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QOFs Surpass $3B Mark

Quality Opportunity Funds (QOF) used to fund Qualified Opportunity Zone developments and businesses raised $3.2 billion, surpassing the $3 billion mark for the first time, according to Novogradac’s Opportunity Funds Listing. The listing includes 287 QOFs, of which 112 reported raising the $3.2 billion.

Of the capital reported to date, 22.4% ($710 million) raised focuses on residential development, with 64.8% ($2 billion) focused on multiple investment categories, including residential development. Meanwhile, QOFs formed to invest in businesses operating in O-zones made up 1.3% ($40.7 million) of the total raised, with 2.6%, or $81 million of the raised funds dedicated to planning to invest solely, or at least partially, in operating businesses.

The chart, below, shows a breakdown percentage of QOF focus.

According to Novogradac, both residential and commercial investments are “sturdy.” However, investment in operating businesses is lagging. “The expectation is that these funds will grow with time, and as much-needed infrastructure becomes more available in opportunity zones,” said Michael Novogradac, managing partner of the company. “The positive news is that $201 million has been raised by funds targeting solely commercial real estate, which largely serves as an indirect catalyst for operating businesses.” Additionally, he added, funds with capital of more than $2.24 billion are planning to invest solely or at the very least partially, in commercial real estate.”

Meanwhile, taxpayers are required to invest by the end of the 2019 calendar year to be eligible to receive the minimum 15% reduction in capital gains. Furthermore, under current rules, some 2019 capital gains can’t be invested in QOFs until Dec. 31, 2019.

Furthermore, the U.S. Department of the Treasury is expected to issue more guidance related to the Opportunity Zones program; that guidance is expected to combine the first and second tranches that were released late in 2018 and in April 2019. According to Novogradac, the guidance could go to the Office of Information and Regulatory Affairs for review shortly, meaning it could be released to the public by early December, 2019.

“With each release of the first two tranches of tax guidance from the Treasury Department, we saw an increase in investment,” Michael Novogradac commented. “We anticipate an even greater pace of investment as the end of 2019 approaches. Treasury tax rules and looming deadlines contribute to that expected rise.”

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