by: Adam Horowitz

The Old Assumption Is Breaking

For several years, many Opportunity Zone projects benefited from a simple assumption: if the deal qualified, capital would pay attention. The tax benefits created a strong reason for investors to look at projects in designated communities, and that helped bring new interest to markets that may have otherwise been overlooked.

That assumption is weakening.

Opportunity Zone capital is still active, but it is becoming more selective. Investors are no longer underwriting the tax incentive alone. They are underwriting the actual real estate, the sponsor, the market, the basis, the capital stack, and the execution plan.

Being in an Opportunity Zone Is Not a Capital Strategy

In the earlier stages of the market, some projects leaned heavily on the tax story. The pitch was often built around location, eligibility, and the potential investor benefit.

Today, that is not enough.

Capital providers are asking harder questions. Is the basis defensible? Is the submarket actually investable? Does the sponsor have the experience to execute? Is there enough demand for the finished product? Can the project survive higher costs, slower leasing, or a delayed exit?

The tax incentive can improve the investment story, but it cannot fix weak real estate.

Why Investor Behavior Has Changed

This shift is happening because the broader capital market has changed. Debt is more expensive than it was during the low-rate cycle. Construction costs remain difficult to control. Exit assumptions are less forgiving. Investors are more focused on downside protection, liquidity, and whether a project can perform under more conservative assumptions.

That means Opportunity Zone investors are behaving more like disciplined real estate investors, not just tax-motivated capital. They still care about the tax treatment, but they also want to understand the full risk profile of the deal.

What Investors Are Underwriting Now

Sponsor quality matters more. Investors want to know whether the sponsor has relevant experience, local market knowledge, lender relationships, and the ability to manage execution risk.

Market fundamentals matter more. Population growth, employment drivers, tenant demand, absorption, rent support, and competing supply all carry more weight.

Basis matters more. A project may qualify for Opportunity Zone treatment, but if the basis is too high, the return profile may not work.

Capital structure matters more. Investors want to know whether the debt is realistic, whether the sponsor has enough equity, whether preferred equity is needed, and whether the capital stack can survive delays or cost increases.

Exit strategy matters more. A project needs a credible path to stabilization, refinancing, or sale. If the exit depends on aggressive cap rates or a perfect market recovery, investors will push back.

The OZ Label Does Not Remove Execution Risk

This is why some Opportunity Zone deals are harder to capitalize today. The OZ label does not remove execution risk.

Ground-up projects with unclear demand, thin sponsor equity, weak submarkets, or unrealistic refinance assumptions are facing more scrutiny. Investors are less interested in the zip code alone. They want to know whether the project can perform.

What This Means for Sponsors

For sponsors, this creates a more demanding fundraising environment. The opportunity is still there, but the story has to be sharper.

Sponsors need to explain why the project deserves capital now, why the market supports the business plan, how the risks are being managed, and why the Opportunity Zone benefit enhances the investment instead of carrying it.

At Lever Capital Partners, we see Opportunity Zone capital becoming more selective, with investors placing greater weight on sponsor quality, basis, structure, and execution risk.

How Lever Can Help

Lever helps sponsors position Opportunity Zone projects for today’s capital market. That means looking beyond tax eligibility and focusing on what investors are actually underwriting.

For sponsors raising capital for Opportunity Zone real estate, Lever can help identify aligned capital sources, structure the financing strategy, and present the opportunity in a way that speaks to current investor behavior.

The challenge is not just finding investors who understand the tax incentive. It is finding capital that believes in the project itself.

The Bottom Line

Opportunity Zones are not dead. The market is simply more disciplined.

Before, the tax benefit often came first and the real estate came second. Now, the real estate comes first, and the tax benefit supports the story.

The tax incentive still opens the door. But the deal still has to earn the capital.