Los Angeles and California Solidify Spots as Top Targets for QOF Investing

Published by Jason Watkins on Tuesday, February 6, 2024 - 12:25PM

After passing Washington, D.C., in the first six months of the year, Los Angeles finished out 2023 as the city with the most planned investment by qualified opportunity funds (QOFs) tracked by Novogradac. An additional $210.0 million of investment was announced in Los Angeles during 2023, a 15.8% increase over the total at the end of 2022 and bringing Los Angeles to $1.54 billion in planned QOF investment.

It marked the first time Los Angeles led cities for QOF investment at the end of a calendar year. Washington, D.C., had the most investment planned at the end of both 2021 and 2022.

Those figures were part of the year-end total of $3.53 billion in equity raised by QOFs tracked by Novogradac in 2023, a 10.4% jump over 2022, bringing the overall total equity raised by QOFs on Novogradac’s list to $37.62 billion since the inception of the incentive.

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

The QOF figures reported by Novogradac don’t include proprietary or private funds owned and operated by their principal investors. It is estimated that actual opportunity zones (OZ) investment is greater than the Novogradac total by a multiple of three to four times.

In addition to tracking what types of investments are made (residential, commercial, etc.), Novogradac tracks the geographic areas of planned investments, breaking down the planned investment by city and state. Novogradac also tracks whether QOFs are investing in a single city or multiple cities.

Blog Graphic: Los Angeles Tops List of Top 50 Cities for QOF Investment

While Los Angeles moved up one spot, Cleveland had the largest amount of new planned QOF investment reported in 2023, receiving $215.6 million to jump from 15th on the city rankings to eighth. Ohio has a reporting structure for its state-level OZ tax credit, so more information is available on Ohio investment, but Cleveland outranks Columbus (20th) and Cincinnati (37th) in the city rankings.

The other city new to the top-10 annual rankings was Baltimore, which ranked 10th, up one spot from the end of 2022. Tempe, Arizona (dropping from 10th to 12th), and Sacramento, California (dropping from ninth to 13th), were the two cities that dropped out of the top 10.

Among cities that made a significant move in 2023 were Charlotte, North Carolina ($204.8 million of new investment in 2023 to move from 22nd to 11th), Miami ($163.7 million in new planned investment to move from 19th to 14th), Tampa, Florida ($106.3 million in new investment to move from 36th to 24th), and Berkeley, California ($50.2 million to move from 57th to 40th).

Novogradac also tracks the number of QOF-financed developments in cities and states. Columbus, Ohio (181), Cleveland (104) and Cincinnati (65) have the most, again attributable to Ohio’s reporting requirements providing unique insight. Among other cities, Los Angeles (50), Washington, D.C. (33) and Nashville, Tennessee (33), all have more than 30 QOF investments planned.

Blog Graphic: California, Arizona Top States for QOF Investment

California is the state with the most planned investment at the end of 2023, as it has been for every period Novogradac has tracked such data. The Golden State saw $297.3 million in new planned investment by QOFs in 2023, raising its overall total past the $4 billion mark.

In the three calendar years for which Novogradac has tracked planned QOF investment, there has been little movement in the top 10. California, Arizona, New York, Texas, Florida, the District of Columbia, Ohio, Colorado and Washington have been in each top 10. Maryland was the other member of the top 10 for the first two years and Tennessee moved up from No. 11 to join this year’s top 10.

Among states that saw significant investment and movement in 2023 were Ohio ($452.6 million in planned investment to move from ninth to seventh) and North Carolina ($288.6 million to move from 15th to 13th). At the end of 2023, Novogradac was tracking planned QOF investment in 49 states, the District of Columbia and Puerto Rico. Alaska is the only state without planned investment from a QOF on Novogradac’s list.

Blog Graphic: More Single-City QOFs, but Multiple-City QOFs Raise Most Equity

Another way Novogradac tracks investments is whether the QOF invests in multiple cities or in one city. Among the QOFs that report an amount of equity raised and a specific geographic focus, 78.7% focus on a single city (and of those, 91.7% focus on a specific project). However, the 21.3% of QOFs that fit that description and focus on multiple cities have raised $24.64 billion, accounting for 70.4% of all equity that can be identified this way.

That data–and the fact that the QOFs investing in multiple cities have raised a median of $18.7 million, compared to a median of $3.5 million raised by QOFs focused on a single city–points out the diversity of the OZ incentive: A majority of QOFs focus on a specific target, while those few that are truly national QOFs raise the most funds.

The information contained in this blog post is for informational purposes only and does not constitute an offer to sell or solicitation of an offer to buy securities. Novogradac does not provide investment advice and the information in this report is not to be construed as a recommendation to engage in any specific transaction. Readers are urged to consult with their own professional advisors if they are considering investing in a QOF.

Related Blog Posts

QOFs Report $3.53 Billion Jump in 2023 Equity, Moving Total Beyond $37 Billion

Multifamily Residential Development Continues to Dominate QOF Investment Tracked by Novogradac

QOF Bifurcation: Largest Funds are Fewer in Number, but Raise Most of Equity

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