QOF Investments Build Homes Across Hundreds of American Cities

Published by Jason Watkins on Wednesday, April 24, 2024 - 1:11PM

Qualified opportunity funds (QOFs) tracked by Novogradac have helped finance more than 175,000 homes across more than 200 American cities–with 164 of those cities seeing at least 100 housing units financed by those QOFs.

As of March 31, Novogradac was tracking 1,890 QOFs, 1,471 of which reported a specific equity amount raised. Those QOFs report raising $37.85 billion in equity since the start of OZ investment in 2018. During the first quarter of 2024, QOFs reported raising $229 million, continuing a trend of lower quarterly investment totals. Sixteen QOFs were added to the Novogradac survey in the first quarter of 2024, 10 of which report a specific amount of equity raised.

In the yearlong period ending March 31, QOFs reported an increase of $3.08 billion in equity raised, a year-over-year increase of 8.9%. The median amount raised by those QOFs that report an equity amount is $4.3 million.

Blog Graphic: QOF Snapshot as of Mar. 31, 2024

QOFs are the investment vehicle through which taxpayers invest capital gains to qualify for deferral and other tax benefits. Novogradac collects data on a rolling basis from QOFs that voluntarily provide information as well as gathers information from public sources such as Security and Exchange Commission filings and press releases. The QOF figures reported by Novogradac don’t include proprietary or private funds owned and operated by their principal investors. Actual opportunity zones (OZ) investment is likely greater than the Novogradac total by a figure of three or four times.

Residential is the leading investment type by QOFs as it has been since Novogradac began reporting on equity raises in 2018. QOFs focusing exclusively on residential report $8.29 billion in equity and QOFs with at least some focus on residential account for $31.11 billion. That means 82.2% of all QOF equity reported through March 31 was raised by QOFs with at least some focus on residential development. There are 440 residential-only QOFs and an additional 399 that have at least some focus on residential development.

Novogradac can track specific types of investments made for $29.67 billion of the $37.85 billion. Of that amount, $12.93 billion is for residential-only development and another $10.03 billion is for residential properties with another element (often commercial space). 

Blog Graphic: Top 20 Cities for QOF-Financed Homes

Novogradac identifies more than 175,000 housing units financed by QOFs, with 165,883 homes spread among 204 cities (there are 9,545 homes for which Novogradac can’t identify the city). Applying the assumption that actual investment (including proprietary or private funds owned and operated by their principal investors) is three- or four-times what Novogradac reports, then more than 500,000 homes, and perhaps as many as 700,000, have likely been financed by QOF equity.

Six cities have at least 5,000 units financed by QOFs tracked by Novogradac, 22 have at least 2,000 units and 42 have at least 1,000 units. The top two cities for housing units financed by QOFs are Washington, D.C., and Nashville, Tennessee–which combine to make up 9.2% of all housing units financed by QOFs tracked by Novogradac.

Going deeper, Novogradac identifies 164 American cities with at least 100 housing units funded by QOF investment.

Novogradac divides the investment into four other areas: Commercial ($2.22 billion raised by QOFs focused exclusively on commercial, $24.93 billion raised by funds with some focus on commercial), hospitality ($753.6 million raised by hospitality-only QOFs, $4.09 billion raised by QOFs with some hospitality focus), renewable energy ($179.6 million raised by renewables-only QOFs, $2.23 billion by QOFs with some focus on renewables) and operating businesses ($297.6 million raised by operating businesses-only QOFs, $1.14 billion raised by QOFs with some focus on operating businesses). Overlaps such as properties containing residential and commercial mean that the total of different investment types far surpasses the $37.85 billion total, since investments count in both categories.

Novogradac also identifies states and cities with the most planned QOF investment.

California received nearly $900 million in planned QOF investment in the first quarter of 2024, remaining the state with the most such investment as of March 31. Arizona, New York, Texas and Florida round out the top five, while Los Angeles was on the receiving end of more than $215 million of California’s planned investment to stretch out its lead among the top cities. Washington, D.C., New York, Phoenix and Nashville round out the top five.

The information contained in this blog post is for informational purposes only and does not constitute an offer to sell or solicitation of an offer to buy securities. Novogradac does not provide investment advice and the information in this report is not to be construed as a recommendation to engage in any specific transaction. Readers are urged to consult with their own professional advisors if they are considering investing in a QOF.

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