Investment in opportunity zones (OZs) continued to grow in the first half of 2021, with qualified opportunity funds (QOFs) tracked by Novogradac surging past $17.5 billion in equity raised.

The $17.52 billion total is a 15.5% increase over the investment total at the end of 2020, according to the Novogradac Opportunity Zones Investment Report: Data Through June 30, 2021, which was published Aug. 10. At midyear, Novogradac was tracking investment in 1,171 QOFs, of which 853 reported the amount of equity raised.

Novogradac’s reporting comes from a rolling collection of information, some of which is voluntarily submitted by QOFs and the rest of which comes from public sources such as press releases and Securities and Exchange Commission filings. The overall investment total is a multiple of the Novogradac total, since the Novogradac report does not include proprietary or private funds that are owned and managed by their principal investors.

Two reports–one in August 2020 by the White House Council of Economic Advisors and one in April 2021 by two economists at the University of California–put overall investment at approximately four times the Novogradac figure. However, the Novogradac report provides an apples-to-apples comparison over time of observed data.

Novogradac began reporting on QOF investment in May 2019 and has seen steady growth, surging past $5 billion in January 2020, $10 billion in April 2020 and $15 billion in December 2020. With a significant looming deadline–barring an extension of the OZ incentive, taxpayers must invest in a QOF by the end of 2021 to be eligible for the 10% deferral of gain for investments held five years before the OZ incentive expires–there will likely be a jump in investment in the last half of 2021.

“We expect the second half of 2021 to be a significant period of OZ investment because of the deadline for investment to receive a 10% exclusion of gain,” said John Sciarretti, CPA, a partner in Novogradac’s Dover, Ohio, office and the head of the Opportunity Zones Working Group. “Barring an extension, taxpayers must invest in QOFs by the end of this year to get that five-year benefit. That will drive investment.”

Novogradac’s report shows that a slight majority of QOFs indicate at least some investment in residential development and those funds have combined to raise $13.95 billion in equity. Commercial development is the second-leading focus of investment, with $10.79 billion in equity raised by QOFs that have at least
some focus on commercial investment. Due to overlaps in focus–for instance, many funds report investment in both residential and commercial–the sum of all the investment types surpasses 100% of the total.

Hospitality, operating businesses and renewable energy are the other three areas of investment. Operating businesses ranks fourth in the investment focus areas, but those QOFs with at least some interest in operating businesses saw a 41.6% increase in equity raised during the first half of 2021. That nearly triples the overall percentage increase.

The Novogradac semiannual report also indicates that well more than half of QOFs indicate a single-city focus for their investments, continuing a trend of narrowing the investment focus. That trend is likely explainable by the fact that as funds make specific investments, they specifically name their target, rather than continuing to have a general geographic target.

Novogradac’s report also includes the top 20 states (California and New York rank first and second) and the top 40 cities (New York City, Los Angeles and Austin, Texas, are the top three) for investment by QOFs tracked by Novogradac.

The report includes data on what percent of QOFs have raised different equity ranges, how many QOF managers oversee funds that have raised more than $100 million and what percentage of QOFs have a single, specific investment). The report also includes historic data, tracking investment focus and geography over time.