April 16, 2019
One perception of Opportunity Zones is that they are economically depressed areas requiring vast infusions of capital to make them viable. Another perception is that many of the 8,700 government-designated tracts as part of the program represent high-risk investments. According to an article written by Jim Costello with Real Capital Analytics, these perceptions have been widely reported at a variety of CRE conferences.
RCA dug down into the 2018 lending composition within and outside of Opportunity Zones. Within its recently-released U.S. Capital Trends report, the analysts released their findings concerning the composition of real estate lending within QOZs. The main takeaway was that, commercial real estate lending within the zones has some differences from the rest of the market.
- Banks represented the largest lenders within and outside the QOZs, and are active across all elements of property risk. However, the report also noted that banks, in general, represented a smaller share of lending in QOZs during 2018, than outside of the zones.
- Agency lenders are relatively underexposed to the QOZs. These lenders have a smaller share of the market in the zones, both for core and value-add deals, versus other activity. Still, agency construction lending represents a larger share of activity within the QOZs.
- CMBS originators captured a larger share of the lending market within QOZs than they did outside of the areas.
- Financial company lenders were also relatively underexposed to QOZs when it came to construction loans, though they’ve been the largest source of overall debt capital for value-add deals.
RCA concluded the report by suggesting that lenders are, for the most part, more cautious than equity investors. “If lenders are already active in these QOZ geographies without a broader social mandate to be there,” Costello wrote, “it suggests that these areas are not as risky as the buzz at conferences this spring would suggest.”
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