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Current Season: First Draft Live
Between economic whiplash, shifting policies and market volatility that changes by the hour, you need industry insights that cut through the noise. That's exactly why we're launching First Draft Live, a new weekly series that breaks down what's happening, why it matters and what you need to know to do better business.
Join us live on Bisnow.com every Friday at 12:30 PM ET / 9:30AM PT for conversations with the industry's sharpest minds discussing the week's most critical stories, or catch the replay right afterwards — here on your podcast app of choice.
Alright. Welcome to First Draft Live. It's Tuesday, September 22. I'm Mark Bonner, Bisnow's editor in chief coming to you live from New York. So Opportunity Zones launched in 2017 to steer capital gains into underinvested communities.
Mark Bonner:By the end of twenty twenty four, OZ Funds held $112,000,000,000 in investments, but the rollout was a little messy. Track designations and Treasury guidance both lagged years behind the law itself, and with no reporting requirement built in, nobody could really say what the program had accomplished. A recent GAO survey found most states still aren't sure OZ 1.0 helped their communities at all. Well, that program is gone now. OZ 2.0 replaced it, permanent, with real reporting requirements and a map that's smaller and far more competitive.
Mark Bonner:Eligible tracks dropped nationally from roughly 8,700 to 6,500, a 25% cut. And states can only nominate a quarter of their qualifying parcels. In Texas alone, that meant more than 1,200 nomination requests chasing just six zero five slots. The incentives, those shifted too. A 30% step up in basis in rural tracks now versus 10% in urban ones alongside tighter income threshold meant to stop capital from flowing to tracks that were never really distressed in the first place.
Mark Bonner:So what does competing for a spot on that map actually look like from inside a firm trying to deploy real capital? To help unpack it, I'm joined today by Jason Glasser, Managing Director at Clarion Partners, one of the most active investors putting capital to work in Opportunity Zones today. A quick note before we dive in. Today's conversation builds on Bisnow's special report on OZ 2.0 titled Inside the Nationwide Jockeying for Opportunity Zones two point zero, which Clarion Partners helped make possible through their generous support. The story was independently reported and can be read right now on biznow.com.
Mark Bonner:Jason, welcome to First Draft Live.
Jason Glasser:Thank you for having me, Mark. It's a pleasure to be here today.
Mark Bonner:So, thanks for being here. Let's start with something concrete. As our special project story reveals, in Arizona's Yuma Desert, there's a company called Evolution Energy that has spent four years working towards one of the first US cobalt processing facilities. They've got three forty five million dollars in debt financing committed and an additional $850,000,000 offtake already lined up for what the plant will produce. But they're still waiting on OZ Equity to close the gap, hoping to raise up to $50,000,000.
Mark Bonner:Arizona selected their track as one of just 125 the state is submitting the treasury. And so the question to you, Jason, is does that match what Clarion is seeing in its own pipeline right now?
Jason Glasser:It's a it's a good question, Mark. And, you know, you brought me on here, and I'm gonna tell you first off, I don't I don't know the first thing about economics of a a cobalt plant. Fair. I like to think I'm smart on a lot of things. Not that.
Jason Glasser:But what I think I am seeing here with this is what you're looking at is a highly specialized piece of infrastructure. And those are going to be large facilities. They're going to need likely hundreds of acres, maybe a buffer zone or room for future expansion around it. So that said, to me that says rural area. You're going to need a lot of land to go through a project like that.
Jason Glasser:It's also a really long term project. Normally when you're building something like that, you're looking at things with a decade's long investment horizon. So you're probably not putting money in and selling after ten years. And that could be a more challenging equity check to find in the market. And I think anything that you can do as an owner or someone who's involved in the business formation of that to try to put those economics over the edge and attract those investors, I think that's a smart thing to do.
Jason Glasser:You know, from Clarion's perspective, we're generally looking at a slightly different type of investment. What we're looking at is something that's more along the lines of say the ten year time horizon. We want to build that warehouse that can be used by a wide range of tenants. We want to build that apartment community or that build for rent home that your young professional can see themselves in or your empty nester can see themselves in. We want a large tenant base.
Jason Glasser:We want an asset that we think is likely to have a low level of obsolescence and that if you look to sell that in ten years, it's going still to be very relevant. Again, I'm not the expert in the cobalt plant, but I think that's a much longer term, longer duration asset that probably benefits really greatly from the Opportunity Zone Program. One of the big tax benefits is that you can take the depreciation over time and not recapture at the end. I would imagine this is the type of thing that you're looking at and saying, hey, I'm probably going to fully depreciate this over a long period of time, and that's going be helpful to my economics.
Mark Bonner:You know, so from a Clarion perspective, can you give me a sense of the scale? I mean, how many deals are in the pipeline right now that are fully capitalized on debt and just waiting on OZ Equity to close?
Jason Glasser:Yeah, Clarion has a wide range of development partners that we work with across asset classes. I would say that the second some of these zones came out and you mentioned Texas right at the top is one of the ones that is starting to come out with their zones. Second zones got nominated. We had inbounds from those groups that had lined up some investments that they thought had a good chance of being in those zones. What we're seeing is a lot of what we saw in the past cycle.
Jason Glasser:We're seeing apartment communities call them, you know, two fifty, 300 unit apartment communities. We're seeing opportunities for warehouse distribution come in along the pipeline. We're seeing some student housing opportunities around campuses come in. Those are just kind of the tip of the iceberg, I think, as some of these states are now coming through a time period here, we got about a week until And some of these are supposed to come I know there's an extension on top of that, but we're gonna get more and more news for the Opportunity Zone community to talk about. I think, you know, tax law got put in place in January 2025, sorry, July 2025.
Jason Glasser:So we've been sitting on kind of a slow news cycle for us over the past year and a half, and it's really starting to pick up now. I think people are really excited to see what the states are gonna start to do.
Mark Bonner:Yeah. And look, let's just go back and take a step back and let's get into OZ one point o versus two point o. I mean, I think one point o is legitimately one of president Donald Trump's marquee achievements in terms of economic policy from the first term. He's back, and so we're bringing this back now. Two point o, it's permanent.
Mark Bonner:Right? So let's talk about what actually structurally changed here. OZ's OZ one point o's ten year clock started the moment the bill was signed in 2017, which meant by the time track designations and treasury guidance actually caught up in '18 and '19, investors had already lost time off their tax benefit window. That's part of why so much capital got rushed in. OZ two point o is different.
Mark Bonner:It fixes that by making it a rolling project based ten year clock tied to each individual investment instead of one fixed calendar date for the whole program. So how does that change Clarion's pacing this time around?
Jason Glasser:Yeah. We saw similar things to what you saw in the first round. There was there was some major players out there who felt, you know, they had to rush in and deploy that capital because as you said, their their step up was expiring at a certain date. The deferral was getting shorter. In that article that Bisnow put out, there's a great chart in there that kind of shows the arc of the capital coming into the program.
Jason Glasser:And I believe that chart only went through 2024, but if it went out further, it would probably be more pronounced, really shows capital going in real quickly to get those benefits. And then once those benefits kind of expired, that the capital that was coming to the program really leveled off a bit. And so I think getting that fixed here is gonna be great for the program. It's gonna be great for the potential investor. That deferral, a lot of people don't talk about or they don't look at as being one of the primary drivers of the tax benefit.
Jason Glasser:But here, we see it when we have conversations with potential investors, see that as being really important. And one of the things that, you know, I'm hearing a lot in the market is lots of advisors are having more and more conversations with their clients about taxes and how to either defer taxes or team up programs to try to eliminate taxes so that they can keep more of what they've earned. And that tax conversation with wealth advisors isn't just OZ, we're hearing things on direct indexing strategies with equities. We're hearing about hedging strategies, some tax loss harvesting. And when you pair those up with the Opportunity Zone Program, it does create a really good opportunity to first defer and then you can figure out a way to say, hey, you know, not every investor should have the X bill.
Jason Glasser:Every investor should not have the expectation that every investment you make is going to be a winner, right? There's going to be winners, there's going to be losers, and we're trying to make out ahead. And if you have an opportunity to harvest some of those losses, offset them against gains you've already had, it could be a really powerful tool in someone's portfolio.
Mark Bonner:So do you think that this removes the rush entirely or you think urgency is gonna creep back in regardless?
Jason Glasser:You know, I do think that there will be some sense of urgency at the beginning. There is going to be developers out there that are going to tell you there's less sites, there's going to be more competition. They want to say we're out there with the best deals that you can have upfront. And I think that that will come through. And ultimately what will happen is investors are going be a little more patient because of the taxes.
Jason Glasser:And they're they're going to realize that the benefits aren't tied to a time clock, and they're going to want investors to make the right decisions for the opportunities that they have.
Mark Bonner:So let's talk about this rural shift because that's where the incentives are pointing to this time around. Rural incentives are much richer. A five year hold gets you a 30% step up in basis in rural tracks versus 10% in the urban ones, as we talked about at the beginning of the program. That means on a $100,000 in capital gains, a rural investor's taxable gain drops to 70,000 compared to 90,000 in an urban track. Is Clarion actively chasing rural and industrial deals because of that, Or is multifamily still the core of the strategy?
Jason Glasser:Yeah, I think there's a few things going on in your question there. I think there's a sector and then there's a, you know, what is going to be really attractive in the rural space? Let me take them a little bit separately. There's been a lot of talk and a lot of emphasis on the rural zones in media. And some of that I think is, you know, federal obviously went out of the way and created more significant benefits for investing in a rural zone.
Jason Glasser:But ultimately this program in my belief has been really attractive to people across the aisle because this each individual state has had the opportunity to go in and designate and have a say in which zones are going to qualify. And, you you mentioned Texas already. We've dug into the Texas zones a little bit. It had only been out for a short period of time. If you look at what's going on in Texas and how they've re designated their zones, they've gone from 46% rural all the way down to 30% rural as the number of zones.
Jason Glasser:And they've actually increased the number of urban zones by 81 from the previous Wow. So you're getting much less rural zones. When you look at the map, a lot of the zones have moved into urban Dallas. There's some in San Antonio, a little more than before. We've been investors in Austin.
Jason Glasser:Most of those zones have stayed. So I think when you're looking at States making their own individual decisions, they're really making decisions about where they want the dollars to flow and where they think the investment opportunities are going to be attractive for the equity to go. And without strong demographics or a major infrastructure project or a tenant in tow, it might be a tough sell. Something I've been saying recently to people is there's probably not a lot of investors out there who want to build something in the middle of a cornfield in Iowa, right? Want to go where the people are and where the forecasted economic growth is.
Jason Glasser:And I think that makes sense. You know, the other thing you mentioned is, you know, the industrial areas. There's a little misconception out there, I think in the market about, you know, the industrial projects and whether these are urban or rural, certainly the project that we spoke about on you know, on the Yuma side, right? That's something that is going to be in a rural zone. It needs a lot of space.
Jason Glasser:When you talk about something like a warehouse or things like advanced manufacturing, which is having a huge impact on our economy, I think what you're really going to see is those buildings need to be closer to people. And why do I say that? Clarion, we've raised over $1,000,000,000 in the first round of OZs. We deployed over half of that into warehouse investments. As a firm, we have over 45,000,000,000 in warehouse investments over two twenty million square feet.
Jason Glasser:So we look at almost every deal that's coming to market for development in this space and in the major markets. What we look at in every deal we evaluate, we evaluate what does the labor force look like near this potential site? How far are you from the actual households that are consuming the goods that are going to be stored in those sites? Those things are going to be way more important than, you know, the definition from an opportunity zone perspective of the micro location of the income and who's living adjacent to it. What you really want to be able to see is if a user and I'm gonna locate here, how am I gonna staff my project?
Jason Glasser:How am I gonna reach my customer in a quick amount of time that meets the market? I mean, I think it was in the news, maybe it was last week, Amazon is coming out with a plan to build out their distribution network even further so that they can meet one day delivery as opposed to two day delivery. You can't do that from a fifty, seventy, 80 mile out rural zone. It's really got to be close to the rooftop so you can meet that demand.
Mark Bonner:I mean, everything you're saying sounds completely logical and pragmatic. I think just to go back to your comment about the media narrative, if you will. I think one of the media narratives on one point o was that was it was the program gonna live up to its promise to revitalize distressed urban communities coast to coast? And I think on this one, because it's focused on rural America, that that is a similar narrative just based off of however you wanna view one point o and its success or failure on that promise. But what I'm hearing from you sounds logical, and it and it sounds like you're hesitating on the rural component of this bill.
Mark Bonner:Can you tell me more about that hesitation? Is it simply about not being close to where people actually live? You know, is it beyond execution risk? Is it is it is exit liquidity something about rural market specifically that makes underwriting harder beyond the lack of population?
Jason Glasser:Sure. So when we look at the when we look at the tax incentives on its server, there's there's a few pieces here. Right? Have the step up in basis, you have the deferral, you also have the elimination of the appreciation at the end of the investment. And we started to run the math and typically the way we look at this is on a ten year investment, the tax benefits in total are going to be about two fifty to 300 basis points enhancement on your return.
Jason Glasser:Only 20 basis points, you know, plus or minus. So call it less than 10% is coming from that step up in basis. The large majority of it is coming from the other components. So the addition of the step up, shows a greater benefit for rural, but that's not the benefit that's driving the overall investment. And in our look at it, it might not be enough to get investors to move away from what's ultimately going to drive a long term investment.
Jason Glasser:You have to look at where the demographics are going. You have to look at where the jobs are going to be, and you have to look at where the consumption is going to happen. You know, and our data science team and our research team are saying that's going to be in closer in areas for sure.
Mark Bonner:And meanwhile, that rural push is happening against a map that's also gotten smaller and tighter, down roughly 25% nationally. And OZ two point o also killed the old rule that led parcels adjacent to a qualifying track ride along for the designation, which critics say let a lot of OZ 1.0 capital flow in the tracks that didn't actually needed. So does a smaller, more disciplined map mean more confidence in the deals that do make it this time? Or does it just mean more competition for fewer eligible sites?
Jason Glasser:Yeah. So there's an interesting report that came out fairly recently from the Treasury, and it and it gave a little bit of a report card on states. I don't want to call it how well they picked their zones, but it showed how much investment came in. And one can make interpretations to that is did you pick your zones well or not as a state and were you driving investment home and growing the economic base, right, for your constituents. And when we look at 2.0 and we just talked about Texas a little bit and I keep bringing that up because that's the biggest one that's out.
Jason Glasser:What we see is some of these states are going to drive investment towards what I call public private partnerships. So the private capital, where is that going to go? The private capital is going to follow where the public incentives are. So, you know, we've seen this in 1.0. I'll give, you know, to move around and give a different example.
Jason Glasser:We made an investment in a multifamily community in Suburban Seattle. And some of the real drivers behind that were, you know, they were building a light rail station there and increasing connectivity to both Downtown Seattle and Bellevue. They gave a real estate tax break in exchange for some income restrictions on the units. I think when you align your local benefits with the federal benefit, you're more likely to draw investment capital into your state. And let's remember the states are constantly competing for some of these larger things.
Jason Glasser:You know, your Yuma plant, I think it's probably got to be in a rural area in the desert somewhere, Arizona doesn't but have exclusivity on that. And you see it in all sorts of industries, right? Whether it's, you know, sports teams who are fighting over, you know, funding stadiums and bringing them from place to place is another good example. So I really do think that that report card which came out was all heads up to the states that said, look, you're smarter about where you pick your zones and you place them where you're already having initiatives to fund growth, you're going to attract more private capital. And that's where I see 2.0 going.
Jason Glasser:So I do think that because as you said, it was a little haphazard with the zones and the rollout at first. And maybe states were saying, hey, this has a limited timeframe on it. How much time am I gonna put into picking these? This is a one time thing. Maybe it amounts nothing, you know, a $100,000,000,000 in states, the light bulb has gone off and said, okay.
Jason Glasser:We really need to focus on the zones that we pick and make sure that we're putting our zones in areas where the private capital is gonna follow.
Mark Bonner:So look, we've talked a lot on this show about data centers running into local resistance. We've all seen the headlines. That same dynamic is already showing up inside OZ nominations. In Camden County, Missouri, more than 100 residents showed up to a county commissioner's meeting to oppose a proposed OZ site with a data center component, and the commission ended up rejecting it. How does Clarion think about that kind of reputational and political risk, especially with OZ two point o's new annual reporting requirements that put a lot more of this activity on the public record?
Jason Glasser:Yeah. So I was I was at this very informative OZ conference last week in in New York. It was put on by Bisnow. And there was a really great question, and Mark didn't tell me to say that, but go attend the OZ Conference in your city.
Mark Bonner:Thank you so much.
Jason Glasser:But a very similar question came up, and there were leaders in the OZ space up on the panel and they acknowledged that data centers in today's economic environment probably don't need added incentives to get built. I know at least one coming from one center, I believe it was Ron Wyden from Oregon came out with a big letter that said, you know, data centers shouldn't get the OZ benefits are going get built anyway. It's kind of what we're saying. Clarion has taken a bit of a different you know, position on data centers. First of all, they're really big.
Jason Glasser:So they involve significant concentration risk. I just, we likely don't have the right vehicles for them. They're very capital intensive. There's a lot of technology. There's definite concerns about obsolescence or maintenance, things like power, things like that.
Jason Glasser:You know, what Clarion has really been focused on when we look at what I would call the technology play or even just in more in general, the advanced manufacturing play. We like to locate in metros where that's happening and take advantage of that adjacency. You know, we look at things like EV battery plants, defense technology, chip plants, in addition to data centers, and we kind of lump them all together. And we say, you know, if you have a significant amount of that being built in a particular market, what we're seeing in general is anywhere from a three to five times multiplier in space needs in the industrial warehouse space. And that's, you know, helping us target the right markets for our investors.
Jason Glasser:In 1.0, we're building a project in Columbus, Ohio. And you say, why are you in Columbus, Ohio? It's almost a million square foot building that we're building there. Columbus, Ohio is doing almost all of the things I just mentioned, right? They have Honda building an EV plant.
Jason Glasser:They have defense technology. They have data centers. They have Intel making huge investments. I think following those has been more of the Clarion strategy and taking advantage of all the suppliers and servicers and things like HVAC and electrical and parts and things that need to follow along with those investments. That's where we've been focused in the market and also focus on the Opportunity Zone space.
Mark Bonner:So let's zoom out for a second. Debt is pretty expensive right now. Tariffs are pushing up construction costs everywhere across a number of fronts. And Novogratix own OZ Working Group has said fund managers are having a harder time pitching OZ investment to LPs than they did the first time around. Given all of that, does the tax benefit itself become more decisive to actually getting a deal done today than it was back in 2018?
Jason Glasser:Yeah, when I look at our underwriting and I think about what's going to give us comfort to move forward with an investment, the two words that come to mind for me, it's stability and volatility or what you're looking at. We want a lack of volatility. We want some stability in the markets. And then we can underwrite off of that. We could look at what's the profit margin that we need?
Jason Glasser:What are the returns that we need? And the things you brought up, those have to do with costs, right? There's debt is part of the cost. Construction costs are part of the cost. What we've seen in especially in the sectors we're most active in, so that's warehouse and multifamily construction costs.
Jason Glasser:We have seen the construction costs come down a bit and that is a bit counterintuitive with the inflation and the tariffs. But there is less construction activity going on in that space than there was a few years ago. So you have contractors and subcontractors who are willing to take thinner margins to move forward with deals. You also have land sellers. So we're in an environment with higher rates, land as an asset, right?
Jason Glasser:Generally you're not, that has a negative carry to it, right? You're not gaining any income on it. You're paying taxes. So ultimately land sellers that need to move land are going to have to take a lower price and that has, we've seen that come about a decent amount. But ultimately I think what it comes down to is we're really looking at the fundamentals in the market.
Jason Glasser:Unemployment is still in a pretty good spot. Consumer spending is in a pretty good spot. There are some red arrows that you mentioned on the chart and there's some green arrows. So you got to balance everything a little bit and anything on the margin I think will help deals move forward. The debt equity is available in the market today.
Jason Glasser:That seems to be pretty plentiful. So opportunities on benefits certainly placed in the right spot with the right incentives alongside it does help move the needle a little bit.
Mark Bonner:And these are long term investments. Right. And so, you know, who knows what the world will be like two or three or four years from now. Right. But this Opportunity Zone program comes along and it provides, no pun intended, an opportunity, which my follow-up question to you, Jason, is are you seeing deals get done today in this uncertain environment that simply wouldn't pencil without the OZ benefits specifically?
Jason Glasser:I think what you're seeing is investments that go back to what I brought up before. It's that kind of what I think of as the public private partnership. You need a lot of boxes to get checked for things to line up. Is the state making an investment in their infrastructure near your project? And does that help us with our underwriting?
Jason Glasser:Are they offering outside of the opportunity zone, but some more local tax break or more local incentive for tenants to locate there? You know, we're seeing, and I brought up that investment in Columbus. One of the things that made makes the needle move there is they have incentives on real estate taxes, which as an owner of warehouse building that largely goes to the benefit of the tenant paying on a triple net lease, but that helps move the needle as well. So I think what you're seeing in today's market environment with the higher risk free rate is that it takes multiple levers to make any investment work and Opportunity Zone certainly comes in there as one of the levers with others that will make things attractive in the market.
Mark Bonner:So let's end here, Jason. If there's one thing about OZ 2.0 that you think the current headlines aren't capturing yet, what would that be?
Jason Glasser:Yeah. When I look at the report that came out about the 100,000,000,000 that's out there in investment, a lot of it going to multifamily, the requirements are very focused on the income of the areas. I think the conversation really focuses on housing for the most part. And there are other benefits that can be brought through development in these opportunity zones. And a lot of them have to do with bringing jobs in with commercial businesses.
Jason Glasser:And Clarion has been really focused on diversifying its portfolio of opportunities, own investments. And we've done multifamily investments. We've also done, as I mentioned, a lot of warehouse investments. And I talked about the Columbus deal that we just did. We were also similar scale.
Jason Glasser:We're doing something in Phoenix. That one also following large scale manufacturing. It's a big theme for us. We're making an investment in an Opportunity Zone location that's close to the Taiwan Semiconductor Plant, which is over $160,000,000,000 investment on the private side there. That's bringing lots of jobs.
Jason Glasser:That's going to bring the need for a lot of new housing on the North Side Of Scottsdale and Phoenix. So we see that as a really good opportunity. We also see opportunities on investments, especially in the warehouse space as being really good inflation hedges. You're going to get contractual rent increases on these buildings. You'll be able to grow NOI over time over that long period and that long hold period.
Jason Glasser:So I think that's really important, you know, and on the multifamily side, you know, supply is certainly lower. I brought that up a little bit before that can be forecast pretty well. I think demand is sometimes a tougher variable, but we are, we're following demographics, we're following migration trends and there's going to continue to be investment in that area as well. But I think when we look at opportunity zones and going back to where I started, there are a lot of opportunities in other sectors besides just multifamily to make investments. And investors that are looking at the space should consider, you know, all types of real estate sectors to diversify.
Mark Bonner:You sound optimistic.
Jason Glasser:I am optimistic. Did you expect me to not sound optimistic?
Mark Bonner:No. I mean, you you sound optimistic, but we're also in a macroeconomic environment where there's a lot of uncertainty. And so I guess my final follow-up to you should be optimistic. I'm not trying to steer you off of that, Jason. What would have to go wrong for that optimism to go off the rails?
Jason Glasser:Yeah. I mean, look, rates are higher and that, you know, essentially it's a lower multiple on the risk free rate. And that's a challenge for all investors. It makes real estate, should make equities and other things slightly less attractive. Right?
Jason Glasser:Continued uncertainty around the direction of rates, I think is probably the most important thing. And I brought that up before with the volatility and the stability. You know, think volatility ultimately keeps people on the sidelines and probably limits new investment. Investors are looking for some stability, some confidence that they can see where capital markets are currently and where they're going forward. So greater stability in the markets, I think will bring more confidence into all investment, but, you know, Opportunity Zone and real estate in particular.
Mark Bonner:Okay. That's all the time we have today. Jason, thanks so much for joining us.
Jason Glasser:Yeah. It was a pleasure. Happy to do it anytime, Mark.
Mark Bonner:Alright. We'll be back soon with another episode of First Draft Live. You can also find today's episode in all of our past conversations on your favorite podcast app. I'm Mark Bonner. This is First Draft Live.