The federal government has just posted a map that could spark new development in underdeveloped parts of the region.
Last week the Department of the Treasury and the Internal Revenue Service released the second incarnation of their map of Opportunity Zones, charting which parts of the country, including in the Richmond area, will be part of the tax break-fueled real estate development program.
The first iteration of the Opportunity Zone program was created during the first Trump administration in 2017 and is designed to incentivize investment in lower-income areas. It allows individuals and institutions to defer certain capital gains taxes if they invest that money into an OZ, typically by helping fund apartment projects.
The first OZ map included large swaths of downtown Richmond, including Manchester, Scott’s Addition, and basically all of the area between Broad Street and Interstate 64 from MCV to The Diamond. The program’s rollout coincided with a boom in development in some of those areas, Scott’s Addition and Manchester in particular.
For the new map, governors from each state had a deadline to nominate new areas by Oct. 28, and just over a week later the Treasury announced the next set of eligible territories. Virginia Gov. Abigail Spanberger’s criteria for nominating new zones included selecting tracts that would increase housing development and downtown revitalization, her office said in an announcement last week.
Now dozens of square miles in the Richmond region will become OZs beginning next year.
The most centralized new local OZ is Monroe Ward, the surface parking lot-rich neighborhood south of Broad Street between VCU and downtown. Also added to the OZ map were tracts that span parts of Gilpin, Battery Park and the Virginia Union University area, and others that include parts of East Highland Park and Lakeside.
Many of the other new OZs are in the city’s Southside near the Bellemeade, Broad Rock, Warwick, Bellwood and Hioaks areas, and a single OZ has been added in Chesterfield County in the area loosely bound by Midlothian Turnpike and Robious and Huguenot roads. That tract that includes the to-be-renovated Chesterfield Towne Center.
The largest OZ in the area is in Eastern Henrico, running from Route 5 up to Interstate 64. That tract, which abuts the airport, is a reworked version of an OZ that was on the first map. The second-largest covers a part of Ashland that includes downtown Ashland and Randolph-Macon College.
Parts of the Tri-Cities that were on the previous OZ map remain, including tracts that cover Old Towne Petersburg and parts of Hopewell.
Monroe Ward is perhaps the most significant addition to the city’s list of Opportunity Zones. (Courtesy SkyShots Photography)
There were a number of notable areas that were on the first OZ map that have since been eliminated, including Scott’s Addition, Manchester, Jackson Ward, downtown, Carver, the Diamond District and Shockoe Bottom. Also cut were parts of the West End that included Libbie Mill and Regency.
There’ll be overlap between the sunset for eligibility for the first map and the beginning of the new map. The current zones are still good through the end of 2028, while 2.0 will take effect on Jan. 1, 2027.
The program was made permanent in President Trump’s so-called “Big Beautiful Bill,” and the maps are to be redrawn every 10 years. Under the new bill, the OZ program was changed to have stricter reporting requirements to the government, and zone qualification became more stringent, requiring tracts to have median family income that’s below 70% of the area median income (AMI) in their broader surrounding regions. That’s compared to the 80% AMI requirement that was previously in place. That change reduced the total number of potential zones, as governors were only able to submit 25% of all the eligible tracts to become OZs. In Virginia, the change brought the total number of potential OZs down from 212 to 153.
The first iteration of the program also allowed certain tracts that were contiguous with low-income areas to be eligible as OZs, a controversial rule that allowed some upscale neighborhoods to be part of the program.
The former Dairy Bar complex was recently demolished in Scott’s Addition. The project could be Capital Square’s final OZ deal in the neighborhood. (BizSense file photo)
One local firm that’s been especially active in the OZ program is Capital Square, an Innsbrook-based developer that raises funds from individuals that have capital gains they’d like to reinvest, and then uses that money to help finance new developments, typically for ground-up apartment projects.
The longer the investment is held – or not cashed out – the greater the tax break. If the investment is held for 10 years, any appreciation of the original capital gain is completely tax-exempt.
Capital Square has been particularly bullish on deploying OZ funds in Scott’s Addition, where it’s developed a half-dozen mid-rise apartment buildings like the new Chasen complex, and recently kicked off construction on what could be its last OZ project in the neighborhood, the redevelopment of the former Dairy Bar site.
About 24 hours before the new OZ map came out, Capital Square’s co-head of development Natalie Mason and founder Louis Rogers spoke on a webinar on the topic put on by RVA757, a nonprofit that advocates for development along the I-64 corridor between Richmond and Hampton Roads.
Rogers described Scott’s Addition as a poster child for the program and said the fact that the neighborhood is not on the new OZ map is a sign of its success in bringing in new development and new residents. He said he thinks the OZ program is one of the “most impactful provisions in the entire Internal Revenue Code.”
“If you want to know where the new Scott’s Additions are going to be, follow the (OZ) 2.0 map,” Rogers said.
Jenny Connors is a local tax attorney at Williams Mullen who, as she put it, wound up forming a niche practice area on OZs over the last decade.
Just hours after the new maps came out, Connors said she began getting calls from clients. She said she thinks areas like Scott’s Addition benefitted from the program, and that the new OZs could similarly see new interest and investment from developers.
“For OZ benefits, you still have to have appreciation. So it doesn’t make a bad deal good, it makes a good deal better,” Connors said. “If you can get investment off the ground, if you can get some people interested in an area, this is like icing on the cake for a developer. It’s a great benefit to offer them if they need that slight economic nudge to move in a certain direction.”
Even though the first map runs through 2028, Connors noted that to qualify for that first iteration, developments need to reach a certain threshold in terms of planning and investment by the end of 2026. That approaching deadline, Connors said, is prompting a last-second burst of development planning in OZ 1.0 areas over the next two months.
“What you are seeing is a ton of activity right now from people who are not in redesignated zones (and) frantically trying to get everything in place by December 31, 2026, so that they can proceed with their projects in a 1.0 zone,” Connors said.
Also looming on Dec. 31 is the deadline for OZ investors to book their previously deferred capital gains as taxable income. The Wall Street Journal reported this year that the Treasury could see nearly $30 billion in new revenue via deferred capital gains taxes coming due.
The entire OZ 2.0 map for Virginia is available here, and the 1.0 map is available here.
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