Opportunity Zones and real estate investment

This page explains what Opportunity Zones are, how Qualified Opportunity Funds work, why the program exists, and what separates a project that helps a neighborhood from one that simply happens to be located in it.

What the program is, and where it currently stands

Opportunity Zones were created by the Tax Cuts and Jobs Act of 2017 as a federal incentive to direct private capital into economically distressed census tracts. State governors nominated tracts and the U.S. Department of the Treasury certified them. The program is administered through the Internal Revenue Service and the Treasury Department.

The One, Big, Beautiful Bill Act, signed into law on July 4, 2025, made the program permanent under sections 1400Z-1 and 1400Z-2 of the Internal Revenue Code. Before that legislation, the incentive was scheduled to close to new investment after December 31, 2026. It is now a standing feature of the federal tax code, with designations renewed on a ten-year cycle.

In the current designation cycle, 8,764 census tracts across the states, the District of Columbia and the U.S. territories are designated as Qualified Opportunity Zones. Of those, 3,309 are comprised entirely of rural areas, a category for which the substantial improvement threshold was reduced from 100 percent to 50 percent of basis effective July 4, 2025. The next round of designations takes effect on January 1, 2027.

Permanence changes what can be built around the program. An incentive with a closing date supports transactions. A permanent one supports institutions.

Qualified Opportunity Funds and REITs

Investment in the program is made through a Qualified Opportunity Fund: a corporation or partnership that self-certifies by filing IRS Form 8996 with its federal income tax return and that must hold at least 90 percent of its assets in qualified opportunity zone property, measured semiannually. A fund typically invests through a qualified opportunity zone business, which must derive at least 50 percent of its gross income from the active conduct of a business within the zone and must hold at least 70 percent of its tangible property as qualified opportunity zone business property.

An investor who realizes a capital gain and reinvests it into a fund within the required window may defer tax on that gain. If the investment is held for at least ten years, appreciation on the fund investment itself may be excluded from tax on disposition. Those rules are technical and fact-specific, they have changed since 2017, and they turn on details that vary from investor to investor. Nothing here is a substitute for advice from your own tax counsel.

Buying a building in a designated tract is not enough. Existing property must be substantially improved — in general, by investing an amount at least equal to the building’s basis within thirty months, or half that amount for property in zones comprised entirely of rural areas. The requirement is deliberate: it directs capital toward construction and rehabilitation rather than toward passive ownership. In practice this is where projects fail. Construction cost, timing and financing have to work under a clock, and the tax structure does not rescue economics that do not stand on their own.

NAJA Capital’s intended activity in this area is the structuring, underwriting and governance of these vehicles, including Qualified Opportunity Funds and real estate investment trusts, and the compliance discipline that keeps them qualified over a ten-year hold.

NAJA Capital is in its formation stage. No investment vehicle has been formed and no third-party capital has been raised to date. No Qualified Opportunity Fund, real estate investment trust or other vehicle has been organized or offered by the firm. Nothing on this page is an offer to sell or a solicitation of an offer to buy any security.

Why it matters for communities

Real estate development produces two kinds of employment. Construction generates temporary job-years — trades, suppliers, engineering, logistics — concentrated in the build period. Completed assets generate permanent operating employment and, more importantly, ground-floor space that local businesses can occupy.

There is also a second-order effect that matters more than either: a stabilized, well-managed building changes what a lender is willing to underwrite on the same block two years later. Capital follows evidence.

Where the program has been criticized — honestly

The evidence on Opportunity Zones is mixed, and pretending otherwise would be dishonest. Independent research has found that capital concentrated in tracts that were already improving, that some designated tracts received almost nothing, and that the link between investment and measurable benefit for existing residents is weaker than the program’s advocates predicted.

We think that is a design and execution problem rather than a reason to abandon the tool. The projects that produce community benefit tend to share specific features:

• Local hiring commitments written into construction contracts, with reporting, not aspiration.
• Affordability or workforce provisions in the capital structure from the start, because they cannot be retrofitted.
• Ground-floor space priced for local businesses, paired with support to help those businesses qualify for it.
• Community benefit agreements negotiated with organizations that were there before the project and will be there after it.
• Impact measured against a baseline, published whether or not the numbers are flattering.

Read our longer piece on where OZ capital has helped and where it has not →

How NAJA Capital works in this area

Our intended role runs across three groups. None of this activity has launched.

With developers and sponsors: underwriting, capital structuring, investment policy and committee governance, valuation methodology, and the investor reporting infrastructure that institutional capital requires before it commits.

With investors: structuring, diligence frameworks, compliance calendars, and an honest account of risk — including the risk that a tax-advantaged structure conceals a project that does not work.

With communities and the businesses in them: the free advisory and education side of this platform, which is operating today. A development that brings capital into a tract while the businesses on that block remain unable to access credit has done half the job.

The standardized instruments used in this work are described on the How We Work page.

Free resources for this work

Discuss a project

If you are a developer, investor, municipality or community organization working on something in a designated tract, we would like to hear about it. Get in touch →