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Cresset sees solid opportunity zone prospects despite covid

The firm closed its first fund in June on about $465m, and plans to raise Fund II through the end of next year.

Despite the massive economic slowdown stemming from the coronavirus crisis, Cresset closed its first opportunity zone fund earlier this year and is making good progress on its second.

As of Monday, Cresset had raised about $85 million for Fund II, and might get that up to $100 million by the year’s end. Four projects are under letter of intent, said Nick Parrish, who runs Cresset’s opportunity zone program.

That means Fund II has raised about $65 million since June, when it had raised about $20 million, as Buyouts reported, even amid the covid market dislocation.

“By the time the pandemic had hit, we had basically had all of our capital raised,” Parrish told Buyouts. “We were in a really fortunate position to be building and not having to deliver an asset.”

The Chicago multi-family office closed Fund I in June on about $465 million of equity investments, Parrish said. It has seven projects currently in the works in Portland, Oregon, Houston, Denver, Nashville, Omaha, Charleston and Washington, DC. Six of those seven are currently in progress, and construction will be completed in 18 to 24 months.

Cresset has also begun raising its second opportunity zone fund, Cresset-Diversified QOZ Fund II. It filed a form D in July with an indefinite target, but Parrish told Buyouts the target was between $400 million and $500 million. The fund will raise through the end of next year.

The new fund will continue the focus on the “high-growth, primarily urban markets,” and will again be primarily aimed at multifamily housing. However, this fund’s projects will have fewer office projects and more industrial projects.

The firm brought on investment director Dominic DeRose in October, who has a background in industrial, and plans to start deploying capital in sub-sectors seeing favorable headwinds due to the covid crisis.

“We like the dynamics around e-commerce, last-mile distribution, re-shoring, a lot of those trends that existed that are being exacerbated by covid,” Parrish said. “And, by the way, those line up real well with opportunity zones because not every opportunity zone do you want to live and work in, but that doesn’t necessarily mean they aren’t good industrial areas.”

These include areas near a railroad track, a highway, or a port. Parrish also said some properties traditionally used for retail have been repurposed to industrial. One example of this is regional malls that used to be incredibly important to the population centers nearby, but which have lost anchor tenants, such as retail giants that have recently declared bankruptcy or gone belly-up, such as JCPenney, Sears, or Lord & Taylor.

“Many of those neighborhoods are neighborhoods that are in need of redevelopment and jobs, so it also serves the impact component,” Parrish said.

Action Item: read Cresset’s form ADV here.