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Opportunity Zone Fundraising Continued Freefall in 2023

Opportunity Zone Fundraising Continued Freefall in 2023. Alternative investments, equity, equity raise, Novogradac, Stanger, qualified opportunity funds, opportunity zones

Qualified opportunity zone funds tracked by Novogradac raised $3.53 billion in equity in 2023, plummeting from annual amount totals of the three previous years, all of which surpassed $9 billion.

The trending declines in equity raised by qualified opportunity funds was previously reported by The DI Wire in April 2023.

At least part of the reason for the slowdown was the general state of the economy, according to Novogradac, specifically a decrease in multifamily housing construction which ended December 2023 with the lowest annualized figure for permits since 2017.

At the close of the year, the opportunity zones equity raised and tracked by Novogradac amounted to $37.62 billion, an increase from $34.09 billion at the end of 2022. As of Dec. 31, 2023, Novogradac was tracking 1,874 qualified opportunity funds, with 1,461 of them reporting a specific equity amount. That’s 213 more qualified opportunity funds being tracked than a year earlier, with 187 more of them reporting an equity amount.

Qualified opportunity funds are the investment vehicle through which taxpayers invest capital gains to qualify for deferral and other tax benefits. Novogradac collects data from the funds that voluntarily provide information. Novogradac’s data also includes information from public sources such as Security and Exchange Commission filings and press releases.

The qualified opportunity fund figures reported by Novogradac don’t include proprietary or private funds owned and operated by their principal investors. It is expected that actual opportunity zones investment is greater than the Novogradac total by a figure of three or four times.

Robert A. Stanger & Co., an investment bank that closely tracks non-traded alternative investments, similarly reports a significant decline in equity raised among private placement opportunity zone funds in recent years. According to Stanger’s data, the private placement opportunity zone funds raised just over $600 million during 2023, down from $963 million in 2022. In 2021, Stanger reports that private placement opportunity zone funds raised more than $2.3 billion. 

Nearly 80% of known qualified opportunity fund investment is in developments that include multifamily housing. These developments in opportunity zones have grown dramatically since the dawn of the incentive. According to RealPage Market Analytics, the number of apartments built in opportunity zones tripled from 2016 through 2022, then doubled again in 2023. RealPage Market Analytics data indicates that 20% of all new apartments in the United States in 2023 were in an opportunity zone.

Those were apartments delivered in 2023, coming from earlier qualified opportunity fund investments. The slowdown in overall multifamily permits in 2023 won’t be felt until this year or later.

Of the $37.62 billion reported raised, qualified opportunity funds with at least some focus on housing raised $30.93 billion, with $8.10 billion of that raised by qualified opportunity funds focused solely on residential property. The other major area for investment is commercial. Qualified opportunity funds with at least some focus on commercial investment raised $24.93 billion in equity, with $2.20 billion raised by funds focused strictly on commercial activity.

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