New Developments on the Horizon for the Opportunity Zone Program

The Tax Cuts and Jobs Act of 2017 created the Qualified Opportunity Zones program (“OZ Program”), designed to spur investment in low-income communities. Under the OZ Program, taxpayers can sell or exchange capital assets and obtain certain tax benefits if the gain from those transactions is contributed into Qualified Opportunity Funds, which is an entity organized for the purpose of investment in certain types of property located in an opportunity zone (“OZ”). Various stakeholders, including taxpayers, could potentially reap substantial benefits as a result of the OZ Program. OZs are low-income communities (identified by census tracts) that have been designated by each state for the purpose of receiving investment pursuant to the OZ program. The City of Buffalo contains 18 such designated census tracts out of the 514 designated OZs across New York State. Neighborhoods all across Buffalo have received designations, including portions of Black Rock, the West Side, South Buffalo, the Fruit Belt, the Medical Campus, the East Side, Fillmore-Leroy, and Kensington, among others.

The expectation is that the OZ Program will provide a new source of capital to, among other things, develop real estate projects located in OZs across the nation as well as locally. An OZ real estate development project will require a multidisciplinary approach from developers, investors, attorneys, public officials and others to structure the purchase and development of real property located in an OZ in a manner that is compliant with the applicable sections of the Internal Revenue Code and Treasury Regulations.

Stakeholders have been and continue to be eagerly awaiting the release of new Treasury regulations (“Regulations”). Draft regulations released in October 2018 garnered an incredible amount of interest, but also created uncertainty as to how the intricacies of the OZ Program would fit together. As of now, the Regulations are currently under review by the Federal Office of Management and Budget, but commentators expect the Regulations to be released by the end of this month at the latest. Stakeholders hope the Regulations will displace much of the uncertainty and address the questions presented by the original set of draft regulations. Either way, the Regulations should certainly provide additional insight and guidance for stakeholders in terms of how the OZ Program will function.

According to recent reports, billions of dollars are expected to be committed and contributed into Qualified Opportunity funds, and multiple sources have reported that property values in designated OZ’s in some areas of the country have increased by roughly 20 percent since being designated. Once the Regulations are finalized, it is expected that substantial amounts of additional funds will begin to funnel into Qualified Opportunity funds, assuming that the Regulations set out clear guidance for stakeholders.

While there are currently quite a few uncertainties with respect to the OZ Program, there are high expectations for the OZ Program, and in upstate New York and Western New York, in particular, the OZ Program should serve as another critical tool to help facilitate real estate development projects, especially in areas that are often overlooked.

Patrick T. Fitzgerald is an attorney at Phillips Lytle LLP where he focuses his practice on real estate law. He assists clients with all real estate matters necessary to successfully complete challenging real estate transactions and development projects, including sales and acquisitions, financing, leasing, and land use and zoning matters. He can be reached at (716) 847-8315 or

Luke Donigan is an attorney at Phillips Lytle LLP where he focuses his practice on environmental law and energy matters, including land use, environmental reviews and regulatory compliance. He can be reached at (716) 847-7033 or