Novogradac Opportunity Funds List Surpasses $12 Billion in Investment

Published by Michael Novogradac on Tuesday, September 1, 2020 - 12:00am

Investment in qualified opportunity funds (QOFs) continue to grow, providing a positive economic metric and further optimism for a community development tool to help the nation recover from the economic fallout of the COVID-19 pandemic.

Total investment in QOFs on the Novogradac Opportunity Funds List is now $12.05 billion, although the amount invested in all QOFs is undoubtedly more. A report last week by the White House Council of Economic Advisors (CEA), which used Novogradac data as a key factor, placed total investment at $75 billion.

The CEA formula is an extrapolation, while Novogradac’s list is based on collected data.

Blog Graph: Reported Equity Raised - Opportunity Funds
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The Novogradac total is $1.96 billion (19.4 percent) more than the Novogradac Opportunity Funds List included in late April, when anecdotal evidence suggested investment slowed considerably due to the COVID-19 pandemic. The increase reflects a continuation of the steady growth in equity reported since Novogradac began tracking investment in May 2019.

The information in Novogradac’s rolling survey comes from QOFs voluntarily providing information or from other public sources, such as Securities and Exchange Commission (SEC) filings and press releases. The Novogradac list includes single- and multi-asset funds, but doesn’t include proprietary or private funds owned and managed by their principal investors–which means the actual total is much higher.

The CEA report used Novogradac data from 2019 and 2020. The CEA also used information on QOFs available on the SEC website. The CEA report said Novogradac and the SEC showed similar growth rates in the number of QOFs and equity raised and used a multiplier on Novogradac’s data.

More QOFs, More Investment

The number of QOFs on Novogradac’s list grew 30.6 percent, from 621 in April to 811, and the number of QOFs reporting equity raised jumped 42.9 percent, from 406 to 580. The average equity raise of those 580 QOFs is $20.8 million, with 28 QOFs reporting that they have raised at least $100 million. In April, 22 QOFs had raised $100 million and in December 2019, 12 QOFs had raised that amount.

The current data on the types of investment for QOFs reflect longer-term trends: QOFs that focus on residential and commercial OZ investment lead the way in raising equity.

Blog Chart: Total OZ Funds Raised in Each Category
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There are 148 funded QOFs that focus solely on residential development and they have raised $2.74 billion. The 287 QOFs that have at least a partial focus on residential development have raised $9.09 billion, which is 75.4 percent of the total. As compared to the April list, equity raised with at least a partial focus on residential development increased 23 percent.

Meanwhile, funds that have at least a partial focus on commercial development have raised $6.98 billion, 57.9 percent of the overall total. (Due to the number of QOFs that have multiple areas of focus, the percentages add up to more than 100 percent.) As compared to the April list, equity raised with at least a partial focus on commercial development increased 14 percent.

QOFs with at least a partial focus on operating businesses have raised $444.2 million, which is 3.7 percent of the overall total. QOFs focused at least partially on hospitality have raised $1.82 billion (15.1 percent of the total) and those focused at least partially on renewable energy have raised $320.4 million (2.7 percent of the total). As compared to the April list, equity raised with at least a partial focus on operating businesses increased 25percent.

As compared to the April list, equity raised with at least a partial focus on hospitality increased less than 10 percent.  Interestingly, funds with a sole focus on hospitality increased more than 30 percent, whereas funds that include hospitality as one of the areas for which they are targeting investment, increased less than 7 percent. 

Geography: More QOFs focusing on Cities

QOFs can focus on a national, regional, state or city investment areas. Those with a national focus make up 23.4 percent of the funds that have disclosed their focus. Those with a single- or multiple-city focus make up 29.0 percent and 26.7 percent of all QOFs. The single- and multiple-city QOFs have combined to raise roughly half of the overall equity (single-city QOFs have raised $3.10 billion; multiple-city QOFs have raised $2.85 billion). In April, single- and multi-city QOFs had raised 41.9 percent of overall equity.

California, New York Top States for Investment

Novogradac also categorizes QOF investment by which states investment is made when that information is available.

Blog Table: Top 10 States/Territories by Planned QOF Equity Investment
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California and New York top the list and America’s two largest cities contribute mightily to the amounts. Based on Novogradac’s numbers, New York City-focused QOFs have raised $696 million and Los Angeles-focused QOFs have raised $509 million–much of which is attributable to the number of low-income areas in those metro areas. The investment amounts in New York City and Los Angeles combine to make up 10 percent of the national investment total.

Key Recovery Tool

Proponents of the OZ incentive highlight the fact that the recipients of investment are low-income communities, which have suffered disproportionate damage from the COVID-19 pandemic.

As the nation looks for tools to help spark a recovery from the COVID-19-caused economic recession, the OZ incentive provides a unique tool to fund development in low-income communities. President Donald Trump and Democratic presidential candidate Joe Biden have each expressed enthusiasm for the potential of OZs to spur recovery and economic growth.

The continuing increase in equity investment provides reason to see the OZ incentive as another key tool in the fight to rebuild America’s post-pandemic economy.

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.