Qualified opportunity zone funds raised $6.1 billion during the first half of 2022, bringing the total raise to $30.5 billion, as of June 30, 2022, according to a semiannual opportunity zone investment report released by Novogradac, a national professional services organization that provides accounting, valuation, and consulting services.
Novogradac reported that the $6.1 billion raise was the second-largest dollar increase during a six-month period since it began tracking the data in May 2019. The final six months of 2021 had the largest jump at $7 billion.
“As the OZ investment incentive matures, investor interest is not waning,” said Michael Novogradac, managing partner. “Investors continue to invest equity capital in opportunity zones, thereby helping provide economic and other benefits and opportunities for residents and businesses in distressed areas.”
The Novogradac report is based on a rolling collection of data from qualified opportunity zone funds (QOFs) that voluntarily provide such information, including to the Securities and Exchange Commission, and does not include proprietary or private funds owned and managed by their principal investors.
As of mid-2022, the 1,475 funds tracked by Novogradac (of which 1,097 report a specific fundraising amount) raised $30.5 billion in equity. However, the actual total is “likely three to four times greater” than the reported amount, Michael Novogradac said in a blog post discussing the results.
Novogradac noted that the majority, nearly two-thirds, of the equity raised in the first half of 2022 was during the first three months of the year. The first quarter of 2022 had the highest quarterly equity raise, but there was a “drop-off” in the second quarter, he said.
Novogradac also said that residential development continues to be the leading area of investment for opportunity zone funds. Funds that focus solely on residential reported nearly $5.6 billion in investment, while funds that have “at least some emphasis” in residential development reported $24.4 billion. Commercial development came in second with $20.7 billion, followed “distantly” by hospitality, renewable energy and operating businesses.
For funds that report a specific equity amount, and where geographic-focus information is available, Novogradac said that single-city focused funds make up 75.1 percent of all opportunity zone funds. Funds that focus on a single project make up 69.9 percent, and those that target an equity raise of $10 million or less make up 62.5 percent. These percentages are the highest in the history of the survey, Novogradac noted. Another record, the majority of the equity raised (60.1 percent) comes from large funds that have raised at least $100 million.
“Large, diversified funds set new records in percentage of capital raised, while more narrowly targeted funds reached a new high in percentage of funds tracked. The split reveals a measure of success for the opportunity zones incentive: the number of local, single-project-focused QOFs is increasing while large QOFs with multiple focus areas are raising more funds,” said Novogradac.
The opportunity zone program was created to spur investments in distressed communities nationwide by offering potentially significant tax benefits to investors, particularly those who hold their investments long term. The 8,764 designated opportunity zone tracts are home to more than 10 percent of the nation’s population.