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QOFs Report $3.53 Billion Jump in 2023 Equity, Moving Total Beyond $37 Billion

Published by John Sciarretti on Tuesday, February 6, 2024 - 12:18PM


Qualified opportunity funds (QOFs) tracked by Novogradac reported that they raised $3.53 billion in equity in 2023, increasing the amount of opportunity zones (OZ) equity raised and tracked by Novogradac to $37.62 billion.

The amount is a 10.4% jump over the figure at the end of 2022.

Blog Graphic: QOF Snapshot

As of Dec. 31, 2023, Novogradac was tracking 1,874 QOFs, with 1,461 of them reporting a specific equity amount. That’s 213 more QOFs being tracked than a year earlier, with 187 more QOFs reporting an equity amount.

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. Novogradac’s data also includes 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. It is expected that actual opportunity zones (OZ) investment is greater than the Novogradac total by a figure of three or four times.

In the fourth quarter alone, QOFs reported $414 million more in equity raised. That came on the heels of strong second and third quarters of 2023, but the annual amount still came in lower than the totals of the three previous years, all of which surpassed $9 billion. At least part of the reason for the slowdown was the general state of the economy, specifically a decrease in multifamily housing construction, which ended December 2023 with the lowest annualized figure for permits since 2017.

Nearly 80% of known QOF investment is in developments that include multifamily housing as such development in OZs has grown dramatically since the dawn of the incentive. According to RealPage Market Analytics, the number of apartments built in OZs tripled from 2016 through 2022, then doubled again in 2023. RealPage Market Analytics data indicates that 20% of all new apartments in the United States in 2023 were in an OZ, an increase from about 8% before the incentive became law.

Those were apartments delivered in 2023, coming from earlier QOF investments. The slowdown in overall multifamily permits in 2023 won’t be felt until this year or later.

Of the $37.62 billion reported raised, QOFs with at least some focus on housing raised $30.93 billion, with $8.10 billion of that raised by QOFs focused solely on residential property. The other major area for investment is commercial. QOFs with at least some focus on commercial investment raised $24.93 billion in equity, with $2.20 billion raised by funds focused strictly on commercial activity.

Novogradac categorizes QOF investment into residential, commercial, hospitality, renewables and operating businesses. Due to the large amount of overlap (for instance, residential with a commercial element), the sum of the areas of investment is greater than the $37.62 billion total.

Novogradac also tracks identified investment, which is properties into which QOFs have actually invested funds, rather than their intentions. Among identified investments, $22.88 billion has been invested in projects featuring housing, the dominant area of OZ investment according to Novogradac’s figures. Of that, $12.78 billion is developments that are strictly residential.

The median equity raised by QOFs that report such information is $4.5 million. 

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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