Catalyst, a private equity firm, has launched its first real estate opportunity zone fund and plans to raise $150 million to invest in small and mid-market opportunity zone communities with what it deems as “high growth potential.”
“Catalyst is committed to leveraging [the fund] to maximize both financial returns for investors and social impact for communities by investing in projects that increase access to high-quality jobs, healthcare, education, and housing opportunities for local residents,” the company said.
The company disclosed plans to launch a second opportunity zone fund focused on investments in job-creating operating businesses in the same communities.
Established through the Tax Cuts and Jobs Act of 2017, opportunity zones are a community development incentive that offers tax benefits for investors who make long-term commitments in certain low-income communities.
These benefits include deferral of current capital gains through the end of 2026, up to a 15 percent tax reduction on current gains, and the elimination of capital gains taxes on appreciation if investments are held for at least 10 years. There are currently 8,700 designated opportunity zones in the U.S and its territories.
“We believe that over a 10-year opportunity zone investment horizon, our comprehensive strategy will maximize financial returns and create better outcomes for individual and families,” said Jim Sorenson, co-founder and managing partner. “Our fund is differentiated by our holistic approach to redevelopment that identifies and partners with best-in-class local developers, community and business leader, government officials, and economic development leaders.”
The opportunity zone program was designed to encourage investment to tackle persistent poverty and spur business growth in undercapitalized areas. Leveraging its nationwide investor, developer, and community networks, Catalyst claims it has identified and is currently performing due diligence on more than 50 investment opportunities across 18 states totaling some $2.15 billion in total project value.
Catalyst said that it will focus on overlooked markets where it sees economic signal, latent demand drivers, and a high degree of engagement from local government, non-profits, philanthropy, and other key community stakeholders.
“We find projects in smaller, out-of-the-way markets that are undervalued and have great potential but are off the radar of institutional capital,” said Patrick McKenna, co-founder and managing partner.
The mixed-use projects being vetted by the company incorporate affordable housing, co-working and creative office space, community health clinics, space for adult skills training and high-quality educational programs for kids, and grocery stores in communities where local residents lack access to affordable and healthy food options.
“We’re partnering with communities across the U.S. to unlock economic growth and improve social, health, and educational outcomes,” noted Jeremy Keele, a co-founder and managing partner. “Our holistic community investment approach aligns with the original purpose and intent of the Opportunity Zone program. We believe Catalyst could become a national model of best practices for maximizing both returns and impact in these communities.”
Catalyst is also working to create an impact measurement and reporting framework for the benefit of investors, project partners and local community stakeholders tracking how it and its partners’ investments are improving the community over time.
The framework, which is based on impact measurement and reporting guidance jointly developed by the U.S. Impact Investing Alliance and Georgetown’s Beeck Center, will reportedly track observable, near-term outputs directly attributable to the investments as well as longer-term project results and administrative data reflecting how individual and community outcomes are changing over time, the company said.