A record $9.68 billion in equity investment was made in 2022 in qualified opportunity funds (QOFs) tracked by Novogradac.
The cumulative total of investment in QOFs tracked by Novogradac reached $34.09 billion as of Dec. 31, 2022. Novogradac was tracking 1,661 QOFs, of which 1,274 reported a specific equity amount raised. The 2022 year-end total was a 39.7% increase over that at the end of 2021 and continued a three-year run of similar investment. (Novogradac reported $9.23 billion in equity raised in 2020 and $9.24 billion in 2021.)
The 2022 totals were largely invested in the first three quarters of the year. The fourth quarter accounted for only 14.4% of the full-year amount, possibly due to a decline in the stock market and a flattening of the real estate market. Those are two leading factors in creating capital gains, which are the driver of opportunity zones (OZ) investment.
Novogradac collects data on a rolling basis from QOFs that voluntarily provide information and also includes information from public sources such as Security and Exchange Commission filings and press releases. Because Novogradac’s figures don’t include proprietary or private funds that are owned and operated by their principal investors, actual OZ investment is probably three or four times Novogradac’s numbers.
The QOFs in Novogradac’s survey had an average equity raise of $26.7 million, but that figure was greatly affected by a small number of QOFs that have raised large amounts of money. There are eight QOFs that have raised more than $500 million in equity and their average amount of funds raised was $947 million. Perhaps a more accurate barometer of equity raised is the median amount (the figure for which an equal amount of QOFs have raised more and less equity), which was $4.6 million. That figure has been steady over the past three years, coming in at $4.6 million in 2020 and $4.7 million in 2021.
Pulling the focus out a little further, QOFs that have raised $100 million or more in equity make up 5.3% of all QOFs, but have raised $20.7 billion, which is more than 60% of all equity.
More than 70% of QOFs in Novogradac’s survey focus on a single investment. Those QOFs have a median equity raise of $3.5 million.
Novogradac breaks investments into five general areas: residential, commercial, hospitality, renewable energy and operating businesses. As it has in every reporting period for Novogradac, residential investment is the leading area, with QOFs focused exclusively on residential raising $6.67 billion and QOFs that have at least some focus on residential raising $27.80 billion. Commercial investment is second among QOFs, with hospitality, renewable energy and operating businesses well behind.
QOFs that focus on a single city make up more than three-fourths of those for which that information is known, while QOFs focused on investments in multiple cities (which includes all the largest QOFs) have raised more than 70% of all equity.
Washington, D.C., remains the city with the most planned QOF investment, as the nation’s capital saw an 83.5% jump in planned equity investment in 2022 to reach nearly $1.4 billion in planned investment. Los Angeles, New York, Phoenix and Nashville round out the top five cities for planned investment and the 54 cities with at least $100 million in planned investment represent 25 states, plus the District of Columbia.
Among cities, Dallas saw the biggest jump, with investment more than tripling as it moved from 51st on the list of cities with the most planned investment to 13th.
California far outdistances other states for planned QOF investment, with $3.78 billion raised. Arizona is second with $2.06 billion in planned investment, while New York, Texas and the District of Columbia round out the top five.
The QOFs are overseen by managers, some of whom oversee multiple QOFs. There are 12 QOF managers who manage at least $500 million in equity, an increase from seven at the end of 2021. There are 62 QOF managers who oversee at least $100 million in fund value.