Novogradac Report: QOF Investment Up Sharply in Final Six Months of 2021; 20 Cities Have $200 Million or More in Planned Investment

Published by Michael J. Novogradac on Monday, February 14, 2022 - 12:00AM

Dollars invested in qualified opportunity funds (QOFs) tracked by Novogradac increased dramatically the last half of 2021, and those moneys are being targeted for investment across ever more areas.

Overview

Blog Graphic: Snapshot of QOF Investment, Dec. 31, 2021

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According to the Novogradac Opportunity Zones Investment Report: Data Through Dec. 31, 2021, QOFs tracked by Novogradac raised $6.88 billion in equity in the final six months of 2021, the largest dollar amount in any period for which Novogradac has tracked investment. The 978 QOFs that have reported yearend fundraising numbers (Novogradac is tracking a total of 1,342 QOFs) have received an aggregate amount of $24.40 billion of equity from investors, which is 39.3% more than the totals as of June 30, 2021.

QOFs are the investment vehicle through which a taxpayer must invest capital gains to qualify for the deferral election and other tax benefits made available through the opportunity zones (OZ) incentive.

Novogradac collects data from QOFs that voluntarily provide information on a rolling basis. The report also includes information from public sources such as Security and Exchange Commission filings and press releases–but doesn’t include proprietary or private funds that are owned and operated by their principal investors. Actual OZ investment is probably three or four times Novogradac’s numbers.

The Novogradac report allows comparison of similar data over time.

Geographical Trends

Novogradac’s report provides insight into the type of investments being made (residential and commercial are by far the most popular) and the geographic focus of investment (nearly three-fourths of QOFs that report a specific geographic focus have a single-city focus). The report also lists the 20 states and 40 cities with the largest amounts of planned QOF investment.

While the volume of investment from QOFs tracked by Novogradac is impressive, more significant may be where the investment is being made: 20 cities have at least $200 million in planned QOF investment, according to the report.

Arizona Breaks Into Top 5 States

Blog Graphic: Top Five States for Equity Investment

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Among the states, the five with the most planned QOF investment include the four largest states by population as well as Arizona (which ranks 14th in population). Arizona saw the largest volume of planned investment in the final six months of 2021 by QOFs tracked by Novogradac, with $619 million in planned investment being added to the state’s total. California, which tops the list for planned investment, saw $566 million in announced investment in late 2021, bringing planned investment to $2.41 billion.

Among the 20 states with the most planned QOF investment are several from the Pacific coast, several from the Atlantic coast, some from the South and some from the Midwest. Every region of the nation is represented in the list of states with most investment.

Top 40 Cities Represent 23 States, D.C.

Blog Graphic: Top Five Cities for Equity Investment

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Similarly, there is a broad geographic swath for the 40 cities with the most planned investment–the 40 cities come from 23 states and the District of Columbia. Washington, D.C., moved into the top spot on Novogradac’s list with $740.6 million, an increase of $433.9 million in investment during the period July 1-Dec. 31, 2021. Los Angeles and New York hold the next two spots, while two fast-growing cities–Nashville, Tennessee, and Austin, Texas–hold the fourth and fifth spots in Novogradac’s list.

As mentioned earlier, the top 20 cities all have at least $200 million in planned investment. In addition, the top 40 cities on Novogradac’s list all have at least $100 million in planned QOF investment. Of those 40 cities, many are among the nation’s largest in terms of population, but not all: five cities of the cities with the most planned QOF investment have fewer than 100,000 residents.

More QOF Investment Analysis

Novogradac Opportunity Zones Investment Report: Data Through Dec. 31, 2021 also provides information on how many QOFs have raised different ranges of equity. The report breaks down equity raised by QOFs of different structure and provides a look at how much equity has been raised by top fund managers, many of whom oversee multiple QOFs. There is also a section on historical trends for the investment breakdowns in the report.

The Feb. 15 episode of the Tax Credit Tuesday podcast features a discussion of the report.

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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