Investment in Opportunity Zones Surged by 39% in Second Half of 2021

Investments in Opportunity Zones surged by more than 39 percent in the second half of 2021, with Novogradac reporting that investors poured $6.88 billion in the last six months into the 1,342 qualified opportunity funds (QOFs) the accounting firm tracks.

Equity investments in QOFs that were made before Dec. 31, 2021 are eligible to receive a 10-percent basis step-up for investments held for at least five years, according to IRS guidelines for Opportunity Zones. Investors can defer taxes on capital gains by investing in QOFs.

The new Novogradac Opportunity Zones Investment Report says QOFs the accounting consulting firm tracks have raised a total of nearly $25 billion. Based on this sampling, Novogradac estimates that more than $75 billion has been invested in QOFs since the Opportunity Zones were established in the tax bill enacted by Congress in 2017.

Novogradac’s report is based on a rolling collection of data from public sources, including SEC filings, and from QOFs who voluntarily submit the data to the consultants. The company’s QOF list does not include proprietary or private funds owned and managed by their principal investors.

The increase in investment over the last six months was the largest Novogradac has reported since it began tracking QOFs in 2019 and issuing six-month investment reports.

“As this incentive matures, it appears that investors are becoming more comfortable with the broad range of potential investments (in QOFs). Investors appear to be more comfortable with the longer-term hold that these incentives encourage,” said Michael Novogradac, managing partner of Novogradac.

Novogradac reported that 20 US cities with designated Opportunity Zones have attracted QOF investments of at least $200 million.

QOFs were created to spur investment in low-income communities across the country. However, after the Treasury Department released its list of federal designated Opportunity Zones in 2018, the list was criticized for grandfathering in several upscale development projects that were in the works in the zones before the tax bill was passed.

The Treasury Department designated more than 8,700 low-income census tracts as Opportunity Zones, after the tracts were nominated by state governors. Investors can invest in the zones through OQFs, which are funds that invest at least 90 percent of their assets in qualified opportunity zone property.