OZs especially as
they get into two point zero.We'll also be hitting some hard
questions.
(01:54):
Will rural America finally seethe capital was promised? Do the
new guardrails actually bite?And how does this reshape the
CRE playbook? Send yourquestions in the chat now. We're
gonna go AMA style a little bitlater in the program.
But, Steve, welcome to the show.Thanks for being here.
Steve Glickman (02:11):
Thanks, Mark. Great to be here. And I think it
was I had mentioned previously,I'm a huge fan of BizNow and
grateful for how consistentlyyou guys have covered this
program over the over the manyyears. So excited to talk with
you today.
Mark Bonner (02:26):
It's our honor. Thank you, Steve. We appreciate
it. So look, let's just jumpright on in. Steve, intro had a
lot of information.
There's a lot of things that arechanging. In your opinion,
especially as the person whohelped to draft this original
Opportunity Zone program allthose years ago, what do you
think is the most the singlemost important change that
investors need to understandright now?
Steve Glickman (02:46):
Well, I think you highlighted one of the most
important things just in yourintro, which is when the program
was started in 2017, 2018, itwas really an experiment in this
new form of economicdevelopment, in private
investment and low incomeplaces. And at the time, we had
no idea whether the programwould be successful in
(03:07):
generating the amount of capitalwe hoped it would generate, and
we didn't know whether it wouldbe, reauthorized or, you know,
if ever made permanent. So, thepermanence of it is critically
important because it creates acertain reliability for both
investors and funds anddevelopers and communities that
this is something they canchannel capital into, build
(03:29):
infrastructure and funds around,build strategies around. So, I
think that's definitely numberone. I think it's worth noting
not much has changed about theprogram in terms of the way it
functions day to day for eitherinvestors, or developers, But
there are a couple other thingsthat are, I think, worth
knowing.
The first is that there's goingbe a whole new set of zones. I
(03:50):
know we'll talk about that. So,that will change the sort of
communities that can benefitfrom the program and also where
investors can invest. Two, theinitial benefits that were tied
to this program, the ability todefer your capital gains that
you reinvest in opportunity zonefunds and to get a 10% step up
or discount on that tax bill,that's going to be now a five
(04:12):
year cycle. No matter when youinvest, five years later, you'll
get the benefit.
That's a big change, because Iknow we'll talk about this
perceived dead zone ofinvestment that should prevent
that from moving forward. And,you know, and we'll talk about
this as well, there's also somenew benefits for rural investing
that may change where the typesof communities in which people
invest.
Mark Bonner (04:32):
Yeah. The first time around, there was great
interest in where all this wasgonna go. And then as it
unfurled, you know, we got 8,700tracks across The United States.
This new set, we don't know, andwe're not gonna know until next
year. That's because that tenyear OZ map will be drawn by a
different set of governors afterthe twenty twenty six elections.
And one point o, as as youdiscussed, many leaders
(04:55):
underestimated the program'sreach. They didn't know what it
was. It took a little bit whilefor the the train to get on the
rails here and then itturbocharged an investment. This
time, no one can claimignorance. Right?
Local coalitions around The USare already mobilizing to lobby
for inclusion. Steve, how do yousee this playing out?
Steve Glickman (05:15):
Well, I mean, from the substantive perspective
in terms of the types ofcommunities that will be
selected, there are going besome big changes there. I mean,
you're going to see a differentmap for a few different reasons.
And, you know, parenthetically,I think that's a good thing.
That was the design of theprogram, because the economy has
changed over the last severalyears, so there are going to be
(05:36):
lots of zones that just simplydon't qualify. And the new
version of the program, thecriteria for being in a low
income community that can be anopportunity zone designation has
strengthened or shrunk, so thatyou have to have 70% of the
median income to qualify.
So, you're just going to have asmaller map overall. You know,
(05:59):
two, there's going to bepolitics this go around much
more so than the first goaround. The governors, you know,
back in 2018 had to pick zonesreally quickly in order to avoid
the sort of lobbying we expectedmight play out. No way you're
going to avoid it this year, andit's going to happen in an
election year for manygovernors, where I expect
opportunity zones to be a partof that political discussion.
(06:20):
But functionally, or sort of theprocess of how it will be
selected, I'm not sure it'sgoing work that much
differently.
And there's a couple reasons forthat. In most states, you saw
governors appeal to communitiesand cities to nominate zones,
both because they're closer towhere there's, you know,
investable activity, but alsobecause it diffused some of that
(06:42):
political accountability forinvestment in communities. So,
the more you're sharing in it,the better information you have
between governors and mayors andcounty leaders and community
developers better informationyou're getting the more you're
diffusing that kind of politicalchallenge. So, I think the
process may look very similar,but the types of zones selected
(07:03):
may be quite different movingforward.
Mark Bonner (07:05):
Look, as you know, the political turmoil in the
country has probably never beenstronger, at least in a
generation. I mean, do you thinkthat these decisions will be
factored in by red state versusblue state, red district by blue
district? Like, does this favoreither of the political parties
at this moment? Do you thinkthat's going to make a
difference here?
Steve Glickman (07:24):
No. I mean, don't think so. There's
obviously some more incentivesfor rural communities. Rural
communities have tended tocorrespond with more Republican
leaning states, and you'recertainly going to see a
difference in makeup. I wouldexpect to see more rural
communities in places like, youknow, the Southeast as opposed
to places in Northeast or theWest.
(07:46):
But every state's got a mixtureof constituencies and
communities that are urban andrural, and I think you're going
to see a pretty healthy mix ofzones. And there's going to be
tons of different communitieswatching this and using it to
evaluate their own votingdecisions going into eight. 20
(08:08):
So I don't see this favoring oneparty over another. I just think
in different regions of thecountry, you might see a
different makeup or focus onwhere those zones are.
Mark Bonner (08:16):
You know, population migration has been a
huge story the last half decadesince the pandemic, right? We're
aware of the Sun Belt, the DeepSouth, how much that's grown.
We're aware that the Northeastand some of the major urban
cores have lost population. Isthis OZ program and this new map
going to follow that? Or is itgoing to go to places that are
the next new thing?
And if so, where do you think onthe map you that we're going to
(08:40):
see the most movement in termsof how these new tracks are
formed?
Steve Glickman (08:44):
Well, I can tell you what I think is the smartest
way to think about zoneselection. And it's not to pick
the zones that are necessarilythe most needy for investment or
could benefit the most from it,because as a program that's
driven through private sectorcapital channels, you need to
make sure there's both astrategy and assets that are
(09:08):
investable for outside privateinvestors to make that
worthwhile. You could pick azone, and they may get no
capital. That didn't happen intoo many zones. This last go
around almost all of the zonesselected got some form of
capital.
But certainly, saw less capitalin places that weren't as
investable. And so, there's thisnexus between economic need and
(09:29):
investability, I think, is areally important matrix to get
right. And the places that didit the best last go around, I
think, did two or three things.One, they really did get that
bottoms up view on what projectsand communities and plans were
the most interesting and forthis program. Two, they had a
(09:49):
real strategy for it.
And three, they did it in a waythat was pretty public and
transparent, so you had buy infrom the get go from both those
community leaders and theinvestors. That should be easy
for every state to accomplish,and if they can do that, I think
you'll get the right mix ofzones. But that's the right way
to think about zone selection isthat nexus in where the private
(10:09):
sector is willing to invest andwhere the state has certain
economic or communitydevelopment priorities.
Mark Bonner (10:15):
Okay, before we move off the map, I just want go
to a question from the audience.What year of AMI data will be
used for the twenty twenty sixzones? Do you know, Steve?
Steve Glickman (10:24):
MR. It's a good question. Yeah, I don't think we
know yet, and one of thealthough it will be different
data than obviously last goaround, the next American
Community Survey is finalized atthe end of this year, and that
was the most important datasource last go around. So, I
expect Treasury to use that asthe data source, but keep in
mind, and you know, we may talkabout this a bit, in the first
(10:46):
go around after OZs were createdin law in 2017, there was a two
year period of writingregulations that really became
the guidelines for how toorganize and invest in and form
funds and build assets in thisprogram. You're not going to see
nearly as much work this goaround because, again, the rules
haven't changed significantly.
(11:08):
But some of those details aroundeconomic data, around how zones
ought to be selected bygovernors, around what will
happen with the transitionbetween the old zones and the
new zones. Some of those detailsare just not in the legislation,
and I think you can have apretty informed view of what
that might look like. But at theend of the day, we need to hear
from Treasury and the IRS intheir rulemaking, which is going
(11:30):
to happen over the rest of thisyear and probably early next.
Mark Bonner (11:33):
Let's talk about the much ballyhoo dead zone. The
current OZ map expires at the2026, but the new one doesn't
take effect until January 2027.That's an eighteen month window
where investors can't be sure iftheir sites will still qualify.
Some OZ funds, as you mightknow, Steve, are already
delaying commitments until theredraw is settled. What's your
(11:54):
view here?
Steve Glickman (11:55):
So, think that premise is a slight misnomer, so
let me take issue with itrespectfully, So, of course,
what has really happened in theprogram is something that was
anticipated when the programstarted, which is that you would
have some period of overlapbetween the selection of new
zones and the qualification ofold zones. In this program, it
(12:17):
was always anticipated you wouldselect new zones roughly every
ten years or so to match up withthe new economic data. What's
happened with the legislation isthat the existing zones have a
few different dates tied to themthat are worth disaggregating.
Investors have until the 2026 toinvest in Qualified Opportunity
Zone Fund under version onepoint zero, let's call it, of
(12:38):
the program. The zonesthemselves stay in force until
2020, the 2028 still.
So that means the funds, oncethey get that capital, will
still have a few years to deployit into those one point zero
zones. And then, they can holdthose investments for up to
thirty years. So, those fundsdon't, you know, go away once
(12:59):
those zones go away. They'rejust responsible for managing
and navigating thoseinvestments, and they can, you
know, hold it up to that thirtyyear period of time. And then in
2027, that's when you can deploynew capital gains into the two
point zero version of theprogram.
What that functionally means forinvestors, if you have capital
gains you realize in 2025 or2026, you're not going to have
(13:22):
the option to hold on to themuntil 2027. You're going to have
to invest them in one point zeroof the program. Now, may not
want to because some of theincentives are weaker now. You
don't get a deferral. You don'tget that 10% step up in basis.
You would get those in 2027. Butthe reality is because it's tied
to realized capital gains, mostinvestors don't have a choice on
the timing when they realize it.A lot of the capital in this
(13:43):
program comes from exits fromcompanies or other projects or
stock market investments wherethey want to take some of the
gains off the table. And so, ifyou want to use the program now,
you have to invest now. And, youknow, there are plenty of funds
around the country that arecontinuing to solicit cash
continuing to raise capital.
(14:04):
There's been billions investedin the first quarter of this
year. Slower than the first fewyears of the program, but this
idea of a dead zone, I don'tthink is particularly true. Just
I think you're just facing thereality of a program where the
initial incentive has gotten alittle bit less attractive and
thus less investors are lookingat it as strongly.
Mark Bonner (14:22):
Well, this dead zone name, okay, it sounds
scary. It's made for headlines,right? But let's just call it a
gap, right? I mean, so you don'tthink this gap could trigger an
early wave of exits orrepositioning in current OZ
portfolios?
Steve Glickman (14:35):
I mean, it should. Remember, the biggest
incentive of this program, ifyou're a rational investor or a
fund, is that you're going tohold on to your OZ investment in
this fund for at least tenyears. The only way you get
forgiveness is if you hit thatten year mark. If you've
invested in the program at all,you know, starting in 2018,
although most investment camelater in 2019, 2020, 'twenty
(14:56):
one, 'twenty two, you've to holdit to 2029, 02/2031. If you exit
now, you don't get that backincentive.
The earlier you invested, theless likely you are to sell in
this program, or it'd be sillyto sell unless there was a real
market reason to do so. Sonothing has fundamentally
changed for investors or fundsin that way. I think it's great
(15:18):
that you have a more valuableincentive going forward and the
deferral and 10% step up is tiedto when you invest, and you
don't have this arbitrarydeadline anymore. I think that's
a great thing for investorsstarting in 2027. But it should
change the dynamics of investingnow.
Most of the value of thisincentive is tied for holding
ten years, and then so there'sstill plenty of reasons for
(15:38):
investors to invest. And ifyou're looking at doing a real
estate project, investing inmanufacturing or infrastructure
or business that would qualifyas an OZ investment, there's no
reason not to do it now and waituntil later because for the most
part, probably can't. Youprobably either need to invest
now because of the deal orbecause of the capital that has
to go into that investment. So,I think it's almost a silly view
(15:59):
to have, although I understandwhy people have it because I
think there's a fair amount ofheadline conversation around,
you know, no investments comingto the program next year. I just
don't think that's what we'regoing to see.
Mark Bonner (16:11):
Dave, you're just tuning in. We're with Steve
Glipman, one of the originalarchitects of the Opportunity
Zone program. We're talkingabout OZs two point o. So send
in your questions, and we canget to them in the second half
of the program. So, Steve, oneof the original promises of
Opportunity Zones was that itwas going to revive rural and
distressed communities coast tocoast.
But as we all know, most of thecapital one point zero flowed
(16:35):
into urban core markets.Politicians doubled down on this
promise to do better this timearound, right, that revive rural
America with rural incentives.Is there any reason to believe
that the balance of investmentwill actually change this time
around?
Steve Glickman (16:53):
So the short answer is yes, but let me unpack
the question a little bit. Theoriginal vision of the program
was to create a large andsustainable asset class that
would tie place based investingin low income places, which
we're ordinary investors,private equity funds,
(17:13):
developers, and others werelooking to make their next
investment. I think undoubtedlythe program has achieved that.
You know, it's become one of thebiggest, if not the biggest,
community and economicdevelopment program on its
books. You mentioned$100,000,000,000 of equity
that's gone in, in just thefirst few years of the program.
Really, number should be muchlarger so much of this
(17:35):
investment went into things likereal estate and infrastructure.
You have a lot of debt marriedup to that equity, so you're
probably talking about more like$200,000,000,000 of investment.
And all of that money has beenput into low income distressed
communities. So, by definition,you need to be a distressed
community to get investment inthis program. There's another
question around ruralcommunities, and, you know,
(17:56):
rural communities in The U.
S. Make up about 20% of wherepeople live. The best data I've
seen show that about 10% of theprogram capital went into rural
communities. So, you're talkingabout ten billion to twenty
billion dollars in ruralcommunities. That's not as good
as I'd hoped the program woulddo, because it's under
representative of our ruralpopulation in The U.
(18:17):
S, but it's still 10,000,000,000to $20,000,000,000 that arguably
wouldn't have gone to thosecommunities otherwise. In the
new version of the program,there are new reasons to invest
in rural zones by design. Andlet me talk about those
incentives real quickly. Ifyou're an investor going into an
investment in a ruralopportunity zone community,
(18:38):
instead of that 10% step up inbasis you would get normally,
you now get a 30% step up inbasis. So that means you get a
30% discount on that tax bill,on that capital gains rollover.
That's not insignificant. That'sa 3X driver of urban markets.
And the second is for fundingthemselves, instead of having to
(18:58):
improve the assets you'reinvesting in by 100% doubling of
the basis of existing assets,which is it's called the
substantial improvement test anda core feature of the program,
you only have to improve them by50%. So, the burden for funds is
lower. I think that will meanmore investment, and I think
success would be, you know,doubling proportionately what
(19:19):
you'll see in the program goingforward from OZ two point zero
to one point zero.
Hopefully, instead of 10% ofmarkets, you're going to see 20%
of markets, you know, be ruralcommunities, and that would be
success. That would beproportionate to what we're
seeing in the country. You'restill going to see the vast
majority of these investments gointo urban areas because that's
just where investors invest andpeople live, and I don't think
(19:40):
anyone should have a differentexpectation. You know, this is a
program that tracks the wayinvestors are structuring their
own investment decisions.
Mark Bonner (19:49):
Yeah. Mean, look, as we know, I mean, upwards of
80% of all of OZ capitalcontinues to flow into those
urban cores, concentrating,multiplying logistics and data
centers. I think that wouldsurprise most people though, who
are not hardcore insidebaseball, commercial real estate
people. The rhetoric frompoliticians has made it seem
like it would be stronger thanthat. Right?
(20:11):
Is this just simply people notunderstanding what the rhetoric
means and how dollars are spent.Like, why is there this
disconnect here, Steve? BecauseI I think this is where the
headlines come in when theystart to dunk on the OZ program.
Steve Glickman (20:26):
Well, it listen. In some ways it's for good
reason, right? Rural communitiesin The US are some of the most
economically disadvantaged,impoverished communities in the
country. They lack a lot of thestrengths that other that urban
communities have in having aconcentration of people and
being homes to, you know, robustsystems of, you know, post
(20:51):
secondary education you know,and having the same type of, you
know, economic vitality thaturban communities have. So, I do
think we should be doing moreacross this country to invest in
rural communities, which are thehome of a lot of important parts
of the economy, oftentimesmanufacturing, infrastructure,
(21:11):
and energy production, farming,and agriculture.
I mean, the, you know, pieces ofthe economy that oftentimes the
rest of the country takes forgranted. With that all being
said, governors are going play abig role in putting their thumb
on the scale of where they wantto see investors go. It's not
just where they pick the zones,it's also what other incentives
(21:34):
and you know, zoning andpermitting and economic
development dollars that theycan put towards effectuating
easier investment in ruralcommunities. And it's going to
take kind of an all hands ondeck, I think, effort here to
push that forward. I thinkthat'd be a great thing.
But again, the data is what thedata is. Most investment in this
(21:56):
country goes to urbancommunities. Most investment in
OZs go to urban communities. Andthat's not a bad thing. There
are lots of worthy distressedand low income communities in
urban areas that we should alsowant to see more capital going
into.
Mark Bonner (22:09):
OZ one point zero had rules but minimal reporting.
OZ two point zero mandatesannual U. S. Treasury
disclosures disclosures oninvestment dollars, jobs, and
housing, allowing the public toactually track and trace where
capital lands, right? Will thattransparency strengthen OZ's
politically or do you think itit could potentially expose it
(22:30):
to an uncomfortable truth aboutwhere the money goes, to your
point earlier about most moneyflows to these urban cores
upwards to 80110%
Steve Glickman (22:39):
helpful. It's one of the biggest frustrations
in this program to first goaround for procedural reasons
based on how the Senate passedits bills around reconciliation.
The original reportingprovisions were stripped out.
It's critically important notjust for Treasury to give us
information, but also for statesso that they know where those
(23:00):
investment dollars are going,and so communities are aware of
where communities where fundsare organizing and aggregating
capital and the sort ofinvestments they're putting in.
Think more data is better, andit's also a, you know, sunshine
is the best disinfectant.
It's a great way to ward offsome of the investments that we
(23:21):
saw in the first, you know,round of the program, which
weren't, you know, arguing thespirit of where this program was
going and made people thinktwice before they invest in
something that, you know,doesn't meet where the program
is trying to deliver. I thinkthat's less likely to happen
anyhow this go around because ofthe new criteria in the program
strengthening the zones that canbe selected to begin with and
(23:43):
raising the bar for economicneed and reducing the ability to
put dollars in those, you know,border communities that might
have been economically a littlestronger to begin with. So, you
know, a lot of those criteriahad been removed between the
first and the second But part ofthe more data, from my
standpoint, you know, you'dprobably guess from our
conversation, is better, andshould want to have that data
(24:06):
and have it be more transparent.
Mark Bonner (24:09):
OZs now fund half of all new housing starts in
these designated communities andrepresent 20% of new market rate
apartments nationwide. From 2019to 2024, OZs areas produced
eight. 9% of all new residentialaddresses, which is almost
double their projected sharewithout the program. Look, we're
in a housing crisis in thiscountry, right? Is more supply
(24:33):
the best tool for easing rents?
And is OZ Capital doing enoughand in the right places? Because
the other criticism here, Steve,is that this is fuel
gentrification.
Steve Glickman (24:45):
So thanks for asking that question. It's a
really important one, and Ithink oftentimes a misunderstood
one in connection with not justthis program, but real estate
development overall, at leastfrom my perspective. So your
numbers are right on. About halfof that new housing starts in OZ
communities came from OZ funds.It represented over 300,000 new
(25:06):
housing units across The U.
S. Importantly, those units costthe taxpayer about $20,000 a
unit on average. So if youcompare that to other types of
low income housing programs, youknow, where it might be more
typical for a unit to cost$500,000 or $1,000,000 per unit,
you're talking about a bank thatthe buck that I would argue is
unparalleled. And the questionof, you know, gentrification and
(25:30):
displacement, I think everymajor study from the Federal
Reserve to the Urban Instituteto everywhere in between has
shown really clearly that themore you build, the less
pressure you put on pricing, andthe less displacement will occur
in communities. And you can onlydo it in two ways.
One, we should not want, whichis that you weaken demand.
(25:51):
That'd be terrible. That meansthat less people want to live in
these communities. That's theopposite of what we should want
for low income places. And theonly other thing you can do is
increase supply.
It's simple economic supply anddemand. There's a great, I
think, recent example of it, youknow, that I just read about,
know, in New Rochelle in NewYork. They've been building
thousands and thousands of newunits over the last few years.
(26:14):
You know, price growth in NewRochelle is about 1.5% on rent.
You compare that to New YorkCity, where over the last few
years, rents have grown 25%.
So, building more, and we shouldbe building more all over the
country and unlocking newbuilding through a number of
things, not just OZs, but theamount of regulatory red tape we
often put on building newhousing should be our number one
(26:35):
public policy goal as a country.And I think OZs obviously have
shown they can contributeheavily to that in these
communities.
Mark Bonner (26:43):
Let's go to a question from the audience. So
for people in OZ one point o whoare picking up their originally
deferred gains on 12/31/2026,can they roll those gains back
into another OZ fund starting in2027?
Steve Glickman (26:58):
No. So in order to invest in the two point o
version of the program, it's gotto come from games that have
realized been realized after01/01/2027. And that's the key,
I think, argument that there'snot going be the dead zone
people expect. Or if to theextent there is, it's because
people weren't aware that thatwas the case. If you want to
invest capital gains that havebeen realized in 2025 or 2026,
(27:22):
you have to invest it in versionone point zero in the program.
If you want to invest in the twopoint zero version of the
program, it's going come fromgains that have been realized in
2027. That's just the way thelaw's written.
Mark Bonner (27:35):
Steve, if you're a developer or fund manager right
now, what's the boldest OZ moveyou can make today that might
not hold up over a ten year MAPcycle?
Steve Glickman (27:46):
Well, I think it I think the boldest thing you
could do and and the mostinteresting thing you can do is
one that will hold up over overthe next ten year cycle, and
that's to think obviously, howyou know, I'm a big proponent of
multifamily housing and OZs, butthere were other interesting
things that happened in the taxbill that should enable a bigger
diversity of asset classes, inparticular things like bonus
(28:09):
depreciation, which as I'm sureyour viewers know in the OZ
program, there's no recapture onbonus depreciation that should
make asset classes likeinfrastructure and renewable
energy and broadband andmanufacturing a lot more
attractive to investors becausethey get a huge additional
boost. There's other parts ofthe PACS code as well now around
(28:31):
qualified production propertyand other things that make those
investments more attractive. So,thinking outside the box, and,
you know, we're going have a bigneed for data centers, we're
going have a big need for newsources of energy are, I think,
really helpful. I, for years,sat on the board of a fund
called Arcterus, which has anall asset class investment
strategy all around the country.
(28:51):
And again, I think thinkinggeographically diverse and asset
class diverse is going to be animportant part. I think also
thinking about this along thelens of investments that are
going have a real impact oncommunities should be a part of
everyone's capitalists becauseof the transparency in this
program, and I think communitiesare going to be looking to hear
that more from investors toalign with incentives they're
(29:11):
going be putting on the table aswell.
Mark Bonner (29:14):
So look, you're the wizard, okay? Is there one
market, one asset class? Isthere one political lever that
everyone should be watching outfor between now and July 2026?
Put me on your crystal ball,Steve.
Steve Glickman (29:27):
I mean, I think there's a couple of things
people should be doing toorganize. One, regulations still
haven't been reading about thisprogram. I think, you know,
anyone who is going to beactively engaged in this should
be engaged in that processactively. That means not just
talking to members of Congress,but also talking to Treasury,
talking to the IRS, and tryingto being part of some of the
important coalitions out therefrom the Economic Innovation
(29:49):
Group and Novogradik and othersthat are trying to organize the
smartest thinking around it.Two, talking with your governors
and your mayors and your countyexecs to ensure that there's a
map that makes sense, andengaging early and educating
them on how this program works.
I think we need to be doing thatin every state so that we align
these zones that are selectedwith where investors are going
(30:11):
to want to put dollars, andthat's going to lead to the
biggest impact in this programoverall. And then, third thing I
do is I just talk to investors.I think both fund managers and
developers are going to know farmore about this program than
investment advisors or retailinvestors. I still think there's
a lot of misinformation outthere, and I think that's how we
build the biggest collectiveprogram. In terms of assets, I
(30:34):
think you're going to see, youknow, more of the same, a lot of
multifamily, and to me, that'san exciting, important asset
class, but I also think you'llsee more infrastructure and
asset heavy industries come outof this program when you combine
the OZ benefits with some of theother new benefits in the tax
Mark Bonner (30:51):
code. Industrial data centers?
Steve Glickman (30:54):
For sure. And those are great investments in
rural communities where you'regoing to have that extra boost
to put in extra dollars. Youyou're going to want to go to
places that have a lot of spaceto build and cheaper energy and,
you know, being able to plug inboth things like broadband
infrastructure, but alsomanufacturing and data centers
and industrial, I think will behuge. And it's been a really
successful asset class overallthe last few years. I would look
(31:16):
at where overall trends aregoing.
I don't think OZs will be anydifferent. Think you're going
see lots of multifamily andindustrial in the years ahead.
Mark Bonner (31:25):
Okay. Well, that's all the time we have for today.
Steve, thanks so much for beinghere.
Steve Glickman (31:30):
Yeah. Thanks for having me. This was great.
Mark Bonner (31:33):
Okay. We have some big news before we let you guys
go. We're about to launch ourbrand new first draft insider
access newsletter, bringing youexclusive intelligence, early
research report access andmarket insights every weekday
written by me and Katie Dixonand Kayla Carmichael and Jay
Rickey. Check it out. You cansign up through the link in the
chat or at bisnell.com undersubscriptions or Email me
(31:57):
directly.
Mark.Bonner@Bisnell.com. I'd behappy to tell you all about it
personally. Steve, Email me.I'll tell you all about it. I
will.
We'll be back. We'll be backwith another episode of First
Draft Live next week. So, don'tmiss out. You can sign up our on
our event page now. You can alsofind today's episode and all of
our past conversations in yourfavorite podcast app.
(32:18):
This is First Draft Live. Have agreat weekend y'all.
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