Investors gauge FO interest in opportunity zones

Why this is important: opportunity zones have generated a lot of excitement, but not that many investments so far.

Amid the excitement over Opportunity Zones at the second day of Buyouts Insider’s Family Office Connect conference in New York, some doubts about OZs as they are currently constituted seeped in.

Chris Milner, head of real estate investment management for Cantor Fitzgerald, mentioned his firm’s joint OZ venture with Silverstein Properties, but said his firm now wanted to use conferences like this one to “really understand whether or not third-party capital is really going to take up this opportunity.”

“I think there’s a tremendous amount of interest in the topic, there’s an incredible amount of curiosity about how investing might work, and there’s still fairly limited actual invested dollars,” Milner said during a panel discussion on May 22.

“We’re still very early days in terms of all the knowledge and regulatory clarity and visibility that we need, but the next step is whether or not there’s going to be capital.”

“Understanding what the level of actual interest is and whether this is going to break out and become a new asset class or whether or not it’s just going to be a continued investment in 30 to 40 of the most dynamic of the 8000-plus zones is really one of the things we’re trying to understand by interfacing with groups like this,” Milner added.

Opportunity zones were part of the 2017 Tax Cuts and Jobs Act, spearheaded by Sen. Tim Scott (R-South Carolina).

They provide tax incentives for private investors to put their capital gains into Qualified Opportunity Zones (QOZs) and reinvest 90 percent of that money within one of more than 8700 designated census tracts nationwide. Investors face a deadline of June 29 to invest.

The program has been met with enthusiasm by investors, but concerns and uncertainties remain about aspects of the system, including whether successful OZ investments could both fulfill the goals of the program and be profitable, which Buyouts has covered before.

In another panel, moderator Kunal Merchant of CalOz laid down the question bluntly: “Should an investor or a fund be willing to accept only market rate or better return or because it’s an opportunity zone should be willing to give up a little bit of market rate because of some more intangible social benefit?”

Brett M. Johnson, partner at Fortuitous Partners, said OZ investments have to “pencil out” as profitable, but the OZ program will need to show some results to be widely accepted.

“If there is not tangible social impact that’s starting to be seen very early on, I worry about the program,” he said.