Los Angeles Top City for QOF Investment; California Leads All States

Published by John Sciarretti on Wednesday, August 2, 2023 - 12:00AM

There’s a new city leader for investment by qualified opportunity funds (QOFs) tracked by Novogradac, as Los Angeles surpassed Washington, D.C., during the first six months of 2023 to take the top spot among cities for planned QOF investment with $1.54 billion reported by Los Angeles-focused QOFs.

In the January-through-June period, Novogradac tracked $208.2 million in new planned investment in Los Angeles, the most of any city during that time and nearly 10 times the amount of new QOF money going to the nation’s capital. This is the first time Los Angeles is the leading city for targeted investment by QOFs tracked by Novogradac after Washington, D.C., led for each of the previous three periods for which Novogradac reported such data and New York led the two periods before that, going back to the first time Novogradac reported city data at the end of 2020.

QOFs tracked by Novogradac reported a cumulative equity amount of $36.10 billion as of June 30, 2023. Novogradac is tracking 1,731 QOFs, of which 1,330 report a specific amount raised. The June 30 figure was an increase $2.01 billion over the amount as of Dec. 31, 2022. That marked a significant drop from the first six months of the 2022, when QOFs reported a $6.09 billion jump in equity.

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. The data also includes information from public sources such as Security and Exchange Commission filings and press releases. Novogradac’s totals don’t include proprietary or private funds owned and operated by their principal investors, so actual opportunity zones (OZ) investment is presumed to be greater than the Novogradac total by a figure of three or four times.

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While overall QOF investment was up just 5.9% over the first half of 2023, Los Angeles saw a 15.7% increase in planned QOF equity investment in that period. Los Angeles, Washington, D.C., and New York City remain the three cities that have at least $1 billion in targeted QOF investment, although Phoenix is on pace to join them by the end of 2023. The top three cities account for 11.6% of all reported QOF investment.

Of the top 20 cities for QOF investment as of June 30, 2023, nine rank among the 20 largest cities in the nation by population. Virtually all of them have large populations: 19 of the top 20 cities for QOF investment are among the top 135 by population–the cities with QOF investment that rank well above their population ranking include Tempe, Arizona (11th in QOF investment, 134th in population), and Salt Lake City (seventh in QOF investment, 119th in population). The major outlier among the top 20 cities is New Rochelle, New York (population 80,000), which ranks 15th in QOF investment and was well below the cutoff for the 300 largest cities in the nation as of 2020 (the 300th-largest city by population was Sandy Springs, Georgia, with 105,223 residents).

Among the nation’s top 20 cities by population, only Fort Worth, Texas (12th largest by population), and San Francisco (18th largest by population) have no planned QOF investment by QOFs tracked by Novogradac. San Diego (eight in population, 122nd in QOF investment) and Indianapolis (16th in population, 64th in QOF investment) are other cities where the QOF investment is disproportionate to the population.

Among the top 50 cities for known investment, two states have five each: Arizona (Phoenix, Tempe, Mesa, Scottsdale, Goodyear) and California (Los Angeles, Sacramento, Oakland, San Jose, Berkeley).

Los Angeles has 50 known OZ investments, which trails only Columbus, Ohio, Cleveland and Cincinnati on Novogradac’s list–figures that are likely influenced by the fact that a state OZ incentive in Ohio requires reporting on all OZ investment, giving Novogradac a better look into Ohio investment data.

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Among states, California remains the leader in planned QOF investment by far, driven likely by its population and vibrant real estate markets. The Golden State added an additional $281.0 million in planned QOF investment since the end of 2022, reaching $4.06 billion in planned investment. Among states, the big mover in the past six months was Florida, which added $300 million in planned investment, the most of any state. That moved Florida past Washington, D.C., in the state listings, going from sixth to fifth. Elsewhere in the top 10, Colorado moved past Washington into seventh place and Tennessee moved into the top 10 by edging past Maryland, thanks largely to a boost of $157 million in planned investment during the first half of 2023.

QOFs tracked by Novogradac plan to invest in 48 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Only Alaska and Rhode Island have no investment planned by those QOFs.

Geographically, a vast majority of QOFs being tracked by Novogradac focus on a single city, highlighting the fact that most participants in the OZ incentive are looking at a single investment (72.1% of all QOFs for which the information is known have a single investment focus, 76.7% focus on a single city–there is significant overlap between those two categories). However, QOFs focused on multiple cities and multiple investments have raised far more equity, due to their sophistication and market reach. Multi-city QOFs make up just 23.1% of all QOFs, but have raised 71.4% of all equity, while multi-investment QOFs make up 27.9% of funds for which that information is known and have raised 76.2% of all such equity.

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.

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