Opportunity Zone Funds Raised Nearly $10 Billion in 2022, But Cooled in 4Q22

Novogradac announced that overall investment in qualified opportunity funds tracked by the national accounting and consulting firm reached $34.09 billion at the end of 2022, with a single-year record $9.68 billion of that being reported in the preceding 12 months.

That total comes from 1,661 qualified opportunity funds tracked by Novogradac, 1,274 of them reporting a specific amount of equity raised. The equity amount raised in 2022 comes on the heels of a reported $9.24 billion raised in 2021 and $9.23 billion raised in 2020. While 2022 saw a record amount of reported investment, the final three months saw a decline.

“It’s not surprising that investment cooled off in the final quarter of 2022,” said Michael J. Novogradac, managing partner of Novogradac. “Most investment through the opportunity zones incentive comes from capital gains, and we saw a decline in the stock market and the housing market in the second half of 2022. Since those are two of the main creators of capital gains, the drop in qualified opportunity funds investment makes sense.”

Qualified opportunity funds tracked by Novogradac at the end of 2022 had an average equity-raised amount of $26.7 million, but the company says it is disproportionately affected by the number of high-dollar qualified opportunity funds in which there are eight qualified opportunity funds tracked by Novogradac that have raised $500 million or more.

“As the incentive matures, we continue to see that a few large, qualified opportunity funds, we call them super qualified opportunity funds, raise hundreds of millions of dollars for investment, but most funds are focused on smaller amounts,” explained John Sciarretti, a Novogradac partner who leads the company’s opportunity zones working group. “For instance, if we remove the super qualified opportunity funds from our calculation, the average amount per qualified opportunity fund drops from $26.7 million to $20.9 million.”

According to the Novogradac report, residential and commercial development continue to be the focus of most qualified opportunity fund investment and that while more than 75% of qualified opportunity funds for which Novogradac knows the geographical target are focused on a single city for investment, a great majority of the equity is raised by the super qualified opportunity funds, which generally have a broader investment target.

Novogradac has more than 720 employees and partners with offices in more than 25 cities. Tax, audit and consulting practice areas for Novogradac include affordable housing, community development, historic rehabilitation and renewable energy.

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