Reviewing the Quality of an Opportunity Zone Tract: Key Considerations for Investors
Rendering of CSRA Opportunity Zone Fund IX, LLC
A Qualified Opportunity Zone Fund (QOF) is an investment vehicle designed to encourage long-term investment in economically distressed communities by providing significant tax incentives. Investors can receive substantial tax benefits, including deferral and potential exclusion of capital gains, if they invest in a development within a designated Opportunity Zone (OZ). These zones are low-income census tracts identified by the U.S. Treasury Department, and the goal is to spur economic development and job creation in these underserved areas.
When evaluating the quality of an Opportunity Zone tract, investors should consider several critical factors:
- Location and Infrastructure: Areas near emerging business centers or planned infrastructure upgrades may provide greater upside potential. Proximity to major transportation hubs, access to utilities and the overall development potential of the surrounding area are essential.
- Economic and Demographic Trends: Investors should analyze current economic conditions, employment rates and population growth within the zone. Favorable demographic trends, such as an influx of younger, skilled workers or rising median household income, could indicate long-term growth.
- Risk and Reward: Developing new projects in Opportunity Zones presents additional risks from the development process along with a potential for higher returns. The challenges can be overcome by an experienced development team with an active process for assessing and mitigating risks. Also, consideration of market volatility, the stability of nearby businesses and local government support for development can help mitigate risk.
Scott’s Addition in Richmond, Virginia as an OZ 1.0 Example
One example of a successful Opportunity Zone transformation is in Scott’s Addition, a once industrial neighborhood in Richmond, Virginia. Over the past decade, the area has experienced a dramatic revitalization, fueled in large part by Opportunity Zone incentives.
The neighborhood, which was historically home to warehouses and manufacturing plants, has become a trendy hub for tech startups, craft breweries, restaurants and apartments. This transformation has not only revitalized the local economy but also attracted significant private investment. However, as Scott’s Addition has grown more attractive to investors and experienced rising property values, it’s likely that it may no longer qualify as an Opportunity Zone in the near future. The neighborhood’s increasing affluence and its shift from a low-income to a more developed area could disqualify it from a future Opportunity Zone designation, when governors reassess opportunity zone tracts in 2026. This shift serves as a reminder for investors to consider how economic improvements could alter the status of an Opportunity Zone over time, affecting long-term investment strategies.
Capital Square has developed numerous mixed-use multifamily properties in Scott’s Addition’s opportunity zone; however, CSRA Opportunity Zone Fund IX may be one of the last opportunities to leverage the benefits of opportunity zone fund legislation within this economically transformed community with favorable location and infrastructure as well as a strong economic forecast for the years ahead – with Richmond, Virginia and its surrounding counties gaining over 52,000 people between 2020 and 2024, and showing no signs of slowing down.[i]
Changes in Opportunity Zone Legislation and Future Designations
In response to feedback from investors and local governments, new Opportunity Zone legislation signed into law in July 2025 will shift the eligibility of certain tracts. Future Opportunity Zones will reflect evolving priorities in urban and rural development, refining requirements of qualifying areas.
Investors must stay informed about both legislative changes and the evolving market landscape to make the best decisions for their portfolios.
Questions? Our team of opportunity zone experts are available to help. Contact us today.
[i] Karri Peifer, “Estimates show over 52,000 people moved to Richmond since 2020” Axios Richmond, February 5, 2025.
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