Maybe it's just been my experience but I have seen material losses in QOZ funds across multiple firms. Seems real estate managers got excited about raising capital for long-term plays (10-year hold for max benefit) and just went out and bought assets with aggressive or overly optimistic assumptions.
What are you guys seeing with QOZ fund investments?
I can't speak to the gateway markets but the Sun Belt OZ investments have been pretty lackluster - especially multifamily development.
I'm not sure why this is surprising. The OZ program was obviously bullshit from Day 1, designed to give away a ton of taxpayer dollars to a handful of developers who owned land in already-prime location, and the rest of it was stupid hype. In keeping with basically every other policy concocted by either Trump Administration, it was a handout to a small number of rent-seeking firms that was never meant to advantage the people/areas it was nominally aimed at
can anyone talk about some real examples? i wouldn't be surprised either but am curious.
i mean, do a deal in a crap location, don't be surprised at crap performance when many markets across the US are already at the lowest performing 2-3 year stretch in recent history (for multi at least). The OZ deals screened appropriately for location are doing fine
Might be out of my depth here, but my understanding is: the attraction of the QOZ fund is the elimination of capital gains tax on non real estate assets like a family business (as real estate can be 1031'd to defer cap gains in perpetuity anyway). So a family sells their long-held, low-basis, high-cap-gain business, rolls it into a QOZ fund, and after a decade, the capital gain goes away. So if the underlying asset underperforms, that's OK because the true economic benefit was the elimination of capital gains, not the appreciation of the underlying asset.
But, WSO, correct me if I'm wrong, you always do!
Not wrong but when you roll into a QOZ fund, you’re paying fees (asset management, acquisition, and sometimes staffing reimbursement) then to add insult to injury, fund managers could also lose 20%-40% of your money.
I’m seeing in real time funds that have lost 20%-40% of QOZ equity meanwhile they still got paid hefty fund fees.
True, but fee overcharges and underperformance are a risk with any fund
The gain you roll is deferred, and has a small reduction, but is taxable in ten years. Appreciation from the fund won't typically be taxable though
Not taxable in 10 years. OZ 1.0 taxes the initial gain in 2026, OZ 2.0 taxes the gain 5 years after invested into a Qualified Opportunity fund. The capital gain of the OZ investment is exempt when the OZ investment has been held for 10 years.
This is wrong. You do not have your initial capital gain eliminated. However, when you reinvest that gain you get some combination of the following:
Closed multiple OZ deals from 2020-2023, have 0 problems.
Half the reason NYC still has developments is because of the OZ program. All the deals in my pipeline are OZ, some are waiting for OZ 2.0.
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