Qualified opportunity zone funds raised an estimated $2.2 billion during the third quarter, fueled by investment in multifamily projects amid high demand for housing to alleviate shortages across the country.
The investment surge has the funds on pace to surpass a single-year total of $10 billion for the first time since the tax credit program's launch in 2018.
The federal initiative targets investment to more than 8,700 economically distressed areas across the nation, and the $8.29 billion raised over the first nine months of 2022 puts the funds tracked by professional services firm Novogradac & Co. on the verge of breaking 2021’s full-year record of $9.24 billion.
Opportunity zone funds that focus exclusively on multifamily development reported raising equity of about $5.9 billion so far this year, according to Novogradac. Commercial-only focused funds have raised about $2 billion, it said, while those focused strictly on hospitality, renewable energy and operating businesses have together raised less than $700 million.
The opportunity zone program kicked off in early 2018 in a time of economic prosperity as part of the Tax Cuts and Jobs Act approved by Congress months earlier. It allows for the reduction — or potential elimination — of taxes on capital gains from any type of investment if those gains are put into a qualified fund to be invested in real estate or a business in one of 8,746 low-income areas federally designated as an opportunity zone.
The latest figures come as demand for multifamily property has surged. Higher interest rates are driving up home mortgage costs, resulting in more potential homebuyers choosing to stay put. The results come as some major cities were already reporting a shortage of housing before the Federal Reserve began aggressively raising interest rates earlier this year.
Unreported Investments
Total investment in qualified opportunity zone funds is likely three to four times greater than the $32.69 billion reported since the beginning of the program, Michael Novogradac, principal of the firm, said in the report.
The firm's list does not include data from proprietary or private funds that are owned and managed by their principal investors.
Novogradac’s collection of information comes from funds voluntarily providing information or from public sources such as Securities and Exchange Commission filings and press releases.
The San Francisco-based firm tracks more than 1,230 funds that report their fundraising and an additional 382 that have not reported figures.
“While the equity reported increased 7.2% during the third quarter of 2022, the number of QOFs tracked by Novogradac grew by 9.4% and the number of QOFs reporting an equity raise amount increased by 12.2%,” Novogradac said in the report.