From the Land of OZ: Equity Investments into QOFs Up Sharply in the last 6 months of 2021!

According to reporting this week from Novogradac, Qualified Opportunity Fund (“QOFs”) investments were sharply up in final 6 Months of 2021. While this is not overly shocking given the expiration of the 10% reduction benefit under the OZ Act on 12-31-21, the amount of deal flow and capital investment continues into 2022 at a fast and furious pace (and we are not talking cars here).

Per the report, Qualified Opportunity Funds raised a eye-popping $6.88 Billion in equity in the final six months of 2021, the largest quarterly amount raised in any period since the inception of the OZ program in 2018. 

As of 12-31-21, total OZ equity from these QOF funds increased to approximately $24.4 Billion.  Note, this equity is often leveraged with debt in order to build or buy projects which likely results in total project costs of these investments being at least $100 Billion.

Novogradac collects data from Qualified Opportunity Funds that voluntarily provide information to them on an ongoing basis.  One of the features of the OZ Act that we often hear criticism of is the lack of required reporting on key performance indicators like funds flow, job creation, total project cost, etc.  As such, while the volume of investment from Qualified Opportunity Funds that have been tracked is impressive, the totals do not represent the total market share of investments given the voluntary nature of the disclosure. 

We are often asked, where is all the investment going on?

Per the report, the states with the most OZ investment to date have been California ($2.4 Billion); Arizona ($1.35 Billion); Texas ($1.12 Billion), New York ($1.05 Billion) and Florida ($784 Million).  Moreover, there are 20 cities that have at least $200 million in planned or on-going Qualified Opportunity Fund investments, including Washington, DC ($740 Million); Los Angeles, CA ($679 Million); New York, NY ($642 Million); Nashville, TN ($521 Million), and Austin, TX ($455 Million) as the top five cities for OZ investments. 

If you would like to review a copy of the report – a link is attached :

Duane Morris has an active Tax Credits and Opportunity Zone Team to help organizations and individuals plan, respond to, and invest in Opportunity Zones and low income areas throughout the USA, including the US Virgin Islands and Puerto Rico using tax credit equity and standard equity. We have closed over 173 OZ deals since their inception and are actively working on over 34 OZ projects for owner/developers, investors and business owners at the moment. We would be happy to discussion your proposed project with you.

Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

If you have any questions about this post, please contact Brad A. Molotsky, Art Momjian, Scott Gluck, Lee Potter, Anastasios Kastrinakis, or the attorney in the firm with whom you are regularly in contact.

Rapid increase in funds invested in Opportunity Zone Funds

Despite the laments that I have heard of late at various conferences and read in various articles, Opportunity Zones are, in our little slice of the world, very busy, very active and, per both Novogradac and Bisnow, OZ Funds who are focused on raising third party equity have seen a marked increase in funds under management in the last few months and have raised approximately $4.5B to date. While this is indeed less than the $6T of unrealized capital gains estimated to be available to invest, it is still a very sizable sum of money.

Per Novogradac, of the 366 funds that they track which represent a targeted funding level of $65.7B if fully funded, 184 Qualified Opportunity Funds have reported back and have raised $4.46B with a funding target for those 184 QOFs of $25.17B. This level of $4.5B is up significantly from September when these same funds had raised $2.5B.

Many folks we work with are focused on the 12/31/19 deadline to invest capital gains into a QOF in order to obtain the 15% reduction in amount subject to capital gains benefit; BUT, as indicated previously, the sky does NOT fall if you miss this date, Armageddon does NOT happen – rather, the investor is eligible for a 10% reduction in 2020 and 2021 if they invest capital gains in those calendar years. So, the program is far from over, far from reaching its potential but is alive and doing well and making progress and moving in the right direction, if right is to attract equity capital in low and moderate income areas that were designated as Opportunity Zones.

My team and I are in the office and working on closing the 39 OZ deals we are currently working on for clients who have pushed forward and are moving deals towards the goal line. Kudos and thank you to those 29 clients for whom we have already closed deals for. We appreciate your business and count our blessings to have worked with you on these fun and exciting projects.

If you have questions or comments, please let us know as we are happy to chat OZs and investments and deployment or anything else you would like to discuss.

Have a wonderful holiday season!

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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