QOFs Tracked by Novogradac Reach $34.09 Billion in Equity Raised, Nearly $10 Billion in 2022

Published by Michael J. Novogradac on Tuesday, January 31, 2023 - 12:00AM

Qualified opportunity funds (QOFs) tracked by Novogradac reported $9.68 billion in equity investment in 2022, the biggest single-year total charted by Novogradac since the opportunity zones (OZ) incentive became part of the tax code at the end of 2017.

Blog Graphic: QOF Snapshot

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The 1,661 QOFs tracked by Novogradac (1,274 of which reported a specific equity amount raised) raised a cumulative $34.09 billion as of Dec. 31, 2022. That was a 39.7% year-over-year increase from the $24.40 billion reported at the end of 2021 and continued a three-year trend of similar investment totals: QOFs tracked by Novogradac reported $9.23 billion in equity raised in 2020 and $9.24 billion in 2021.

While 2022 saw the largest dollar-volume increase since Novogradac began tracking the data, much of that was due to a record-breaking first quarter, which saw an equity increase of $3.97 billion (41.0% of the full-year total). The fourth quarter of 2022 saw $1.40 billion in reported investment, a significant drop from the two previous fourth-quarter investment increases ($4.12 billion in 2021, $3.11 billion in 2020).

While there are many factors involved in QOF investing, the slowing of investment as the year progressed was likely influenced by a declining stock market and flattening or declining sales volume in real estate. Capital gains are the driver of QOF investment and the stock market and real estate are primary producers of capital gains.

Blog Graphic: Steady Increase in QOF Equity Raised

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QOFs are the investment vehicle through which taxpayers defer a portion of their capital gains and receive other benefits through the OZ incentive. Novogradac collects data on a rolling basis from QOFs that voluntarily provide information and also includes information from public sources such as Security and Exchange Commission filings and press releases. Because Novogradac’s figures don’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.

While the average QOF tracked by Novogradac has raised $26.7 million (the highest year-end average since Novogradac began tracking data in May 2019), that figure is disproportionately influenced by the number of high-dollar QOFs. Eight QOFs tracked by Novogradac have raised $500 million or more and they have an average of $947 million in funds raised. A better barometer is likely the median QOF equity amount–the figure at which there are an equal number of QOFs that have raised more and less. At the end of 2022, the median figure for QOF equity raised was $4.6 million, which is consistent with the figures at the end of 2021 ($4.7 million) and 2020 ($4.6 million).

The number of QOFs tracked was 33.6% more than a year earlier and the number of QOFs that report a specific amount of equity raised was 40.2% higher. The growth rate for the number of QOFs tracked and the number of QOFs reporting a specific equity amount raised were the lowest year-over-year growth amount since Novogradac began tracking such figures, which may indicate that the OZ marketplace is becoming more established as time passes.

Meanwhile 280 of the 1,274 QOFs that report equity have closed, meaning they have raised their desired equity amount and are no longer seeking investment. The median amount of equity raised by those QOFs was $4.6 million, the same as the overall median amount.

Novogradac also tracks types of investment by QOFs (residential, commercial, hospitality, renewable energy, operating businesses), the geography of the investment (both the region of the country as well as whether the QOF investments are in a single city or multiple cities) and the equity amount by dollars raised for QOFs and QOF managers. Future blog posts will address those issues, including data on the cities and states with the most planned QOF investment.

Novogradac began reporting on QOF investment in May 2019.

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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