Two family offices, Fortune 400 institutional investor take LPs stakes in Halpern OZ fund

Why this is important: HREV’s attracted institutional investors into a traditional structured fund for OZ investments.

Halpern Real Estate Ventures last month closed on almost $30 million to its first opportunity zone fund. Its investors include a major institutional investor, two multibillion-dollar family offices and several other high-net-worth and ultra-high-net-worth investors, the company told Buyouts.

“We’re very proud of our first close,” said Jon Halpern, HREV’s founder, managing partner and chief executive officer. “It hit all the key benchmarks that you would hope for as a fund manager.”

HREV OZ Fund on April 23 closed on commitments of close to $30 million toward a final target of $50 million.

The lead investor is a Fortune 400 institution with a multibillion-dollar asset-management operation, which HREV declined to name. Another investor is multibillion-dollar family office Wolfson Group. At least one more family office and several high-net-worth and ultra-high-net-worth investors have also committed to the fund. Both Wolfson and the other family office invested in Halpern’s previous fund. Wolfson Group declined to comment on the investment.

HREV’s management team is providing 20 percent of the fund’s capital to ensure alignment with their investors and take advantage of the OZ program themselves.

“We’re not shy,” Halpern said. “If we hit our $50 million mark, we’ll have $10 million in the platform.”

HREV plans to get to work right away.

“We anticipate it will be about five deals. The idea would be to lock those investments down, advance them through the pre-development process … and have them ready to go vertical, to start construction, sometime in 2020, at which time we would source additional follow-on, second-round LP capital,” Halpern said.

Halpern said the firm hopes to close the fund by the beginning of July and then turn the focus immediately to investing. The firm is near closing a deal outside the urban core of Denver in the River North Art District (RiNo) for a mixed-use development combining offices, hotels and restaurants that could total about $200 million with debt and equity included.

“We have a deal under definitive agreement,” he said. “It’s just a matter of finalizing and closing, which will be sometime in June.”

Halpern said a quick start will pay off.

“We’re taking a kind of rifle-focused approach on investing in 2019 because we think that early movers, particularly if you’re a GP sponsor investor, are going to be very rewarded because of the capital flow into the space,” he told Buyouts.

Opportunity zones provide a series of capital gains tax benefits if those gains are rolled into a qualified fund that is used to invest in one of about 8700 census tracts spread throughout the U.S.

The HREV OZ Fund is a standard 2 percent management fee/20 percent carried interest rate-structured fund but has a few interesting nuances to ensure it complies with opportunity zone regulations, which can get complicated.

“We’re going to likely set up five separate fund vehicles, one for each investment, so the commitment is really made to our platform. What we essentially do is just draw on the commitments and allocate them equally to each of the deals,” Halpern said.

Halpern said HREV first heard about the opportunity zones program last year.

“Like many people who first heard about it, you took a quick look at the regulations, and you’re like ‘this can’t be real,’” he said.

But once he realized the program was real, Halpern said, he and his firm went to work while the talk about OZs went on around them.

“We’ve been very under the radar. Our whole focus has always been [that] we don’t like to talk until we actually have got something done,” he said.

Action item: contact HREV here.