Fund Managers Bet on Opportunity Zone 2.0 Turnaround

A Cycle of Disappointment and Reset

According to Bisnow, the first wave of opportunity zone (OZ) funds ran into headwinds almost from the start—launching into a real estate market soon dominated by a pandemic, rising construction costs, and sharp interest rate increases. The original program, signed into law in 2017, was intended to draw investment into economically distressed census tracts with substantial tax benefits. Yet, timing proved unforgiving: by the time regulations were finalized in 2019, macro forces had already started undermining projected returns.

As market conditions forced some managers to revise or delay projects, OZ fundraising momentum slowed. Still, the industry managed to raise $43.6B into OZ funds since inception, per Novogradac. Now, managers are preparing investors for what they hope will be a more favorable cycle with the introduction of OZ 2.0.

The Details

The opportunity zone overhaul, solidified by the One Big Beautiful Bill Act in July, makes the program a permanent part of the tax code—eliminating deadline-driven investment and introducing a new map of qualifying census tracts set by state authorities. OZ 2.0 introduces rolling tax break eligibility, with investors able to reinvest gains within a 180-day window. GTIS Partners is preparing its third OZ fund, targeting $500M for deployment under these new rules, following two prior funds that raised $630M and $245M, respectively. Meanwhile, Peakline Real Estate Funds has launched a $1.3B fourth OZ-focused vehicle, emphasizing both urban-mixed asset plays and a concurrent rural-focused strategy.

The updated program significantly boosts incentives for rural investment: a 30% basis step-up on deferred gains, compared to 10% in nonrural tracts. Additionally, OZ 2.0 tightens eligibility criteria by lowering tract income thresholds and excluding adjacent wealthier communities. Investors will have a two-year window starting January to tap both old and new OZ maps; after 2028, legacy zones will sunset.

An Investor Pause Ahead of OZ 2.0

Fundraising has been uneven. According to Novogradac, only $2.6B was raised into OZ funds in 2025—the second-lowest annual total monitored. This spring saw a modest uptick to $850.8M in Q1 2026, as managers and investors look to deploy capital before the old regime ends. Peakline’s new funds illustrate how the sector is recalibrating around the expectation that OZ 2.0 will incentivize investments in less saturated, more distressed areas, and rural communities previously left behind.

However, experts project a significant fundraising lull in the second half of 2026. With gains realized after July eligible for the new regime starting in 2027, many capital allocators are pausing activity to prepare for the new rules and a reset in eligible geographies.

Why It Matters

Industry insiders say OZ 1.0 struggled because of timing, not incentive design. GTIS Partners’ Peter Ciganik put it directly: “It’s not an opportunity zone factor. It’s a vintage or cyclical factor.” COVID-19, higher construction costs, and rising rates hit projects underwritten in a different market. Novogradac says the $43.6B raised so far came during heavy volatility and regulatory uncertainty. That made OZ 1.0 a difficult test case.

Now, OZ 2.0 looks better positioned for investors and communities. Lawmakers made it permanent and narrowed its focus toward lower-income and rural census tracts. The 30% basis step-up for rural investments could redirect capital and open new project pipelines.

Stricter tract selection should also limit mission drift. However, managers still need to rebuild trust. They must explain how market cycles hurt returns, not the program’s core design. That clarity could revive credibility and fundraising momentum before 2027.

What’s Next

States will define the new qualified opportunity zone map next quarter. Investor interest already leans toward Texas and California, where OZ capital has led recent activity. Meanwhile, GTIS and Peakline are preparing funds built around the OZ 2.0 framework. A two-year transition period begins in January. During that window, capital will flow into legacy and new tracts. However, fundraising should climb once permanent zones are finalized.

With rural and distressed-area incentives now central, managers will sharpen fund strategies and investor education. The goal is clear: avoid repeating OZ 1.0’s early missteps under stronger rules.