Investment in qualified opportunity funds (QOFs) tracked by Novogradac surpassed the $30 billion milestone at midyear. 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 (OZ) incentive: the number of local, single-project-focused QOFs is increasing while large QOFs with multiple focus areas are raising more funds.

Investments in QOFs tracked by Novogradac reached $30.49 billion as of June 30, 2022, as detailed in Novogradac Opportunity Zones Investment Report: Data Through June 30, 2022. Novogradac is tracking 1,475 QOFs, of which 1,097 report a specific dollar amount of equity raised.

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More Narrowly Targeted Funds Reached New Highs

The number of QOFs focused on a single city make up 75.1% of all funds that report a specific equity amount and for which geographic-focus information is available. Similarly, those that focus on a single project make up 69.9% of all such measurable QOFs and those that target an equity raise of $10 million or less make up 62.5% of all QOFs that report an equity amount. Each of those percentages are the highest in the history of the Novogradac survey.

Large, Diversified Funds Set New Records

The largest QOFs–those that have raised $100 million or more–have raised $60.1% of all equity raised by QOFs, another record.

These trends are described in the special report, which also provides a look at the geographies of where investment is being made and the types of investment made by QOFs. The report includes information on the size of QOFs by ranges of equity raised, what percentage of QOFs have multiple project targets, what percentage of QOFs are managed by managers with multiple funds and lists of the top 20 states and top 40 cities for planned investment by QOFs.

The total investment in QOFs is more than the $30.49 billion reported by Novogradac–likely three to four times greater. That is because Novogradac’s rolling collection of information comes from QOFs voluntarily providing information or from other public sources such as Securities and Exchange Commission filings and press releases. While the Novogradac list includes single- and multi-asset funds, it does not include proprietary or private funds that are owned and managed by their principal investors.

The increase in investment since Dec. 31, 2021, was the second most for any period in which Novogradac has tracked QOF investment, trailing only the final six months of 2021. However, nearly two-thirds of the $6.09 billion increase in equity for Jan. 1-June 30, 2022, came in the first three months. That made the first three months of 2022 the biggest quarterly increase in equity tracked but made the second quarter a drop-off.

Residential development continues to be the leading area of investment for QOFs in Novogradac’s survey, with $5.56 billion in investment in QOFs that target residential property only and $24.40 billion in investment in those QOFs that have at least some emphasis in residential development. Commercial development ($20.67 billion in investment by QOFs with at least some emphasis) is the second-highest level of investment, followed distantly by hospitality, renewable energy and operating businesses.

Novogradac Opportunity Zones Investment Report: Data Through June 30, 2022, will be the topic of the Aug. 9 episode of the Tax Credit Tuesday podcast.