The Case for Property-Specific Opportunity Zones Funds

Recently Capital Square announced the launch of a new qualified Opportunity Zone fund – CSRA Opportunity Zone Fund II.

Unlike some other funds, Capital Square’s vehicle is a project-specific Opportunity Zone fund that is raising capital to develop Scott’s Collection II, a 60-unit, mixed-use multifamily property in the Scott’s Addition designated opportunity zone in Richmond, Va. CSRA Opportunity Zone Fund II seeks to raise $6.35 million in equity from accredited investors.

In July 2019, Capital Square announced the launch of CSRA Opportunity Zone Fund I to develop Scott’s Collection I, a single-structure, ground-up development that will include a five-story, Class A multifamily community with 80 units. Scott’s Collection II will be adjacent to Scott’s Collection I.

Adam Stifel, executive vice president of development at Capital Square believes there are many advantages to property-specific opportunity zone funds. “The most important advantage is our ability to show investors an actual active project that is real and in development right now,” he tells GlobeSt.com. “As opposed to targeting a region or asset type with theoretical metrics and return profiles, we prefer to show a specific asset or development with more accurately forecasted costs and projected revenue.”

Stifel also contends that single asset funds comply with qualified opportunity zone guidelines and regulations with relative ease. “Compliance to opportunity zone guidelines on a multi-asset fund in various locations and in various states of entitlement, approval or construction, will prove to be cumbersome and extremely complicated,” he says.

In fact, Stifel says the downside could be severe. “Failure to manage this correctly has the potential to result in controversies and even litigation when a fund fails to deliver the desired tax benefits,” he says. “We prefer to take that risk off the table by creating a clear path to compliance and success with each individual asset in a separate fund.”

Stifel says investors are reacting positively to the property-specific opportunity zone fund. “It’s a core highlight to our offering and something that sets us apart from many of the other qualified opportunity zone funds that our investors might be seeing elsewhere,” he says. “We think our investors enjoy knowing exactly what they are getting into and seeing a realistic business plan and timeline for each single asset fund.”

Before moving into opportunity zones, Capital Square was a sponsor of Section 1031 replacement property using the Delaware statutory trust (DST) structure. Unlike Section 1031, which is only applicable to real estate exchanges, the opportunity zone legislation provides tax deferral and exclusion for any capital gains.

“Capital Square has over 2,000 tax-advantaged real estate investors nationwide, many of whom may also benefit from opportunity zone tax benefits,” Stifel says. “The best and proven approach for optimal tax benefits is through real estate development and investment. That opportunity, paired with this new tax law, makes for a compelling and lucrative investment option for a growing number of investors nationwide.”