Opportunity Zone Investment Heats Up as Dec. 31 Deadline Draws Near

Origin Investments is seeing investments in Qualified Opportunity Zone (QOZ) funds surging as the Dec. 31 deadline approaches for contributions that can qualify for a 10% reduction on deferred capital gains taxes. The Chicago-based firm launched its Qualified Opportunity Zone Fund II in October after QOZ Fund I closed. Fund II already has six multifamily developments in its pipeline. 

“Investor appetite in opportunity zones has accelerated significantly this year for many reasons, but the biggest wave is about to come as the bonus tax reduction on deferred capital gains comes to an end on Dec. 31,” said Origin co-CEO Michael Episcope.  

Since the 2017 Tax Cuts and Jobs Act created the opportunity zone program, QOZ funds have become an attractive option to investors looking to defer taxes on their gains. The dollars substantiate this point: QOZ Funds raised $17.52 billion through the second quarter of 2021, an increase of 15.5% over the full-year total in 2020, according to Novogradac.  

By investing capital gains on or before Dec. 31 of this year in a QOZ fund, investors can take advantage of three benefits:  

• Their capital gains tax liability can be deferred until Dec. 31, 2026 

• They can reduce tax liability on those original gains by 10%  

• They can eliminate taxes on any capital gains realized from the QOZ investment after a 10-year holding period.  

“Investments in QOZ offerings can be made after Dec. 31 but will not meet the five-year hold requirement prior to Dec. 31, 2026, which is necessary to receive the 10% reduction in their capital gains tax basis,” said Origin general counsel Michael McVickar . 

Origin QOZ Fund I closed in July 2021 and raised $265 million from more than 800 investors. This level of investment ranked it in the top 2% of the nation’s largest QOZ funds, according to Novogradac. In its QOZ Fund I, Origin currently has 11 multifamily assets totaling about 3,700 units in varying stages of construction with a total value of more than $846 million. 

The firm already has six developments in the in the Fund II investment pipeline, with a value of approximately $700 million. Episcope attributed the robust level of activity in Fund II to the activity that was generated looking for deals in Fund I.  

“From the time we launched QOZ Fund I we have had one goal in mind—to make money for our investment partners,” said Episcope. “The tax break doesn’t matter if you don’t turn a profit. That’s why we evaluate these opportunities no differently than a deal without the QOZ benefits.”