The State Of The Opportunity Zone Marketplace, An OZ Pitch Day Panel

How has the Opportunity Zone marketplace evolved since 2018 and what changes may be forthcoming?

This episode is the audio version of an OZ Pitch Day panel titled, “The State of the Opportunity Zone Marketplace.” The panel was moderated by OpportunityDb founder Jimmy Atkinson. Panelists: Emily Lavery, Catherine Lyons, and Reid Thomas. Recorded live on November 3, 2021.

Click the play button above to listen to the audio recording of the panel.

Or, for the video recording, click here.

Episode Highlights

  • How the Opportunity Zone marketplace has evolved since inception.
  • The growth of QOFs that feature some operating business component.
  • The trend toward smaller, more focused funds.
  • Potential legislative and regulatory changes that may be forthcoming, and whether impact reporting may become a QOF requirement at some point.
  • Approximations of the overall size of the Opportunity Zone marketplace.

Featured On This Episode

Video Recording

Industry Spotlight: OZ Pitch Day

OZ Pitch Day 2020

The OZ Pitch Day Fall 2021 was a live, two-day online event geared toward matching investors who have capital gains with Qualified Opportunity Funds that are seeking capital. The live event took place on November 3-4, 2021 and featured pitches from 16 Qualified Opportunity Fund issuers, several educational sessions, and a post-event group networking session.

Learn More About OZ Pitch Day:

About The Opportunity Zones Podcast

Hosted by OpportunityDb.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

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Show Transcript

Jimmy: Let’s dive into our State of the Opportunity Zone Marketplace panel. There you go. I see everybody now. So, thank you all of my panelists for attending today. Very quickly, let’s just kind of go around the horn here. And we’ll have everybody introduce themselves. Emily, I’ll start with you. If you can introduce yourself briefly, please, and say hello.

Emily: Yeah, for sure. Thanks so much for having me on. Let me know if I cut out for some reason. Hey, all. I’m Emily Lavery, formerly with Senator Tim Scott, where I served as his finance advisor for tax and opportunity zones specifically. So, worked really closely with the folks on this Zoom. So, it’s great to see everybody. It’s been a minute.

Jimmy: All right, and Catherine Lyons joining us from EIG. Catherine, you can say hello, and introduce yourself briefly.

Catherine: Yes. Hi, everybody. Thanks for having me. I am the Director of Policy at the Economic Innovation Group. And we are a bipartisan research and advocacy organization focused very heavily on the successful implementation of opportunity zones. So it’s great to be here.

Jimmy: And your organization essentially invented opportunity zones?

Catherine: Yes.

Jimmy: Right? Yeah.

Catherine: We are the kind of architects of at least the concept of the policy and worked very closely with our congressional partners and turning it into legislation and ultimately into law. And since then, we’ve been working with our opportunity zones coalition of which Reid is a part, and probably many others on this call to kind of help inform the regulatory framework, and just generally, as I said, the successful implementation of the policy across the country.

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Jimmy: We’re very pleased to have you here, Catherine. Thank you. Reid, how about you? Say hello.

Reid: Thank you, Jimmy. It’s good to be here. We’re a company that’s just really passionate about helping well-intended investment initiatives do the good they’re intending to do. We do that by providing fund administration services with purpose-built technology to capture the nuances of the individual investments. So, we’re the leading provider of fund administration in the opportunity zone space, doing, of course, all the appropriate fund accounting reporting financials. But we also focus on doing the compliance tracking for the initiative itself, as well as measuring and reporting on social impact.

Jimmy: Fantastic. Well, today’s panel really wanna be focused on the state of the opportunity zone marketplace. I wanna discuss how the opportunity zone marketplace has evolved. Since its inception, essentially, in the summer of 2018, is when qualified opportunity funds really first started hitting the marketplace, I would say. And then I also want to cover any potential legislative and regulatory changes that may be forthcoming over the next few weeks or months or years, even. It’s all a matter of speculation, of course. But Reid, I wanna turn to you first. Maybe you can tell us how many qualified opportunity funds are on your fund administration platform, first of all, and then what sort of evolution have you seen in terms of the funds and the activity on your platform?

Reid: Well, I think Jimmy, now we’re over 150 funds on our platform. So we’re very proud of that. In terms of how the market has continued to evolve, you know, initially, though, it was 100% real estate focused. And all of the funds that we saw coming on a platform were focused in that segment, largely housing, and then largely under that multifamily housing. Now that focus in real estate continues today. Although we do see, the fastest-growing segment is funds that have at least some operating business component to them. And so, we’re at the point now, where this just isn’t the funds that are on the platform, this is all the funds as well, and we’re in discussion with about 50% of all funds have some operating business component to it. It might be real estate development, that is an incubator for businesses as an example or an entertainment venue or a film studio or something like that that has a mixture of both.

Michael, on the previous discussion talked about, you know, the early days of 2018 and these billion-dollar funds being launched. That was certainly true but we haven’t seen much of that lately. The trend has been towards smaller, more focused funds. So the typical fund size now might be $25 to $50 million, to be honest with you, which we’re encouraged by because what we interpret that to say is that the investors and the investment managers are really focused on trying to do what the program was intended to do. You know, where can we apply capital to really help improve a community? And so we’re seeing many more targeted kind of investments like that going on. And the final thing I’ll say in terms of what the market is about is there’s been this increased attention paid to impact and social impact, both from the investor side we’re seeing. There’s interest from investors in what the initiative will do in terms of social impact. Certainly return is king, but social impact is out there. And we’re seeing more and more funds promote the impact benefits of what they’re trying to do versus what was happening originally.

Jimmy: Great. Thanks, Reid. I wanna talk about impact a lot throughout the course of this two-day event. I think we’ll be hearing a lot about impact and the types of community impact, social impact, and environmental impact in some cases that a lot of these funds are generating. One of them is a little bit on the size of the opportunity zone marketplace in a few minutes here. But first, I know, we’ve got a lot of questions on what may be changing with opportunity zones. What is the Biden’s administration gonna do? What’s Congress gonna do? What legislative changes are coming? What regulatory changes may be coming to opportunity zones? And I know that Senator Tim Scott has introduced the IMPACT Act. So, Emily, I wanna call on you in a minute to discuss that in detail and what Senator Scott’s doing. But first, I wanna open it up with Catherine Lyons from EIG. Can you walk us through what pending legislation is out there and what might change with opportunity zones in the future and any potential timelines that you may be aware of also?

Catherine: Sure. Well, as you said, Emily will talk in a minute here about the IMPACT Act, which I think is the kind of most thorough kind of legislation currently introduced to help put reporting requirements and a real framework around data collection in the policy. But I think that that’s where… You know, that was really what we’ve really seen the most movement around in Congress, and certainly the kind of deepest and broadest bipartisan support, you know, for the establishment of reporting requirements for investors and funds, you know, using the opportunity zone benefit. There are numerous kind of legislative or pieces of legislation that have been introduced, both in the House and the Senate, mostly on a bipartisan basis. So, there’s a few kind of more partisan avenues that have been introduced as well. But generally, this has been done on a bipartisan basis across the chambers. And so, you know, we as an organization and as a coalition are very supportive of that and think it is the kind of highest priority, in terms of improvements or enhancements that need to be made to the policy. Also worth noting that it was always the intent to include those reporting requirements. But the way in which opportunity zones was passed, the reconciliation, which I think we’re all becoming a little bit more familiar with, at least in D.C., since that’s how, obviously been dominating the conversation of late, they were kind of stripped out. And so, you know, there was always a recognition that they needed to be added back in and a real kind of concerted attempt at doing that. And so, you know, that alongside a few other kind of, I think policy improvements, you know, may come together. You know, and I think that there’s a real interest in seeing something done as soon as possible, particularly on reporting, establishing that baseline and collecting that data early on in the markets. Inception is really important.

And so, I think that along with the 2021 kind of deadline for receiving the step up and basis benefit, you know, those two things combined, I think are really, hopefully, kind of creating a little bit of momentum around both extending the policy, which, you know, again, is a real priority of Senator Scott’s, and others, you know, within the market, along with reporting and a few other kind of, again, targeted and thoughtful, reasonable enhancements to the policy, you know, again, maybe coming together, and it’s always hard to put a pin on the likelihood or timing around this. But it’s something that, you know, our organization is working toward alongside many other kind of stakeholders within the market and within Congress.

Jimmy: And Catherine, what do you think is more likely to happen first, that will get some congressional action that may introduce reporting requirements and some other tweaks to opportunity zones? Or do you think the administration may weigh in with some IRS or Treasury regulatory changes. What’s…?

Catherine: Yeah, I mean, hard to say, you know, thus far, the administration has not kind of prioritized opportunity zones. They have had quite a lot of other major kind of pieces of legislation that they have also had to kind of promulgate regulations around. And so that has really kind of taken the, you know, Treasury’s bandwidth in terms of their priorities. So we haven’t seen a lot of action on OZ’s coming from Treasury or IRS, with the exception of a few, kind of additional, you know, regulations that have been introduced but, again, kind of on minor aspects of the policy. So I think, you know, there is possibility that we’ll see additional movement, just because the assistant secretary of tax policy is now officially in her position. That took a while. And so she, Lily Batchelder was recently, you know, installed officially a few weeks ago. But again, I think that there’s just been a week between the major, you know, social legislation that is making its way through the process, the infrastructure bill, and kind of numerous other large pieces of legislation that will also then require regulations, it’s just, I think, you know, this has not risen to the top of the agency’s priority list. So, we’re obviously trying to track that as closely as we can, but it’s hard to say who will move first. But, you know, I think, thus far, the administration, you know, hasn’t acted yet, of course, but has also mentioned that they have a few ideas for how it could be improved. Reporting is one of them. And so we’ll have to see, you know, how they perceive their authority to act in that way as well.

Jimmy: Very good. But like you mentioned, it really hasn’t been a priority of the administration to date. And as mentioned briefly, on the Biden campaign website, I guess it’s about a year ago now, over a year ago but haven’t really heard much from them since then. Emily, I wanna turn to you now. Senator Tim Scott, you used to work in his office as his tax policy and opportunity zone advisor. Senator Scott from South Carolina was one of the original co-sponsors of the opportunity zones bill. So he’s been a proponent of it since well before it passed. What is he focused on? And maybe you can talk a little bit about what is included in his IMPACT Act? I know there’s some reporting requirements that he’s trying to put back in and in some other language as well. What’s on tap there with the senator?

Emily: Yeah, definitely. So as you rightfully mentioned, Senator Scott’s been championing opportunity zones since they were introduced in Congress. And thankfully, he was one of the sort of four horsemen of TCJA, which is how he was ultimately able to get that secured and passed into law. You know, there’s sayings on Capitol Hill, but it takes 10 years to get a really great policy from inception across the finish line. Senator Scott’s been a rising star I think since he came to the Hill and passing a piece of legislation this substantial that early in his career on the Senate side, I think is just really a testament to his vision for opportunity zones. And reporting fits right in there with that, right? So, as Catherine rightfully mentioned, that’s always been a part of the bill. Unfortunately, it was stripped out due to procedural rules, which I think also brings up sort of an interesting point on the future of getting reporting done, right? If we are to use reconciliation, again, that’ll be really tricky to see reporting included in that package, ultimately, right, because I’m not sure how you’re gonna get that to score in a meaningful way and not run into that same roadblock that we ran into just a few years ago, it’s still funny to kind of think about, just really how young this incentive is. And really, on that point, it’s so important to have reporting legislation on the books right now so that we can start to track and understand exactly what’s happening in the marketplace. You know, I’m really thankful for folks like Mike Novogradac, who’s doing really, really great work tracking, you know, roughly 1,200 quals, 900 of those are reporting numbers.

They just hit 20 billion, which is a 15% increase in like two months this summer. So, that’s been really awesome to see. EIG, others are doing really incredible work kind of doing the reporting labor for us, in a sense, right, in terms of just sheer data collection, and trying to create a holistic picture of exactly what’s happening in the marketplace. But reporting is really, really the only way that we’re gonna have a sound understanding of what these zones look like before they were designated, what their competitors sort of look like in terms of just geographically speaking for private investment, and then what those zones look like over time, also in comparison to communities that were eligible, but were not selected, right? So we can understand both from a correlation standpoint, the impact that the incentive actually had, as well as really the trajectory over time. And that’s exactly what the IMPACT Act does, right? It provides for the most holistic and in-depth study over time of exactly what’s going on across, I mean, a litany of economic and socio-economic indicators, which I think it doesn’t shy away from anything, right. It’s gonna paint a very telling picture of exactly what’s going on. GAO, of course, has done, you know, a couple reports. So far, I think that those have been moderately helpful as well. GAO has got a great team. They do incredible work. Obviously, the Trump administration was pretty vocal about trying to get, you know, their forms updated and creating new forms, and trying to collect a lot of data. They had some really excellent reports come out last summer that I thought were really helpful. But ultimately, I think that that administration really did try to go as far as they could in a regulatory sense to ramp up reporting.

But again, you hit those same sort of walls with respect to the data information that Treasury and IRS can collect, without having that legislation on the books. So it’ll be interesting to see kind of where the Biden’s go from here. Again, you know, noting that they mentioned they were supportive of reporting quite a long time ago, I think that most of the things that they outlined about a year ago were pretty positive and bipartisan in nature, which was fantastic to see, given that, you know, it was 2020. It’s not necessarily the most bipartisan year on the books. And so I think it’s it’s helpful to know that that administration, had a pretty inclusive vision with respect to opportunity zones from the get-go. So hopefully, that continues to push through.

Jimmy: Well, that’s great. Thanks, Emily. And, yeah, it is a shame that reporting did get stripped out of the initial legislation back going back almost four years now. I guess we’re getting up on the four-year anniversary of when the Tax Cuts and Jobs Act was passed, which made opportunity zones a reality. There’s been numerous legislative attempts to get reporting package back in. I think that will come at some point. But in the meantime, the private sector and some government reports have done a pretty good job of collecting as much data as they could. So I want talk a little bit about the size of the opportunity zone marketplace. First of all, what we know so far is we don’t have an exact number on the amount of capital that’s been raised by QOFs and deployed into opportunity zones. But we do know that it’s in the 10s of billions of dollars. Emily, you mentioned that the Novogradac survey recently updated with $20 billion of capital that they’re tracking. And they admit that they’re only tracking a very small set of the overall opportunity zone universe, as it were. The Joint Committee on Taxation and UC Berkeley jointly released a study several months ago, earlier this year that showed that if you extrapolated some of the data they had collected from electronic tax filings, that qualified opportunity funds had deployed close to $25 billion worth of capital. And that was only through the end of 2019. So you can imagine what happened in 2020 and what’s transpired over the course of this year so far. Just curious, I’ll throw this out there to all of you, and Reid, maybe you can chime in. It’s been a while since we heard from you. Do you have any other sense of the size of the opportunity zone marketplace and the amount of capital that you think has been raised to date or may be raised by the time the program is all said and done?

Reid: I think there’s a vast amount of capital that’s it’s not even being counted for. So I think it’s geez, at least three or four times that amount because, you know, there’s a lot of folks that will set up their own individual funds and fund the whole initiative. Right? So, I think that’s it. And I think the important thing to keep in mind here is that this program, at least from any of those metrics you select has been massively successful, right? The amount of capital flowing, the amount of momentum it has, is really great. And what’s gonna keep this thing going is really, at the end of the day, whether or not Congress believes that the program has had a positive impact on the communities it’s intended to do. And so I think, regardless of whether Impact reporting ever becomes a requirement, it’s important for all of us in the industry to kind of focus on that, measure that and promote that. And that’s really what we’ve been passionate about. It’s not really hard to measure many of those things. You know, we got into it, because we’re involved in, you know, administering the movement of capital and the investments themselves and doing the financial reporting. And from that, we can extrapolate numbers of jobs that have been created as an example director induce jobs, just an example across our base, and extrapolate that across what the industry as a whole would ultimately have. So, I think for all of us investors, even if, you know, impact investing isn’t really the primary motivation, it’s gonna be important to pay attention to that for the good over the overall initiative.

Jimmy: Emily or Catherine, I don’t know if you have anything else to add there. But before you do chime in actually, we will be saving a few more minutes here for some Q&A. So if you do have any questions for our panelists, please do use that Q&A tool in your toolbar. And we’ll get to those in just a minute. Go ahead.

Catherine: Yeah, well, not so much on the state of the market. I think Reid kind of summed up, you know, our projections on its size. And hopefully, we’ll get you know, more information, either with reporting or continued kind of work with the private sector to help fill in some of those gaps. But I think just kind of building off of what Reid said about the need to really kind of promote some of the great work that is being done and share that with policymakers, sharing it with community leaders, engaging community leaders in this work that will be really important to the overall success of the policy and how it is perceived nationally and more locally as well. So to indicate if your project has opportunity zones, financing and support, I think that that’s often left out of some of the promotion of projects, and it’s hard to know, at this point, if a project is an OZ related project, without that. And so, you know, making sure that that’s part of the story that you’re telling, you know, and if your project… We know of really great, really impactful work happening across the country. But, you know, we would love to share that with policymakers and with stakeholders across the market and also encourage you all to do that as well and to really, you know, promote this great work. And so I think, just, again, to build off of what Reid was saying, that’s really going to be critical. It is and will continue to be over the course of the policy.

Jimmy: Emily, anything else from you?

Emily: Yeah, I mean, I would just echo what Catherine said, I mean, the louder and prouder that folks are about the investments that they’re doing, I think the better off we all are, right? So, don’t hesitate to reach out to your Senator, your Congressman, and really be vocal about the types of investments that you’re doing and the impact that you’re having. You know, a good example comes to mind where there was a fantastic investment in the Southeast that was underway, creating like 300 jobs, and just really going to be a fantastic anchor investment for a rural area. And, you know, we heard about it, we were excited about it. And we didn’t find out for some time later, that they were actually using the OZ incentive. And a lot of that is just, you know, they weren’t sure that that was something they should be vocal about or needed to be vocal about or if it really mattered. And the answer is yes, it absolutely matters. Folks wanna hear about it, your members wanna hear about it. There is a high degree of interest from members, not just on finance committee, about OZ investments in their own backyards. So, again, I think that that’s something that everybody should be striving to do. And really just building that relationship is always gonna be helpful to you. So, again, why not? And the only other item, I would note on that and is definitely, you know, continue to push for reporting. But where and when you are being loud, I mean, I think the more voices echoing that we needed to your timing extension, echoing those really important pieces, that’s only gonna help those things get across the line. So I guess that’s what I’ll sort of leave everybody with.

Jimmy: Thank you, Emily. Let’s open it up for questions for a couple of minutes here before we cut this panel loose. Wilson asked about an hour ago now actually, and I saved this one for this panel, where can we follow some of the legislation that we’ve been referring to about how OZ funds may change or be extended? Is there? Is there a resource that EIG or Novogradac might offer that you folks are aware of that where we can track some of this stuff?

Catherine: Well, yeah, so I think in terms of kind of legislation that’s moving. I know, we actually participate in the Novogradac conference yesterday, or yesterday, last week, rather, and we kind of summarized a lot of the current pieces of legislation out there, again, all of which relates on reporting at this point. There are other pieces about extending the policy, that they’re also out there. I know Novogradac generally does put out news alerts related to any kind of introduced legislation and their Opportunity Zones Resources Center. If there are kind of major pieces of legislation, we also usually do a blog post about that. So, I do encourage you to check out kind of our opportunity zones resources there as well. And then if you’re interested in kind of just seeing what the coalition that we work with and other stakeholders came together to put some recommendations for the new administration around how the policy could be improved, we have that on our resources page as well. It’s a recommendation letter we sent in March two administration officials on both legislative and regulatory improvements that could be made as well. So, I know not exactly related to your question. But if that is of interest, that’s a resource that we have. But yeah, I would say we will talk about kind of major legislative efforts, and Novogradac, I know also does a great job of, you know, indicating when new legislation is introduced, that is at all related to opportunity zones in the resource center.

Jimmy: No, that’s great. Thank you. So I’ve actually just posted links to both those resources, the Novagradac Opportunity Zones Resource Center is a great place. They do an incredible job tracking all the different legislation at both the federal level and at the state level, too. So they do an incredible job staying on top of that. And I’ve also posted a link for that EIG Resource Center as well for your organization, Cath. And you can find those links in the chat. We’ll get to one more question here. This one comes from Mark. Probably for Catherine and/or Emily, he says, has there been… Okay, I think we may have already covered this already but I’ll throw it out there one more time. Has there been any discussion on the Hill on extending the 12/31/26 date, and which would then possibly reopen those 10% and 15% basis step-up windows that are currently being offered?

Emily: Definitely, yes. There’s been talk on both the House and Senate side. So this is something Senator Scott’s been vocal about, frankly, since before he introduced his first iteration of reporting legislation, Cory Booker, I wanna say almost three years ago. And so it’s definitely an idea that’s been socialized a lot. I think it’s a solution that we badly need, not only because I mean, again, we were given a pretty short window of time to not only get zones designated but also educating folks from the ground up and the top down on the incentive and how to use it, not to mention getting rules finalized, which was certainly a process. And I think everybody here can attest to that. But on top of that, coping with a global pandemic that created incredible amounts of delays and uncertainty in the marketplace and really made it kind of a nightmare to do business. I think a timing extension makes more sense now than perhaps ever. The revival of the seven and five-year benefits would be fantastic. And I say the five-year because, of course, that’s running out quite soon. And beyond that… I mean, again, I think the more time that you’re giving communities and I think the most fragile corners of our country to, you know, grapple ahold of this incentive, and, you know, use it to realize their potential, I think is, you know, only a good thing. And so, legislation has been introduced. House side, that would do this. Senate side, I don’t think that we’ve seen a bill yet but again, it’s something that folks are definitely excited about and there’s bipartisan support for. Catherine, I don’t know if I left anything out there.

Catherine: No, I think you covered it. Yeah, it’s absolutely something that would benefit the market. We’ve heard from, you know, many, many stakeholders that this is needed, again, to kind of recoup some of the time spent on the sidelines while we were waiting for that regulatory framework and, of course, you know, the pandemic, sort of people as well. So, yeah, very much, I think would benefit pretty much every stakeholder in the market. We’ve heard as much.

Jimmy: Fantastic. Okay. We’ve got 60 more seconds. So really quick, rapid-fire 15-second response.If you had a magic wand and you could change opportunity zones in any way, what would you do? What would be like the one thing on your wish list that you’d like to get done for the industry? Catherine, we’ll start with you.

Catherine: Well, not to sound like a broken record, but I think I would say establishing reporting requirements. It’s just the most critical at this point. So that would be my 15-second answer.

Jimmy: Emily, turn to you next.

Emily: I would say reporting and timing. I think that they should and they can go hand in hand whenever something moves. And so that would be my wish, which I guess, you know, I might have tacked one on there but I feel like it works.

Jimmy: That’s fine. And Reid.

Reid: Obviously, the same thing from our perspective, but I think would remind the investors on this call that December 31st is a big day, and we have seen significant investments flowing over recent months. So, let’s keep it going.

Jimmy: Absolutely. Well, thank you to my panelists, and thank you to the attendees for the great questions. We’re gonna wrap up this panel right now. Thanks again. I’m gonna kick all of you off stage, forgive me, but I’ll see you down the road I’m sure.