Though estimates of the total capital inflows cover a wide range, even the numbers near the lower end—$100 billion—are big enough that they’re starting to affect CRE pricing.
By Scott Baltic
If the 138 funds currently being tracked by Cushman & Wakefield are an accurate indication, the federal Opportunity Zone program has gone well past attracting interest and attention and into attracting serious money.
In a new report—In the Opportunity Zone: Location. Timing. Capital—the company estimates that those funds are targeting an aggregate total of more than $44 billion in equity. And that total leaves out more than 200 smaller funds. Overall, capital inflows are expected to increase anywhere from $100 billion to more than $6 trillion.
In fact, there’s enough money starting to flow into OZ investments that it’s beginning to have an effect on prices. Cushman & Wakefield notes an MIT study released in June, which found that redevelopment properties in OZs are selling for 20 percent more than comparable properties outside the zones, while vacant development site prices have increased 14 percent.
Multifamily is definitely the favored product type so far; based on the funds tracked by Cushman & Wakefield, 82 percent plan to invest there. Senior, student, affordable and workforce housing are all on the wish list.
Two more of the company’s observations are related to investors and fund managers. Because only taxable investors with significant unrealized capital gains can benefit from the OZ program, investors will ultimately consist of high-net-worth individuals, family offices and corporations. This will make wealth management firms and private banking operations critical to the fund distribution process.
Cushman & Wakefield expects these institutions to build platforms that give clients the ability to select from different Qualified Opportunity Funds. Though this process is not far along, Cushman & Wakefield anticipates rapid construction of this investment infrastructure, because one of the program’s tax benefits expires at the end of this year. Cushman & Wakefield points out that timing is crucial. Once capital gains are realized, funds should be invested within 180 days. Investors can still contribute new capital to the OZ program until 2026 and avoid capital gains on the fund investment itself, which can grow tax-free until 2047.
As for fund managers, the entities launching funds are diverse enough to include local developers, equity funds, social impact funds and such large asset managers as Goldman Sachs, Starwood and Brookfield.
COAST TO COAST
Whether the OZ program eventually meets its intended goals or not, it’s hard to deny the diversity and creativity of some of the deals that are underway.
Lubert-Adler Partners is tackling The Battery, an adaptive reuse project in Philadelphia’s Fishtown neighborhood. The deal intends to convert a defunct 1920s-vintage power plant into a mixed-use destination of more than 1 million square feet that will include hundreds of apartments, coworking offices and an event venue.
On the opposite coast, Primior and Contour Real Estate are partnering on First Harbor Plaza, in Santa Ana, Calif. The project will combine new construction and renovated space and encompass office, retail, medical and restaurant tenants.