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Arizona may be entering its most compelling development window since before the pandemic. After several years of stalled projects, constrained financing, and market uncertainty, fundamentals are improving in ways that may draw renewed attention from more investors.
Easing interest rates, early signs of a multifamily financing rebound, and the recent permanency of the Opportunity Zone incentive could change how capital gets deployed across Phoenix. What matters now is not simply whether to invest, but when and how to position capital to capture the next growth cycle.
It is anticipated that savvy investors planning asset sales in early Q3 2026 are expected to be increasingly focusing on potential Opportunity Zone projects that align capital gains reinvestment with real, near-term development timelines. With the incentive now made permanent under the "One Big Beautiful Bill," we are hopeful that more investors with ripe capital gains will consider deploying equity into the Opportunity Zone projects.
Under the Opportunity Zone rules, capital gains generally must be reinvested into a qualified opportunity fund within 180 days from the sale of an asset such as stock, real estate or a business. Gains realized as soon as July 2026 can be deployed in qualified opportunity funds in early 2027, which could then be used to capitalize projects throughout 2027 and potentially beyond.
Investors who deploy their capital gains after Dec. 31, 2026, into qualified opportunity funds may then benefit from rolling five-year deferrals, stepped-up basis incentives, and the potential exclusion of gains in those investments after a 10-year hold. Such benefits may be maximized when capital is ultimately invested into projects that are truly ready to proceed, rather than concepts still carrying entitlement or execution risk.
Interest is growing among fund sponsors and investors, including many new to Arizona, who are underwriting deals with greater discipline than in prior cycles. Developers and sponsors with a long-term plan focused on fundamentals, timing, and execution are more likely to attract such capital.
Affordable housing now a core strategy
Affordable housing development has attracted many multifamily developers to Arizona in recent years, and large-scale affordable multifamily development is accelerating across the state.
This is evidenced by the fact that nearly 50 applicants participated in the recent Multifamily Volume Cap Lottery on Jan. 8, seeking nearly $1.5 billion in private activity bonds from the Arizona Finance Authority. Only 13 of these projects were awarded volume cap under the program, totaling $416.8 million. This is projected to be the third-straight year that volume cap for multifamily residential rental has been allocated in full.
Some developers who were previously focused more exclusively on the development of luxury multifamily projects have been pivoting toward mid-market and affordable housing, driven by ever-changing market conditions, lower rents, increased construction costs and inflationary pressures. Phoenix stands out as one of the markets where this shift is most pronounced, attracting out-of-state developers who previously struggled to make deals pencil out.
Due to fewer new ground-up market-rate construction starts over the past few years, absorption for lease-up of existing multifamily housing projects has been improving, which is anticipated to increase the demand and improve fundamentals for future development opportunities.
As more capital gets deployed into new construction deals, sponsors and developers who engage early with experienced real estate and equity syndication counsel will be better positioned to deliver successful projects that can generate better returns and potential tax benefits to their investors.
This article was originally published in the Phoenix Business Journal, January 23, 2026
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