CIM launches ambitious $5 bln opportunity zone fund

  • Why this is important: Real estate investment firms are gearing up to attract investments for opportunity zones

CIM Group has set an ambitious goal for a new investment strategy, targeting $5 billion for an opportunity zone fund, the largest such pool in the market.

Los Angeles-based CIM Group, founded in 1994 by Avi ShemeshRichard Ressler and Shaul Kuba, owns and operates urban real estate, real estate-related assets and infrastructure assets.

The company also raises private capital and managed $327 million in discretionary assets as of Dec. 31, 2017, its Form ADV said. Mitsui & Company, the Japanese trading conglomerate, owns a 20 percent interest in CIM.

CIM’s opportunity zone fund is structured as a blind pool fund and was filed as a pooled investment, private equity fund, according to its Form D.

The pool will largely draw on the company’s value-add strategy for ‘Qualified Communities’, which CIM defines as low-priced or transitional assets in downtown-areas of densely populated areas, a person familiar with the company said.

CIM had identified more than 100 qualified communities and 65 of them fell in the opportunity zones.

The Tax Cuts and Jobs Act of 2017 established Opportunity Zones as a way to provide tax breaks to investors. Private investors can roll their capital gains into a qualified opportunity fund, which must invest at least 90 percent of its assets in opportunity zones to defer the tax. Capital gains tax gets eliminated if the investment is held for 10 years. In addition, investors may also receive tax benefits on additional gains earned from the qualified opportunity fund.

CIM invests in transitional urban assets if there is potential for a minimum of $100 million in opportunistic equity within five years in underserved niches in the community’s real estate infrastructure and if there is potential for improving demographics.

It is unclear what the minimum investment for the opportunity fund will be but CIM’s private funds usually have a minimum capital commitment of between $5 million and $25 million, its Form ADV said.

However, CIM’s funds have no minimum requirement for high net worth individuals and family office clients, the ADV said.

Some of CIM’s qualified community projects include downtown Washington DC, Oakland, California and Hollywood, Los Angeles.

Proper structure

Blind pools are not necessarily the right vehicles for opportunity zone funds, said Dan Kowalski, counselor to Secretary Steven Mnuchin, at the Jan. 16 U.S. Opportunity Zone Expo in New York.

Investors who want to access Opportunity Zones have to earmark distributions that are less than 180 days old into structures called Qualified Opportunity Funds. With a blind pool, investors would be challenged to time their distributions to meet capital calls, PE Hub reported.

Family offices, which have been exploring opportunity zones, want to know the specific properties and locations they are investing in rather than committing into blind-pools, said Ross Walker, co-founder and managing partner of Hawkins Way Capital, a Los Angeles-based real estate company in an earlier interview with Buyouts.

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