High expectations greeted the launch of opportunity zones in 2017. Some predicted more than $100 billion in private investment would be injected into low-income communities across the nation. Both investors and the almost 9,000 tracts designated as Qualified Opportunity Zones stood to benefit mightily. In the months to follow, a number of funds and consultancies were founded to capture the tax incentives. But well into 2019, the funds were luring mere fractions of the capital originally anticipated. That was likely the result of obstacles inherent in identifying and securing developments qualifying under the program, and an overall inability to grasp the initiative’s legal complexities.
More recently, the seemingly moribund program has come to life in the wake of a robust fundraising winter. To provide context, in July of last year, one report noted Qualified Opportunity Zone funds had secured less than 10 cents on the dollar of their total capital raise targets. Months later, in late 2019, accounting firm Novogradac estimated the funds had raised less than 15% of targets.
But December, which saw nearly $2 billion raised in a single month, may eventually prove to have been the turning point. While continuing to trail expectations, the program in early 2020 began giving evidence of unprecedented vigor. In January, Novogradac’s Opportunity Zone Resource Center indicated investment in opportunity funds had grown by 50% in the previous 30 days.
Leading that charge are companies such as Halpern Real Estate Ventures (HREV), a New York City, N.Y.-based investment, operating and advisory platform focused on creating value across the full breadth of real estate. In a scant nine months, HREV attained its self-imposed goal of $50 million raised, and then began to put that capital to work on a trio of substantial development projects situated in Denver, Philadelphia and Jersey City, N.J.
“The OZ program not only provides downside protection for investors, but also serves as a significant catalyst for economic growth in communities of all shapes and sizes,” says HREV managing partner Jon Halpern.
Raising money is one hurdle. But as the dearth of funds that have attained both goals shows, an equally daunting headwind is securing development opportunities in O-Zones.
HREV officials believe its platform will eventually support five new development projects totaling $1 billion. An exploration of how it created the platform may be instructive for those seeking to both raise funds and identify opportunities.
Having a track record of leading urban infill projects not unlike those qualifying for the O-Zone program has helped HREV in raising and deploying capital. A case in point is Train Denver, a transit-oriented development in the city’s RiNo neighborhood being developed by HREV and partner Invent Development Partners. Once industrial, RiNo is undergoing a renaissance as a cultural and entertainment hub. Train Denver will marry contemporary architectural aesthetics and historic influences, delivering as many as 200 multifamily units, along with up to 275,000 square feet of modern office space, a 200-key hostelry and varied restaurant and nightlife options. It is centered in Denver’s Five Points enclave around a Regional Transportation District commuter rail station at 38th and Blake.
“A major factor in our success is the fact that the OZ program served as a tailwind to our existing strategy,” Halpern says.
“We focus largely on development in urban infill locations that are often complex in nature, and the parallels to the provisions of the legislation have given us a distinct advantage. For two of our projects located in former industrial zones, the incentives have helped to accelerate the areas’ reinvention into neighborhoods that are economically viable for the long run.”