Opportunity Zone Magazine Volume 1, Issue 3 - Page 61

61 with qualified opportunity zone businesses (QOZB), so called operating businesses. While most real estate investments have a cap on the upside, the same is not true about operating businesses. Given the tax benefits available for holding investments for 10 years, this program can be massive for savvy QOZB investors. So now, the key issue to answer is what other groups could take more advantage of QOZs? Private equity (PE) groups is the most logical choice. WHY PRIVATE EQUITY PE groups have vast amount of capital available to potentially invest in QOZs -- roughly $1 trillion in equity 1 . Despite a large amount of capital in these firms, many have yet to move into OZs. Given the current economic climate due to the COVID-19 pandemic, it may be the perfect time for PE groups to look at QOZs as prices are low and there may not be other attractive investment options. While there are some challenges PEs face in determining if a QOZ investment makes sense for their investors, the final regulations made it clearer for PE firms to move into QOZBs. CHALLENGE ONE: INHERIT RISK OF QOZ There is a total of 8,766 certified OZs available for investment. Some of these zones are concentrated in gentrified areas in prime urban markets that are very developable and do not have the inherent risk of many other QOZs. Accordingly, we have seen a focus of development in those zones early on in the program. However, the majority of QOFs are in need of significant capital investments and are in areas that may be less appealing to investors. The average poverty rate in OZs is 28.9% compared to 14% across the U.S. Additionally, the median income is around $44,000 in a QOZ tracts compared to $70,000 nationally 2 . Those dramatic differences are the reason the areas are QOZs, but it also means some types of investments may be unsuccessful there, making them less appealing to investors despite the tax breaks. OPPORTUNITYZONE.COM