Chicago-based private equity real estate firm Origin Investments launched a Qualified Opportunity Zone (QOZ) fund on Nov. 14 and amassed $105 million in commitments from 425 investors in 17 hours. While other firms are raising blind capital for QOZ funds, Origin has three multifamily opportunity zone projects under contract—one in Denver and two in Charlotte, cities that make the top 10 markets to watch in Urban Land Institute’s 2019 Emerging Trends in Real Estate report.
QOZs, which were established in 2017’s Tax Cuts and Jobs Act to incentivize long-term investment in economically distressed areas, allow investors to defer, significantly reduce or potentially eliminate capital gains taxes. In creating QOZs, the U.S. government hopes to motivate Americans to invest some of the $6.1 trillion in unrealized capital gains they are holding in exchange for tax advantages. U.S. Secretary of the Treasury Steven Mnuchin has suggested that as much as $100 billion could flow into opportunity zones.
“But the QOZ tax benefit doesn’t change the fundamentals of sound real estate investing. These projects need to pass the same scrutiny as developments in non-QOZ areas, and be able to produce viable, risk-adjusted returns,” Origin cofounder Michael Episcope said. “All opportunities should be evaluated on their strength as stand-alone investments and the ability of the manager to perform.”
Finding qualified investments that can provide a solid return is another challenge. “Even though the U.S. has over 8,700 QOZs, 90 percent of them aren’t ready for redevelopment capital today. That makes it difficult for fund managers to find or develop viable projects,” Episcope said.
Origin places great importance on making sure all investments deliver superior results, and has rigorous standards in place regarding underwriting, due diligence and fund management. The firm currently owns and manages multifamily projects in Atlanta, Chicago, Dallas, Denver, Houston, Austin, Charlotte and Raleigh-Durham, and is developing multifamily projects in Atlanta, Austin and Denver.