Real estate investors are still exploring how they can benefit from the federal Opportunity Zone program, established as part of the 2017 tax reform law, but face pressure to commit their money by the end of 2019, tax law experts said.

The program allows capital gains from various types of investments, including stock sales, to be channeled into funds that invest in real estate. If a fund meets certain regulatory requirements and invests in a property in one of more than 8,000 designated geographic areas nationwide, its investors can defer or reduce their taxes on the original sum. If they hold the new investment for 10 years, they can avoid paying any taxes on gains it produces.

Panelists in a webinar by the brokerage firm Marcus & Millichap said they have been fielding questions from potential investors and from property owners wondering about selling their assets to opportunity funds. Marcus & Millichap's national director of multifamily, John Sebree, said he has spoken with multiple investment banking firms, mostly New York-based, that are considering directing stock market gains into real estate opportunity zone investments.

John Chang, the firm's senior vice president of research services, said property owners selling to opportunity zone investors could then use the proceeds to buy new properties using tax-free so-called 1031 exchanges, causing a "domino effect that rolls through the entire sector over the next two years."

Because the program's tax deferral period ends at the end of 2026, and because there is an incremental reward for holding an opportunity zone investment for seven years, potential investors have an incentive to place their money during 2019 in order to reach that milestone before taxes on the investment money are due, Novogradac & Co. Partner Kevin Wilson said.

If funds are not placed in 2019, there is a similar, though smaller, incentive to invest by the end of 2021, he added. Aside from those deadlines, Wilson noted that the largest benefit available to investors through the program is the chance to realize tax-free gains by holding their investments for 10 years, whenever they are originated.

Wilson said his firm has been submitting questions about the particulars of the program to the Internal Revenue Service for guidance, in multiple tranches, but believes it may not receive some answers until early 2019.

The program is designed to draw "idle capital" into the real estate market and to allow the government to raise tax revenues it would not otherwise have received, Wilson said.

Property owners cannot place assets they already own into opportunity funds, and instead must enter into transactions to benefit from the program. Still, panelists said owners of properties in designated opportunity zones should benefit from increased investor demand.

Chang noted that the program requires investors to spend designated amounts of money to improve the assets they buy. As a result, he said, only properties within opportunity zones that can support future development or improvements are likely to draw new investor attention.

"A single-tenant net lease bank that fully occupies a piece of land, unless you're going to knock it down and put up something new, you can't really 'improve' on it," he said. "But a double parcel where you have extra land to develop, or you can go vertically to develop, those are the types of properties that are going to have marketability through this program."

Panelists also said that, while the program is intended to encourage economic development in challenged areas, some designated areas are stronger than others — such as parts of Long Island City, Queens, in New York, where Amazon.com Inc. is planning to build part of its second headquarters.

"You have it surrounded by a whole bunch of opportunity zones, which are high-potential development for office, retail and multifamily space," Chang said. "When you start to pair the economics and the local businesses, and the dynamics of the local market, with the opportunity zones, you start to see some really unique combination plays that really can make this interesting."