Panel: Lack of transparency plagues Opportunity Zone Investment

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Paul Fiorilla, Research Director, Yardi Matrix

In recent years, investors have increasingly channeled funds into social impact funds, but this trend appears to have bypassed Opportunity Zones, which offer investors a tax break for projects in designated low-income submarkets.

Panelists at a webinar held last week, titled “Getting Impact Right: A New Strategy for Investing in Opportunity Zones,” bemoaned the lack of information in the market. “Investors don’t connect the dots that investing in opportunity zones has social impact,” said Reid Thomas, a managing director at international wealth management firm JTC Americas, which sponsored the webinar.

Although well over 1,000 Opportunity Zone vehicles were created, the level of investment fell short of the expectations initially raised in the industry. San Francisco-based law firm Novogradac estimates that approximately $75 billion to $100 billion has been invested in Opportunity Zone Funds since the tax regime was introduced as part of the 2017 tax reform.


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Novogradac recently released a report that charts more than 1,300 Opportunity Zone Funds with equity of $24.4 billion, although total fundraising in the sector is estimated at three to four times that amount. States with the most investments tracked by Novogradac were California ($2.4 billion), Arizona ($1.3 billion), Texas ($1.1 billion), and New York ($1.0 billion -Dollar). Cities with the most fund investments are Washington, DC ($740 million), Los Angeles ($678 million), New York City ($641 million) and Nashville ($621 million).

John Sciaretti, a partner at Novogradac and a panelist at the JTC webinar, agreed that linking the program to social investment would help mobilize capital. “There are some investors who are sitting on the sidelines because they haven’t made that connection,” he said.

A lack of institutional commitment is another reason for the lack of awareness of opportunity zones. Sciaretti said he was surprised that relatively few institutions had entered the Opportunity Zone pool, which he attributed to the lack of data and transparency about the segment.

The tax reform bill that introduced the Opportunity Zone program in 2017 originally included language that would require the federal government to monitor the volume and impact of Opportunity Zone investments, but that was removed from the bill. Therefore, it is difficult to get information about the program. “The lack of transparency is a big problem,” Sciaretti said. “Once we have transparency, that will go a long way in getting more institutions involved in the program.”

Shay Hawkins, co-founder of the Opportunity Funds Association advocacy group in Washington, DC, said passing legislation requiring the government to measure the impact of Opportunity Zones would increase awareness of the social benefits of investing in Opportunity Zones. Until then, “we in the industry need to help people make that connection,” he said.

Opportunity Zones offer tax breaks for investors who reinvest capital gains into qualifying funds that invest in assets such as real estate, businesses and infrastructure in qualifying low-income zones. More than 8,700 areas in the US, comprising approximately 10 percent of the US population and 12 percent of the land, have been designated by states and certified by the Treasury Department as opportunity zones.

Future investments in opportunity zones are the subject of many questions. One of the key tax benefits of the original legislation — the ability to qualify for a 10 percent increase in the investment base — expired at the end of 2021. Investors can still invest capital in Opportunity Zone funds and qualify for tax benefits on investments held for 10 years, but potential gains are reduced without the step-up provision, removing a key incentive. Legislation to reauthorize the increase has been introduced in Congress but does not appear to be a priority.

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