We believe New York will soon represent more than a quarter of active fund managers and Florida will see more than 16%. California will lag, with roughly 10% of the active fund managers in the near term.

GlobeSt.com: Is investment leaving the state and going into other parts of the country, or are net investments flowing into the state?

Halloran: We really don't know yet. California investors are getting more involved in opportunity zone funds, but we're seeing much of the investment activity starting from New York and Florida, as previously noted. We think that gap will close as California investors get more clarity and the potential for positive social impact become clearer.

In the San Francisco Bay Area, to take an example of the mix of investment flows, Urban Catalyst, a California-based opportunity zone fund, is very active in San Jose, and EJF Capital, an opportunity zone fund investing in Oakland from its base in Virginia, is moving forward effectively in California.

GlobeSt.com: Where are Californians investing in the state and outside of the state?

Halloran: Initially, funds across the country, and we think this is representative in California as well, show that about 75% of fund deployments were focused on real estate, leaving only a little more than 25% also looking at business investments, or investments purely on the business side without a real estate component. But that's changing and about 40% of fund distributions now include a non-real estate component. California has a talent for thinking in terms of ecosystems, so we believe this is a positive trend for the state.

In the beginning, not even 16% of funds were looking at public-private partnerships, compared with 36% now. This is another indication that the first projects under consideration in California and elsewhere can move quicker and may have just needed the push from the publication of tax guidance for the opportunity zone program. Now, with more clarity on the program from Washington, we are seeing more ambitious projects starting to take shape.

GlobeSt.com: From what states outside California are investors originating?

Halloran: They are coming from New York, Florida and Virginia–really, anywhere you have a concentration of national real estate fund experience.

GlobeSt.com: What sort of properties are getting the most attention?

Halloran: In general, the first projects in California are inherently those that have already largely navigated the permitting process and gotten over approval hurdles. They are the shovel-ready opportunities that are set for opportunity zone incentives to move across the line. Beyond them, we see more comprehensive ground-up developments in Bakersfield, Los Angeles and San Jose–and Urban Catalyst's work is San Jose is emblematic of this ground-up trend.

Housing is the typical focus for investing and there are hotel projects that have also advanced. But coming into the picture are public works projects that have jumped from 4% of the primary assets involved, to almost 12%. That is an interesting shift that we think shows how these projects are becoming more involved in the communities around them.

Investments in businesses within zones should be watched as well, because that can show where we might be headed in terms of an ecosystem approach to opportunity zones.

GlobeSt.com: What is next for California and opportunity zone funds?

Halloran: State and local leaders are working to accelerate investment in California's opportunity zones. That means streamlining tax incentives and taking more flexible approaches to rigid land-use policies, to open up affordable housing and a more diverse portfolio of jobs and infrastructure.

Governor Newsom has been supportive of opportunity zones. Big City Mayors, a group representing California's largest cities, has shared strategies with the governor and the legislature. They are seeking reporting and transparency, a local voice in state tax conformance, and support for regional capacity and pipeline development.

The state senate has passed SB 25, which will streamline environmental review and approval for developments, including those in opportunity zones.

While California's leaders work out further improvements at the state level, the Bay Area will continue to draw considerable interest with its high jobs-to-housing ratio. It has low office and industrial vacancies, and the high barriers to entry can actually lead to high return potential for investors.

Of course, opportunity zone funds are still relatively new, which means important details are continuing to develop at the federal, state and local level. As a result, successful funds are addressing the risk of unexpected tax liabilities for investors due to lack of compliance. Because ongoing development of opportunity zone funds are emphasizing security, transparency and compliance right from the start to anticipate the direction the regulations are expected to take.

GlobeSt.com: From your standpoint at the center of fund administration data and trends, how is the opportunity funds space evolving compared to other specialty fund areas?

Halloran: Specialty fund and investment areas tend to have considerable complexity from a banking perspective, where banks may be struggling to be able to deal with certain aspects of investments. There might be a great deal of compliance or government reporting-related activity. Or there may be light regulation, potentially enabling fraud and abuse to enter the segments.

The big issues are that foreign investment with EB-5 is prone to anti-money laundering issues and, in the past has been vulnerable to fraud. But you can now better monitor how monies are spent to verify that the job creation is occurring, for instance. We've been tracking more than 700 EB-5 projects, representing about $20 billion of EB-5 capital that are performing well.

And now, there are now best practices for 1031 to help the investor know exactly where the money is at all times. Bank accounts can be structured with dual controls by the exchanger and the qualified intermediary so that no unauthorized movements of funds occur and set up so that the exchanger is clearly the owner of the account and not the qualified intermediary, a fact that would be helpful for the exchanger if the qualified intermediary were to file for bankruptcy.

Success in 1031 and EB-5 involves getting security, transparency and compliance right. Opportunity zones involve some similar issues and complexities. There are rules on how and when money needs to move, and what the benefits of the program to the communities and to the investors are.

Opportunity zones appear to be attracting more sophisticated fund managers and investors from the outset. These fund managers are in turn looking for the type of security, transparency and compliance that ultimately came to 1031 and EB-5.

Join the GlobeSt.com ADAPT: Opportunity Zones conference September 16-17 in Baltimore, MD. The new national conference series is aimed at identifying opportunity zones across all property types and geographic regions. This first-of-its-kind event will educate, connect and celebrate the investors, developers and owners with the people behind the planning and decision-making, such as architects, consultants, academics and, most importantly, municipal officials. Click here to register and view the agenda.