Opportunity Zones, real estate’s next big thing, fails to attract much investment

Last year, Steve Mnuchin predicted opportunity zones could raise $100 billion

Oct.October 22, 2019 01:33 PM
About 100 Opportunity Zone funds have raised just 15 percent of what fund managers expected. (Credit: iStock)

About 100 Opportunity Zone funds have raised just 15 percent of what fund managers expected. (Credit: iStock)

Despite all the hype, investor interest in Opportunity Zone funds simply hasn’t materialized as fund managers had hoped.

According to an analysis by Novogradac, a San Francisco-based accounting firm, 103 Opportunity Zone funds have raised just 15 percent of what fund managers expected. There are at least 285 Opportunity Zone funds in the United States, and many have not shared fundraising metrics, according to the firm, which advises investors on tax incentives.

While Treasury Secretary Steven Mnuchin said last year that Opportunity Zones could raise $100 billion of private capital, the funds analyzed in the study raised just $3 billion of the total $22.7 billion fund managers anticipated.

Opportunity Zone investments must be held for 10 years in order to get the most benefit from the program, leading to some uncertainty about the potential upside of deferring capital gains taxes.

“The No. 1 concern [investors] have is the length of time they are investing for and the uncertainty of what can happen over that period of time the money is invested,” Chris Loeffler, chief executive of Caliber Cos., which has raised about $50 million of its $500 million target, told the Wall Street Journal.

Details of the implementation of the program — which was part of a 2017 tax overhaul and apparently created to spur economic growth in disadvantaged communities — are still being decided by federal regulators. That may help explain investors’ hesitancy, experts said.

The Treasury Department first issued guidelines for the program in October 2018 and additional guidance in April 2019.

Though many fund managers are struggling to reach their targets, there are success stories. SoLa Impact, which invests in South Central Los Angeles, closed a $100 million fund in August. The company said much of the money raised for the fund, which will focus on affordable housing, was from investors looking to redeploy their 2018 capital gains before midyear.
[WSJ] — Georgia Kromrei

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