Origin Investments Doubles Up on Opportunity Zone Funds

Real estate manager Origin Investments, following the close of its inaugural Qualified Opportunity Zone (QOZ) Fund, launched a second QOZ Fund targeting $300 million in funds. 

Origin’s QOZ Fund II will invest in ground-up multifamily housing development in the fast-growing targeted US markets and already has three ground-up developments undergoing due diligence before closing that are located across the Southwest and Southeast United States.

“There’s been tremendous demand from the investment community and we’re launching QOZ Fund II, a virtual carbon copy of our first Fund, to create investment opportunities that provide tremendous returns along with substantial tax benefits for investors.”

Origin’s QOZ Fund II will embrace the same structure and strategy as its first QOZ fund, which closed in August, after raising $265 million and ranked in the top 2% of all QOZ funds nationally in terms of capital raised, according to Novogradac, a professional services firm that tracks QOZ investment. Origin’s QOZ Fund I’s 11 ground-up development projects are projected to have a construction value exceeding $767 million.

Geography a Determinant in Opp Zone Investing

Dr. Gil Keinan is managing director of Local Equity, based in San Bernardino County, Calif., and works on Opportunity Zone development and is a real estate development, finance, and management professional. He is seeing a lot of momentum lately in opportunity zone investing.

“We interact with a lot of investors that have capital gains and are looking to move from 1031 to OZ,” Keinan tells GlobeSt. “We also provide support to many public agencies. We have seen interest and investment in OZ increase toward the end of 2020 and YTD compared to pre pandemic. 

“We also track transactions by various metrics such as volume, check size, square foot, lease absorption, etc., in qualified Opportunity Zone census tracts in the markets where we focus and have seen a higher proportional increase in many metrics in OZ transactions versus non-OZ. It is important to highlight that such metrics focus on the geography instead of the source of the funds, hence do not differentiate between OZ capital and non-OZ capital.

“Investors generally look to mitigate risk, and with higher costs and lower market returns on marketed deals, there is an increased appetite to accept some of the secondary and tertiary locations.”

Remote Live/Work an Opp Zone Factor

He said that he finds it interesting to see that given the remote live/work trend that emerged during the pandemic, many communities that were struggling to achieve population growth now suddenly struggle to provide infrastructure to the influx in residential development.

As the Novogradac report highlights, even though California is not in conformity with the OZ incentive, it actually leads the nation in fundraising at more than double the runner-up, Keinan said.

“At the same time, you will see that single city focused funds have raised the most amount of capital compared to geographic diversified structures. If place-based initiatives are the new focus for governments and for investors, then fast-growing cities in the inland region of California such as Adelanto, Barstow, San Bernardino, Redlands, Ontario, and Fresno will continue to see above market capital flow.”

Origin Funds Key Benefits

Key benefits of the Origin QOZ Fund II include:

• A targeted net Internal Rate of Return (IRR) of 10-12 percent and net equity multiple of 2.25x–2.5x;
• Deferral of capital gains realized from a previous investment through the end of 2026 by reinvesting those capital gains into Origin’s QOZ Fund;
• Tax elimination on capital gains the QOZ Fund generates by holding the investment for 10 or more years; and
• A 10% tax reduction of deferred capital gains tax liability with an investment made before Jan. 1, 2022.