Summary by: Todd Eklund, CFA, CAIA

On Thursday April 25th CFA Society New York hosted the 5th Annual Real Estate Outlook: Opportunity Zones.  A timely topic of interest, this event featured a mix of expert panelists providing perspectives spanning legislation, legal, and investment elements – unique insights into a new and evolving opportunity.

 Many thanks to our organizers that spearheaded this event:

  • Anthony Liu, CFA
  • Stephen Mayrose, CFA, CFP

 Keynote Speaker:

  • Po Sit – Davis Polk

Our panelists included:

  • Starling Cousley, CFA – Revolution Rise of the Rest
  • Inna Khidekel, CFA – Bridge Investment Group
  • Nick Marietti – Cresset Real Estate

 Panel Moderator:

  • Patrick Nessenthaler, CFA


Po Sit of Davis Polk opened the event by providing an overview of the legislation from the 2017 Tax Cuts and Jobs Act, which created generous tax incentives for long-term investments in economically distressed communities designated as “qualified opportunity zones.” (“QOZs”).

Po Sit highlighted the intended purpose of QOZs to stimulate development in low income communities, and also highlighted how the legislation is designed to tap into an estimated $6 trillion of captive capital gains for new investment.

The original slate of legislation pertaining to QOZs had left many unanswered questions and gray areas for investors.  However, recent regulatory guidance during April 2019 was very favorable for QOZ investments.  Po Sit expressed the view that the recent clarification would likely be the final set of concrete regulatory guidance.

Panel Discussion

Panelists opened the discussion by commenting on the importance for investors to evaluate state and local conformity as it pertains to QOZs.  Two states with high taxes for instance, California and New York diverge in conformity for state and local taxes.  New York conforms, but California does not.

Nick Marietti of Cresset Real Estate underscored that not all QOZs are created equal.  Having a local market presence and knowledge to be selective among the opportunity set of 8,000 designated QOZs is critical to successful development and exit outcomes for QOZ investors.

The panelists acknowledged the practical challenges to create and develop low income housing in the absence of incentive programs such as QOZs.  Inna Khidekel of Bridge Investment Group remarked on the high costs of new construction, which are often prohibitive to build new low-income property that is actually affordable.  New construction implied rent requires $75k annual average income for tenants.  Often, some type of subsidy or incentive program from local or state governments is required to spur low-income housing property development.

Panelists agreed that the recent April 2019 regulatory guidance was favorable, noting that the recent guidance and rules pertaining to operating companies in QOZs appears to be significantly more attractive.  Much of the focus with QOZs to date has been on real estate development, but looking ahead expect to see much more focus on operating companies for QOZ investments.

Starling Cousley of Revolution Rise of the Rest commented that office buildings will likely be a big beneficiary of the recent regulatory guidance related to QOZ operating companies.  Inna Khidekel of Bridge Investment Group remarked that one gap and unanswered question still remains as it relates to reporting on the outcomes and measurement of “community impact” outcomes from QOZs.

Panelists were asked to comment on some of the perceived risks and different product structures of QOZ investment funds.  The panelists downplayed the notion of too much private wealth capital pouring into newly raised QOZ funds, noting that the AUM is small relative to the total real estate market and today there are a relatively narrow set of asset managers that are investing in QOZs.

Inna Khidekel of Bridge Investment Group emphasized that QOZ investments are very different from the typical real estate products and funds that are typically utilized in private wealth portfolios.  Investors have to be comfortable with what looks like more of a private equity closed-end investment, a 10-year hold and lock period, and return likely only starts in year 4 of holding period after building.  QOZs do not offer “high current income” that real estate investors in the private wealth world often have a strong appetite for.