What You Need to Know: Opportunity Zones | Chicago Association of REALTORS®

For the past year-and-a-half, the commercial real estate community has been buzzing about an innovative new investment vehicle called the Qualified Opportunity Zones (QOZ) program. This has the potential to launch a massive infusion of capital into disinvested and underserved communities, while also providing unprecedented tax advantages for investors. Because of the jargon-heavy manner in which the program has been explained, and some delays in the release of guidelines for structuring investments and what will and won’t qualify as a qualified opportunity fund (QOF), there’s been a good deal of anticipation and consternation from brokers, investors and developers.


“The program was built out of a concern that there is a growing problem between the economic trajectory of different communities in the U.S.,” Steve Glickman, founder and CEO of Develop, LLC, and former senior economic advisor to President Barack Obama, said. “And that growing divide of places left behind was having a huge impact on the quality of people’s lives, our democracy and our politics.”

Glickman, considered by many to be the “Godfather of Opportunity Zones,” views the QOZ program as a way to form the kind of capital required to create and “crowdfund” new businesses, jobs and opportunities in those areas that have been left behind.

Because most QOZs are located in areas that have lacked substantial investment for a significant period of time —communities which could take a long time to build up — traditional investment in transformational development is risky. The QOZ program addresses this issue by allowing for the creation of Qualified Opportunity Funds (QOFs), funds which consist of money that would otherwise be subject to capital gains taxes, and work in a similar way to the 1031 Like-Kind Investment Program. The biggest difference is that, unlike the 1031, which requires an investor to ‘flip’ an investment from one property to another in order to avoid capital gains taxes, the QOZ program rewards investors who leave their money in the investment for a longer timeframe.

According to the Internal Revenue Service, investors can defer tax on any prior gains invested in a QOF until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than five years, there is a ten percent exclusion of the deferred gain. If held for more than seven years, the ten percent becomes 15 percent. If the investor holds the investment in the QOF for at least ten years, they are eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.

Put simply, investing Opportunity Funds in Opportunity Zones incentivizes ‘patient capital,’ where investors feel the biggest economic benefit by keeping money in each project for a longer period of time. This is a godsend for large-scale developments unable to get access to sustained capital investment due to financial risks tied to disinvestment and urban decay — and a benefit the program can deliver to Chicago neighborhoods.

Glickman is quick to point out that patient capital does not mean necessarily that investors won’t see income come back before the end of the holding period. “The idea is that the assets in Opportunity Zones will become stabilized and generate revenue for those companies that have leases on those properties.” And more importantly, investors will benefit from the appreciation of the investments themselves.

Glickman believes most investors will want to keep their money in for the full ten years, which removes pressure from developers to flip a product sooner. This can lead to a great equilibrium for investors, developers, and communities – in particular, with regards to investment in energy.

“Looking ahead to ten years from now, we may have a status quo that dictates a renewable power grid, or a sustainable development including job training and the building of a neighborhood,” he said. “So the most exciting prospects in Opportunity Zones are the ones that anchor and support neighborhoods without a dynamic economic future that you can now see becoming sustainable for years to come.”

In an ideal world, the QOZ program creates a critical mass, where investors will be drawn not only to the initial development, but also to other QOZs around the development, benefitting the adjacent communities and as a result, a bigger chunk of the city. Thus, policies of change that might have taken decades will begin to happen in a much shorter timeframe.


The site of the former Michael Reese Hospital on Chicago’s South Side provides a comprehensive window of insight into QOF investments’ potential to completely reinvent entire neighborhoods. By using patient capital to fund a multi-stage project with cutting edge development philosophies designed to attract world-class companies, there is a possibility to transform what is now, more or less, a 77-acre vacant field wedged between vibrant South Side communities, a world-class convention center and the lakefront. It’s a test case to answer whether QOZs can truly transform parts of Chicago that have been left behind economically, and in a sustainable way that is beneficial to actual communities.

For years, city officials, including former Chicago Mayor Rahm Emmanuel, and the Bronzeville Community Development Partnership, have advocated for ambitious development proposals that would incorporate a forward-thinking blend of property types, including multi-unit, retail, and office, designed to create jobs and attract tourist dollars to Chicago’s South Side. Due to overall market health, the city took these desires into account, releasing a Request for Proposal (RFP) that laid out an ambitious goal, with criteria for how bids would be judged.

In a 2017 press conference, Chicago’s City Planning Commissioner David Reifman was quoted by the Chicago Tribune as saying the time was right to push ahead with developing the Reese location.

“We put out this RFP because we think the market is strong right now,” Reifman said, noting the city sought to see tech office development, hotel development, open space opportunities, transit improvements and enhanced affordable residential opportunities, all of which must be “integrated into the fabric of Bronzeville and fabric of the neighborhoods to the west…and rising along the lakefront.”

The RFP for the site was awarded to a group known as GRIT, led by Scott Goodman, co-founder and managing partner at Decennial Group and founding principal at Farpoint Development, with Glickman as a key advisor. Comprised of Decennial Group (which will provide the equity for the QOF), Farpoint, Draper and Kramer, minority-owned Loop Capital, C&I Development, minority-owned McLauren Development and the Bronzeville Community Partnership, GRIT is short for ‘Global Research Innovation and Tourism,’ — “which is what we want to put on the Michael Reese site,” Goodman said. “But we think of it as ‘Get Ready, It’s Time,’ because that’s what we believe about investment in the South Side.”

Investors are always on the hunt for situations that will be good investments, notwithstanding the potential for tax deferral. While the tax incentives provided by the QOZ program certainly help, on their own, they aren’t enough to push a bad investment into the black.

“Chicago really did pick Opportunity Zones that were very much in need of investment,” Goodman said, seeking to “steer investments in areas where investors wouldn’t go otherwise.”

And yet despite these challenges, the Michael Reece site is one of the most exciting QOZs in the country and a gateway to the entire south side. Though it has lain fallow for decades and would seem an investment boondoggle, there are clear advantages.

The Reese site is located on the lakefront next to the largest convention center in the western hemisphere, ten minutes from the Loop and abutting Hyde Park and the proposed Obama Library. It benefits from access to significant amounts of high-speed fiber, and will have a ramp directly off of I-55, I-94 and I-41, as well as Metra and CTA hubs. All of these benefits, which locals have long touted, will make the development a smart investment for Decennial Group. But the tax benefits provided by its QOF will allow GRIT to pursue what might otherwise be the sort of risky utopic vision that scares off investors.

“We’re focusing this entire project around building a community of wellness,” Goodman said. GRIT’s concept hinges on ideas culled from life science and bioscience. It prioritizes low-grade traffic wherever possible and integrates green spaces, allowing people to interact both socially and professionally. Multi-family senior living will be built next door to experiential retail destinations, which are located right across the street from industry-leading technology
company headquarters — all with an eye towards being as cutting edge as economically possible.

“If there were a half-dozen ways to generate power on-site, we’d like to explore all of them,” Goodman said. “We’re enlisting architects and forward-thinkers in order to make everything truly walkable, to be prepared for autonomous and electric vehicles, and to provide a safe smart grid of features like motion activated light posts with security cameras and solar-powered charging stations for autonomous electric cars.”


While complicated, multi-phase developments like the Michael Reese site will benefit from QOFs, more straightforward projects are seeing powerful returns from the QOZ program, as well — and provide key insights into the machinations driving benefits to investors and disinvested communities.

Noah Birk, a partner at Kiser Group, works exclusively on the disposition of apartment buildings on Chicago’s South Side. As a result, essentially all his properties are in QOZs. Though he’s yet to witness a massive uptick in investment stemming from QOFs, Birk said the needle is beginning to move.

“I sold more than fifty buildings last year, and while only a couple happened because of Opportunity Funds, [those] both went for more than they would have otherwise,” Birk said. “The investors we had wouldn’t have been there without the program.”

Birk believes tax benefits are the most powerful enticement for his investors, who were “motivated to take 1031 money they were going to have to pay capital gains on and park it somewhere for ten years in order to fully appreciate the Opportunity Zone benefits to them.” In other words, by investing in these buildings, rather than a retail location on the north side, Birk’s investors can ultimately avoid paying capital gains taxes on their QOFs.

However, the benefits aren’t limited only to the folks with investment portfolios. QOF investments in real estate are subject to a substantial rehabilitation requirement. Put simply, participants must match any money spent investing in an existing property on either new development or a blend of rehabilitation and upgrades to the existing structures.

“All of the buildings I’ve worked on have been 30 units or above,” Birk said.

“[We’re seeing] condo quality finishes with granite countertops and stainless steel.” Best of all, rents, by and large, are in line with other properties in the community — which is reassuring to locals who may fear being priced out.

Birk argues things are trending in the right direction, continuing the positive momentum he’s seen in the South Shore since around 2010. “More investors are taking a chance on a neighborhood they wouldn’t otherwise,” he said. “One of the groups almost owns exclusively in River North, and now they’re investing in a lower income neighborhood like South Shore —they wouldn’t [invest otherwise] without the tax benefit.”

For Birk, the community benefit of Opportunity Zone investment can be summed up in a simple question: would you rather have a vacant building sitting next to you, or a nicely-renovated complex full of tenants who are happy to be there?

Anthony Hardy, 2019 CommercialForum Vice Chair and Senior Associate at Marcus and Millichap, singles out Washington Park as an example.

Washington Park’s strategic benefits make it distinct from other distressed neighborhoods. “A neighborhood like Washington Park has more available vacant land than any of the other 77 neighborhoods in the city, available at a real bargain, unlike trendy areas like Lincoln Park, where you’ll spend millions just to get a building you’re going to knock down.” he said. “The opportunity zones in Washington Park offer land where you can really see a value add that aligns with the intent of the program by driving economic development to blighted neighborhoods.”

Hardy advises his clients that the best way to approach development in a QOZ is through mixed-use, ideally with a retail component.

“You have to spend dollar-for-dollar acquisition cost minus land value in investments and improvements in the overall structure,” Hardy said. “If you’re looking to acquire a building between $500,000 to one million, you’ll be hard-pressed to find another million to invest in capital improvements on the south and west sides of Chicago. A lot of times, you can find an existing structure at less of a cost. So, if the developer intends to add retail and perhaps a restaurant, you can see how they might easily spend $200,000 in a restaurant build-out.”

Hardy feels population trends further buoy opportunity zone investments in mixed-use multi-family developments — each day, roughly 10,000 millennials turn 21 and 10,000 baby boomers turn 65. Why is this important? “There’s a propensity for millennials to rent and boomers to downsize into senior living.”

In Hardy’s eyes, it adds up to excitement for owners looking to increase the value of their assets and take advantage of increased equity, as well as from buyers who’ve found themselves with additional dollars to invest and feel the QOZ program is the way to go.

One of Hardy’s clients is doing just that. The Reverend Dr. Richard Tolliver, President & CEO of St. Edmund’s Redevelopment Corporation, has been investing in his Washington Park community since 1992, when he oversaw the development of multi-family affordable housing on an empty plot of land St. Edmund’s Episcopal Church owned at the time. He had been introduced to Ron Gatten, who was chairing a task force on affordable housing for the Episcopal Diocese, and Gatten helped St. Edmund’s make use of the affordable tax credit program, allowing them to build something on the lot that would be sustainable.

It was a match made in heaven. Since those humble beginnings, St. Edmund’s Redevelopment Corporation has completed fourteen different development projects at a cost of 106 million dollars, consisting of 31 buildings and 731 units of housing.

When Gatten and Tolliver learned about the Opportunity Zone program, they lobbied to have zones established in Washington Park. They are now developing a Community Revitalization Center at the corner of 61st and Indiana using QOFs.

St. Edmund’s rolled some funds from the $23.6 million sale of a 23-story building named St. Edmund’s Village into a $1.8 million QOF as the sole investor. Outside options for financing the construction of the building to St. Edmund’s specifications were cost prohibitive. “Without the Opportunity Funds, and us personally investing in it, we wouldn’t have been able to invest in the Community Revitalization Center,” the Reverend Dr. Tolliver said. “[And] we specifically sold it because we wanted to use the funds to take care of other initiatives.”


While the QOZ program is supposed to expire in 2027, Glickman believes there are several good signs that the program is tracking in the right direction for renewal.

The optimism stems from the legislation’s bipartisan origins in Congress, and has extended to sustained support from local and state officials like South Bend Mayor Pete Buttigieg and former Colorado governor John Hickenlooper. The current presidential administration, too, has thus far worked with Congress to continue the policy and establish guidelines. So, although we won’t know for several years if QOZs will live on beyond the initial timeframe, this all bodes well for the continuation of the program.



Jacob Knabb
Director of Commercial Services
Chicago Association of REALTORS®





Explore the map of Chicago’s Opportunity Zones