Cresset and Diversified Real Estate Capital have closed their first Qualified Opportunity Zone (QOZ) fund, the Cresset-Diversified QOZ Fund (Fund I), after raising the $465 million in capital needed for the portfolio and the seven underlying projects. Capitalizing on the success of Fund I, and the strength of their investment pipeline, Cresset-Diversified announced the launch of their follow-on fund, the Cresset-Diversified Qualified Opportunity Zone Fund II (Fund II).
Led by Cresset-Diversified’s experienced team of real estate, private equity, tax and legal professionals, Fund I invests in seven institutional-quality, core real estate development projects across the United States. Fund I focused specifically on well-positioned urban neighborhoods in high-growth markets such as Nashville, Denver, Houston and Portland, among others. The Fund I portfolio includes investments in multifamily, office and ground-floor retail. Investments are structured conservatively with low leverage to generate an attractive return and to allow for potential refinancing of the project once the development is completed and leased. Cresset-Diversified has partnered with leading development firms, including Hines, Lennar, Gerding Edlen and Washington Property Co., and has already started construction on its flagship project in Houston, The Preston.
Fund I launched in the fall of 2018 and was an early-mover in the nascent QOZ market and was able to attract capital from a diverse set of investors including single-family offices, real estate investors, entrepreneurs, corporate executives and legal professionals. Cresset-Diversified expects to target many of the same groups as it looks to raise capital for Fund II.
“To say we’re pleased with the response to Fund I would be an understatement,” said Avy Stein, Cresset founder and co-chairman. “When the Opportunity Zone program was first announced, we knew it represented a unique opportunity for investors to utilize their capital gains in a tax-efficient manner while also having an impact on communities across the country in need of economic development. I’m thrilled to see more and more investors and developers recognizing the impact of the program and look forward to seeing what the coming years bring as we continue developing our Fund I projects and begin raising and investing with Fund II.”
Fund II launches with a mandate equivalent to Fund I, seeking to invest in institutional-quality, core real estate in high-growth, urban markets in partnership with leading developers. Fund II seeks to invest in seven to nine projects, with a target of up to $750 million in equity, diversified by both geography and product type, with low leverage to achieve quality, risk-adjusted returns over the requisite hold period. Cresset-Diversified anticipates partnering with several of the same developers from Fund I, in addition to new firms. Projects currently under consideration for Fund II include mixed-use, multifamily, retail and office investments in the Southwest, Texas, Mid-Atlantic, Northeast and West Coast.
Similar to Fund I, investors will be able to access these projects through the Cresset-Diversified QOZ Fund, a multi-asset fund, or on an individual basis subject to available capacity.
“Partnering with Cresset to develop the Cresset-Diversified QOZ Fund has been a terrific experience,” said Larry Levy, Diversified Real Estate Capital and Levy Family Partners founder. “Our highly experienced group of real estate investors has led the pack in identifying top QOZs to invest in, and we’re ecstatic to have the opportunity to work with some of the country’s best developers to make those projects happen. The launch of Fund II marks the start of the next phase in our QOZ investment program, providing investors with access to the best growth opportunities within QOZs and bringing much-needed capital to developing communities.”