Qualified opportunity funds (QOFs) tracked by Novogradac raised just under $700 million in new equity in the first quarter of 2023, the lowest total since Novogradac began issuing quarterly updates for investments in 2021 and the smallest amount for any multi-month period. Start of Novogradac QOF reports in 2019.

Blog Graphic: Overview of QOF Investments

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The increase of $681.9 million compares to $3.97 billion raised in the first quarter of 2022 and $1.40 billion raised in the last quarter of 2022. This is the third consecutive quarter with a decline compared to the previous quarter in investments among QOFs tracked by Novogradac.

The 1,692 QOFs tracked by Novogradac (of which 1,298 reported raising a special equity amount) have raised $34.77 billion in the five-plus years since the Opportunity Zone (OZ) incentive began. The average amount raised by QOFs on Novogradac’s list was $4.6 million in reported equity funds as of March 31.

The latest report includes 31 more QOFs than were included in the report at the end of 2022. There are a further 24 QOFs that have reported a fixed amount of equity raised.

Blog graphic: Investment amounts flat

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QOFs are an investment vehicle through which taxpayers defer part of their capital gains and receive other benefits through the OZ incentive. QOF managers who agreed to speak to Novogradac without attribution cited the general state of the economy as the main reason for the drop in QOF investment in early 2023, as well as the lack of capital gains from the stock market and real estate sales. Interest rates and potential recessionary headwinds.

As evidence, the Dow Jones Industrial Average for the New York Stock Exchange was down 4.0% on March 31, 2023, compared to a year ago, despite an inflation rate of 5.0% over the same 12 months. In addition, high interest rates have reduced enthusiasm for construction investment, which is an important goal of QOFs.

Novogradac collects data on a rolling basis from QOFs that voluntarily provide information and includes public sources such as Securities and Exchange Commission filings and press releases. Because Novogradac’s figures do not include proprietary or private funds that are owned and operated by their major investors, the actual OZ investment is likely three or four-times Novogradac’s number.

Blog Graphic: Residential, Commercial Still Leading Sectors

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Residential and commercial continue to dominate among the five categories into which Novogradac divides QOF investment emphasis. QOFs with an exclusive focus on residential investments raised $6.81 billion by the end of March, and those with an exclusive focus on commercial investments raised $2.17 billion. QOFs with at least a partial focus on either residential or commercial raised more than $23 billion each – a combined figure that exceeded the overall investment total due to the large number of QOFs focusing on residential and commercial investments and therefore included in both. Total.

One bright spot in the data was that QOFs with some focus on operating businesses saw an increase of $26.4 million in investment, at least for the first time with more than $1 billion invested in QOFs with a focus on operating businesses.

Of the QOFs tracked by Novogradac reporting a certain amount of equity raised, 836 (64.4%) are concentrated in a single city. Those QOFs raised only 26.5% of equity, due to the number of super QOFs that have raised $100 million or more and are concentrated in multiple geographies. Super QOFs raised 60.6% of all reported equity, making up only 5.2% of all QOFs.

While overall investment was lower than the previous quarter, some states continued to see significant focus from QOFs. Novogradac won’t release state rankings until midyear, but Arizona, Florida and Tennessee—states that ranked in the top 11 for planned investment at the end of 2022—saw nearly $350 million in new planned investment in the first quarter of 2023, 51.1% of total new national investment. .

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 contained in this report should not be construed as a recommendation to engage in any particular transaction. Readers are urged to consult their own professional advisors if they are considering investing in QOF.

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