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Washington, D.C., Tops List for Planned QOF Investment; 54 Cities Surpass $100 Million Mark

Published by Michael J. Novogradac on Tuesday, February 7, 2023 - 12:00AM

The nation’s capital continues to be the capital of investment for qualified opportunity funds (QOFs), as Washington, D.C., edged out Los Angeles once more as the city with the most planned investment among QOFs tracked by Novogradac through the end of 2022.

Washington, D.C., has $1.36 billion of investment planned by QOFs tracked by Novogradac, joining Los Angeles ($1.33 billion) and New York City ($1.13 billion) as cities with more than $1 billion in planned investment tracked by Novogradac. There are 54 cities (representing 25 states, plus the District of Columbia) with at least $100 million in planned QOF investment. At the end of 2021, there were 39 such cities.

Blog Graphic: Washington, D.C., Los Angeles, New York, Top Cities for Planned Investment

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QOFs tracked by Novogradac reported $9.68 billion in equity investment in 2022, increasing the cumulative amount raised to $34.09 billion at the end of the year. There are 1,661 QOFs tracked by Novogradac, 1,274 of which reported a specific amount of equity raised. The amount of equity reported increased 39.7% over the year.

QOFs are the investment vehicle through which taxpayers invest capital gains to qualify for deferral and other tax benefits.

Novogradac’s data is collected 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 figures don’t include proprietary or private funds that are owned and operated by their principal investors, so actual opportunity zones (OZ) investment is greater than the Novogradac total by a figure of three or four times.

Among the top cities for planned equity investment by QOFs tracked by Novogradac, the biggest jump in 2022 came from Dallas, which saw investment go up 327.0% in the year as the city moved from the 51st-most planned QOF investment to the 13th most. Dallas gained $263.1 million in planned QOF investment in 2022, for an overall $343.5 million in planned investment.

Other cities on Novogradac’s list that more than doubled in 2022 were Salt Lake City, with $297.8 million in new investment, moving the city from 10th to sixth on Novogradac’s list; Vancouver, Washington, with $152.7 million in new planned investment, moving the city from 31st to 18th on the list; Aurora, Colorado, with $129.5 million in new investment, moving the city from 42nd to 28th; Newark, New Jersey, with $126.3 million in new investment, moving the city from 52nd to 33rd; Tampa, Florida, with $109.5 million in new investment, moving it from 62nd to 36th; and Jersey City, New Jersey, with $66.1 million in new investment, moving from 57th to 41st.

In dollar value, Los Angeles added the most new investment, with $618.0 million coming in during 2022, edging Washington, D.C., the only other city with more than $500 million in new QOF planned investment in 2022.

While the amount of QOF investment is significant, it’s also far more expensive to build in many coastal urban areas, so it’s no surprise that Washington, D.C., Los Angeles and New York have a high-dollar investment total. The number of QOF investment projects of which Novogradac is aware is another way to track such investment and while the top three cities have many investments, the margin between them and other cities isn’t nearly as great as the dollar gap. For instance, Austin, Texas (which ranks eighth in investment), has the same number of QOF investment projects as New York City, which has raised twice the equity.

The cities with the most QOF-funded projects tracked by Novogradac are all in Ohio: Columbus, Cincinnati and Cleveland all have more than 50 projects being funded by QOFs tracked by Novogradac. That is an outlier, however: Ohio has a state-level OZ tax credit for QOFs with 100% of their investment in the state that requires tracking. That gives a fuller picture of all QOF investment in the state, although it is far from complete, since any QOF that invests outside of Ohio is ineligible for the tax credit.

Among the top 50 cities, Arizona has five–all located in Maricopa County, which is a hotbed for development. California and Texas each placed four cities on the top-50 list, while Colorado, Florida, Ohio and Washington had three each.

The cities that dropped the most on the Novogradac list included Portland, Oregon (dropping from 11th to 21st), Houston (dropping from 12th to 23rd) and Somerville, Massachusetts (dropping from 23rd to 35th). Cities that dropped off Novogradac’s top-50 list in 2022 included Alexandria, Virginia; Berkeley, California; Erie, Pennsylvania; Hyattsville, Maryland; Indianapolis; Louisville, Kentucky; and St. Petersburg, Florida.

Blog Graphic: California, Arizona Continue to Leads States for Planned Investment

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Among states with the most planned investment, California stayed atop the list as it grew 56.7% in 2022, surpassing $3 billion in planned QOF investment. The Golden State has led every ranking for QOF equity investment since Novogradac began tracking such information and Arizona is again second, with just more than $2 billion in planned investment. The rest of the top 10 states (and district) remained the same, although the order slightly shifted from 2021 (most notably, Washington moving from ninth to seventh and Maryland dropping from eighth to 10th). The top 10 states for QOF investment include five from the West, one from the Midwest, two from the East and two from the South, highlighting the diversity of the investment profile for QOFs.

QOFs by Novogradac have planned investments in 48 states (all but Alaska and Rhode Island), as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands.

The number of QOF-funded projects is also significant for states. With the caveat that Ohio provides full information due to its OZ tax credit and leads the way with 323 QOF-funded projects, the other top states when considering dollar value also have the most projects: California has 129 projects and Arizona has 93. However, some states lower on the list have a higher number of planned OZ projects tracked by Novogradac, perhaps representative of lower building costs or a higher number of low-dollar QOF investments. For instance, Louisiana (ranking 32nd on dollar investment) has 17 projects, which is more than seven states that have more investment.

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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