Novogradac Tracks $1.11 Billion in Additional QOF Equity in Third Quarter, Continuing Tough Year
Published by John Sciarretti on Monday, October 23, 2023 - 12:00AM
Qualified opportunity funds (QOFs) tracked by Novogradac reported $1.11 billion in new equity raised in the third quarter of 2023, continuing a difficult year for the opportunity zones (OZ) tax incentive.
QOFs reported $3.12 billion in new equity raised in the first three quarters of 2023, compared to $8.29 billion for that period in 2022 and $5.12 billion in 2021.
QOFs tracked by Novogradac report having raised $37.21 billion in equity over the history of the incentive. As of Sept. 30, Novogradac is tracking 1,848 QOFs, of which 1,447 report a specific equity amount raised. The median amount raised by QOFs tracked by Novogradac that report a specific equity amount is $4.3 million.
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, as well as gathering information from public sources such as Security and Exchange Commission filings and press releases. Novogradac’s figures don’t include proprietary or private funds owned and operated by their principal investors, so actual OZ investment is likely greater than the Novogradac total by a figure of three or four times.
Included in the third-quarter figures is data from Ohio’s late-summer release 2022 QOF reporting, required to qualify for the state’s OZ tax credit. That means Ohio-based QOFs are disproportionally represented in this data (no other state has reporting requirements), but it also means this information likely trails actual investment in the Buckeye state, since Ohio data is through the end of 2022.
There were 117 more QOFs being tracked as of Sept. 30 than at the end of June. All of them report an equity amount raised and the vast majority of those are in Ohio.
As has been true since Novogradac began tracking QOF data in 2019, residential construction is the leading area of investment, with $7.87 billion reported raised by QOFs focused exclusively on that area and $30.51 billion raised by QOFs that have at least some focus on residential investment. Commercial development is second with $2.20 billion raised by commercial-only QOFs and $24.73 billion raised by QOFs with at least some focus on commercial development.
The other areas of investment categorized by Novogradac are hospitality ($741.2 million raised by hospitality-only QOFs, $4.09 billion raised by QOFs with some focus on hospitality), renewable energy ($179.6 million raised by renewables-only QOFs, $2.20 billion by QOFs with at least some focus on renewables) and operating businesses ($299.6 million raised by operating-business-only QOFs, $1.11 billion raised by QOFs with at least some focus on operating businesses).
Novogradac further breaks down investment types to residential and commercial subcategories and further tracks the data by investments made, not just planned. Among actual QOF residential investments identified by Novogradac, $20.46 billion has been made in multifamily and $340 million in single-family housing. Breaking down the multifamily investments further shows that $2.96 billion has been invested in income-restricted housing and $2.01 billion has been invested in affordable housing (the specific categories are determined by QOF description, so there is likely duplication between those categories). Another $1.12 billion has been invested in workforce housing.
Among identified commercial investments, $8.10 billion has gone to retail, $5.18 billion to office, $2.55 billion to industrial and $2.10 billion to mixed-use.
Novogradac also tracks the geographic focus of QOFs. Among those QOFs for which Novogradac has such information, 78.7% focus on a single city and 21.3% focus on multiple cities. However, the QOFs focused on multiple cities–which include the 11 so-called “Super QOFs,” which have raised at least $500 million in equity–account for 70.4% of all equity raised, showing that the OZ incentive is fulfilling two purposes: Providing a tool for local impact and providing broader investment opportunities in multiple cities.
The median amount raised by multi-city-focused QOFs is $18.9 million and the median raised by QOFs focused on a single city is $3.5 million. Meanwhile, QOFs focused on a single project constitute 72.6% of all QOFS and have raised 24.8% of all funds that can be tracked.
As mentioned earlier, 11 QOFs have raised at least $500 million. Those funds make up 0.8% of all QOFs that report an equity amount, but have raised 25.8% of reported equity. Broadening the limits, QOFs that have raised at least $100 million–including the 11 Super QOFs–constitute 4.8% of all QOFs, but have raised 60.2% of equity. Meanwhile, those that have raised less than $10 million constitute 66.1% of all QOFs and have raised 6.9% of all equity.
There are 1,139 QOF managers tracked by Novogradac (including those whose funds have reported no equity raised) and 271 oversee more than one fund. Among those who report an equity raise, the median amount raised per QOF manager is $4.6 million. Those who oversee multiple funds have raised a median of $22.5 million and those with a single QOF have a median of $2.4 million.
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.