This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!
Question: How did the Opportunity Zone designation in the Nauck neighborhood come to fruition and what is the expected impact on the neighborhood?
Answer: Last year the U.S. Treasury, with the help of each state, began designating underdeveloped or “economically-distressed” communities as Opportunity Zones (OZ) to encourage residential and commercial development by offering investors preferred tax treatment. There are currently over 8,000 designated OZs around the country and 212 in Virginia.
Arlington’s Opportunity Zones
It may come as a surprise that there were two areas in Arlington that received OZ designations by the Governor/Treasury — Nauck-Shirlington Road and Barcroft-Columbia Pike. Both are located in the area bounded by Columbia Pike to the north, 395 and S. Four Mile Run (link to map and details).
Note: Although the zone is called Barcroft-Columbia Pike, part of it is actually Douglas Park and the rest is an area that I don’t think belongs to either the Barcroft or Douglas Park Civic Associations, but the apartment buildings there do take the Barcroft name.
On a national scale, I don’t think anybody would argue that these neighborhoods are economically-distressed, but within Arlington these designations should help stimulate or expedite development from South to North and West to East instead of the other way around. Both of these areas also have detailed planning documents in place to guide investors.
How Do Opportunity Zones Work?
OZs are a bit outside of my purview because they require commercial development and tax expertise, but the general idea is that investors will put money into Qualified Opportunity Funds and deploy capital to one or more projects in Opportunities Zones around the country in return for preferred tax treatment on their gains. The theme behind the OZs is encouraging long-term, sustained investment from these funds by incentivizing investments of 10+ years.
It’s important to note that OZs were first written into the tax code in December 2017 and while a lot of money has been raised by funds, there’s still uncertainty on how everything works. The last planned public OZ hearing between industry and Government was June 9 in which industry raised numerous concerns about the governance of the funds/tax exemptions, thus keeping a lot of the money sidelined.
The primary concern for industry seems to be around how the IRS will apply the tax code to different exit strategies common within commercial and residential development. Some investors are happy with any preferential treatment or willing to take the risk of not having an exit strategy, but many are understandably hesitant to deploy huge sums without a full plan in place.
What To Expect
You can expect the development in each of Arlington’s zones to follow the guidance of the 2004 Nauck Village Center Action Plan, 2018 Four Mile Run Valley Master Plan, and 2012 Columbia Pike Neighborhoods Area Plan.
According to Arlington County’s project mapping website, there are not currently any proposals for major development within either of the OZs. However, the redevelopment of Centro Village (anchored by Harris Teeter), directly across from the Barcroft-Columbia Pike OZ, is nearly complete and the Trafalgar Flats condos, also directly across the street from the OZ, has done very well.
It’s quite possible that OZ funds have already been deployed in Arlington and we wouldn’t know. Given the impact Amazon is/will have on South Arlington, the Nauck, Four Mile and Columbia Pike area plans were going to take shape, but I suspect that the recent OZ designations will lead to a more rapid implementation of the County’s vision.
Investors in Arlington’s OZs likely fall into a category of investors who won’t wait for the Treasury to fully address all of industry’s questions before deploying capital because they’re content with any preferred tax treatment on investments that will be financially viable without the extra help.
Is this a fair implementation of tax incentives for a national program? Probably not.
Impact on Residential Real Estate
While the OZs themselves have a relatively limited supply of homes, the homes within and adjacent to these zones make-up the least expensive property in Arlington County. If you’re looking for growth opportunities relative to the rest of Arlington, I recommend adding these neighborhoods to your list, but plan on holding for 7-10+ years to realize the full benefit.
Tax benefits aren’t limited to commercial or multi-family property, but also apply to single-family homes. In some cases, there may be financial benefits to making substantial improvements (a requirement for preferred tax treatment in OZs) to rental properties located in OZs and holding them for 10+ years to qualify for the maximum tax benefit.
This may not work in Arlington because the cost of substantial improvements must be at least 100% of the adjusted basis (net cost) of the acquisition price within a 30-month period. Before considering this strategy for your next rental property acquisition, it’s critical that you speak with a tax professional well-versed in OZs.
If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local real estate, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at www.EliResidential.com. Call me directly at (703) 539-2529.
Eli Tucker is a licensed Realtor in Virginia, Washington D.C., and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.
Fully updated; remodeled Bas; open family room w/vaulted ceiling; 1-car garage
Good Thursday evening, Arlington. Let’s take a look back at today’s stories and a look forward to tomorrow’s event calendar. 🕗 News recap The following articles were published earlier today…
A look at the smallest and largest homes sold in Arlington last month, October 2023.
A former board president of Arlington Aquatic Club is set to go to trial next year for child pornography and sexual coercion charges, according to court documents.
Children’s Weekday Program (CWP) is a non-profit preschool rooted in a play-based philosophy. We focus on developing a love of learning and exploration, cooperation, empathy, and independence.
Our caring and experienced educators create opportunities for children 16 months to 5 years old to play, learn, and grow in a nurturing environment of child-centered and developmentally appropriate experiences.
Initially established more than 50 years ago in South Arlington, CWP continues to be a lauded program in the Northern Virginia area. We are extremely proud to have been recognized as a Best Preschool in Northern Virginia Magazine for the last 4 years.
Located now in North Arlington at 2666 Military Road, CWP offers a part-time parents day out and preschool program with options to extend care both before and after school. We offer a supportive and inclusive school community for children and parents alike and welcome all families to join our school!
The Optimist Club of Arlington is holding its 77th annual Christmas tree sale!
This year, the tree sale will be held at the Knights of Columbus (5115 Little Falls Road). The lot opens for sales on November 24th. The Optimist Club is selling small and large trees ranging from tabletop size to 10 foot tall trees! Wreaths, garland, tree stands, and White House Christmas ornaments will also be for sale.
100% of all proceeds go towards helping Arlington County youth.
For more information, please visit the Arlington Optimists website at https://optimistclubofarlingtonva.org/.
Holiday Art Show featuring artists: Peter Fitzgerald, Claire Plante, Alanna Rivera, and Suzy Scollon. At the Barcroft Community House, 800 South Buchanan St., Arlington, VA. Dec. 8 from, 2 PM to 8 PM and Dec. 9 from 10 AM to
2023 Christmas Tree Sales Begin
Saturday, December 2
Get your holiday decorating off to the right start this year! We will be selling 150 Fraser firs, freshly cut and delivered from Sparta, North Carolina.