Report Finds Investments in Opportunity Zones Continue to Grow
by Erik Hayden, on Oct 20, 2021 10:07:51 AM
Anyone who’s spent time working with the Opportunity Zone Program knows the name Novogradac.
Novogradac is a San Francisco-based certified public accounting and consulting company that specializes in, among other things, the Opportunity Zone Program. And the firm’s latest report on the OZ Program suggests interest in the program continues to grow throughout the country.
Novogradac tracks 1,171 Qualified Opportunity Funds (QOF), and 853 of them reported a specific dollar figure of equity raised. Together, they raised $17.52 billion by the middle of 2021, “continuing a steady climb since Novogradac began tracking investment in 2019.” The $2.36 billion raised since the end of 2020 represents an increase of 15.5%.
The Novogradac Opportunity Zones Investment Report acknowledges that the findings represent only a piece of the pie since it relied on QOFs voluntarily providing information, as well as publicly available data. Extrapolating from the available data, Novogradac believes the total investment in QOFs is probably three to four times greater than the $17.52 billion it has tracked.
The report states that $8.84 billion—about half the equity raised on the Novogradac list—comes from 37 funds that have raised at least $100 million. At the end of 2020, there had been only 32 funds on the list that hit the $100 million mark, for a total of $7.71 billion. Urban Catalyst is happy to be part of such a group, having raised $131M in our first fund, which closed in December.
A few more interesting tidbits: California and New York continue to lead the states for investment, and New York City and Los Angeles are the cities leading with the most known investments, according to the report. One of the more eye-popping findings cited was a whopping 350% increase in investments in California--from $410 million to $1.84 billion--over the 14-month period ending June 30.
The data-driven 26-page report provides a wealth of information about the OZ program and is well worth checking out.
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Real Estate Risk Disclosure:
- There is no guarantee that any strategy will be successful or achieve investment objectives including, among other things, profits, distributions, tax benefits, exit strategy, etc.;
- Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
- Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
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Opportunity Zone Disclosures
- Investing in opportunity zones is speculative. Opportunity zones are newly formed entities with no operating history. There is no assurance of investment return, property appreciation, or profits. The ability to resell the fund’s underlying investment properties or businesses is not guaranteed. Investing in opportunity zone funds may involve a higher level of risk than investing in other established real estate offerings.
- Long-term investment. Opportunity zone funds have illiquid underlying investments that may not be easy to sell and the return of capital and realization of gains, if any, from an investment will generally occur only upon the partial or complete disposition or refinancing of such investments.
- Limited secondary market for redemption. Although secondary markets may provide a liquidity option in limited circumstances, the amount you will receive typically is discounted to current valuations.
- Difficult valuation assessment. The portfolio holdings in opportunity zone funds may be difficult to value because financial markets or exchanges do not usually quote or trade the holdings. As such, market prices for most of a fund’s holdings will not be readily available.
- Capital call default consequences. Meeting capital calls to provide managers with the pledged capital is a contractual obligation of each investor. Failure to meet this requirement in a timely manner could elicit significant adverse consequences, including, without limitation, the forfeiture of your interest in the fund.
- Opportunity zone funds may use leverage in connection with certain investments or participate in investments with highly leveraged capital structures. Leverage involves a high degree of financial risk and may increase the exposure of such investments to factors such as rising interest rates, downturns in the economy or deterioration in the condition of the assets underlying such investments.
- Unregistered investment. As with other unregistered investments, the regulatory protections of the Investment Company Act of 1940 are not available with unregistered securities.
- It is possible, due to tax, regulatory, or investment decisions, that a fund, or its investors, are unable realize any tax benefits. You should evaluate the merits of the underlying investment and not solely invest in an opportunity zone fund for any potential tax advantage.