Bridge Investment Group said it plans to raise another $600 million through its Opportunity Zone funds between now and the end of this year.
The company announced this week that it had already raised $1.3 billion through the funds since launching in October 2018 with a $500 million target. Most of that money has already been deployed to projects around the country.
So far this year, the Salt Lake City-based investment firm has raised about $350 million for its Opportunity Zones funds; the company is among the largest and most active players in the Opportunity Zone space.
David Coelho, Bridge’s chief investment officer for its Opportunity Zones program, said the company has deployed capital to 26 assets in 17 markets, including in Queens, New York, the Bay Area, Sacramento and Seattle.
The firm’s strategy of focusing on multifamily housing in metro areas has not changed despite the upheaval the coronavirus has brought tenants, landlords and developers, Coelho said. The company, which has $20 billion in assets and 40,000 multifamily units, may also look to industrial real estate, he said. The continued rise of e-commerce and last mile-distribution centers have kept that sector strong.
Coelho acknowledged Covid-19 has put a strain on short-term outlook, making it “harder to project out rental growth,” and adding that the cost of financing has gone up.
But, he said there is now less competition in the Opportunity Zone space because many companies are closing fewer deals and deploying capital at a slower rate. Land prices are also declining along with construction expenses, he said, allowing the firm to develop Opportunity Zone projects at lower costs.
The Opportunity Zone tax incentive was created in 2017 under the Trump administration’s tax overhaul as a way to boost investment in distressed areas throughout the country. The program allows long-term investors and developers to defer or potentially forgo paying capital gains by putting money into one of the more 8,700 designated zones nationwide.
Many investors and developers have struggled to make the numbers pencil out because of high land prices in the zones, among the reasons. Others aren’t willing to take a chance on neighborhoods that could take years to see results. Companies that launched funds with massive targets have been disappointed. Notably, Anthony Scaramucci’s SkyBridge Capital said last fall it had only raised $30 million of the $3 billion target for its Opportunity Zone fund. The hedge fund lowered its goal to $300 million.
In recent months the program has also faced pushback from Congressional Democrats and watchdog groups, who see it as a tax break for the wealthy. In New York, two state lawmakers have proposed a bill to prevent Opportunity Zone developers from receiving state tax breaks in addition to federal tax breaks.
Coelho said New York has never been a major investment market for Bridge, but the legislation would make the state a slightly less attractive market to invest in.
“If it does pass, we would be less likely to look at New York deals,” he said.