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Alternative Market Briefing

Half of real estate investors are considering investing in opportunity zone funds (OZFs) in 2019

Tuesday, March 19, 2019

Laxman Pai, Opalesque Asia:

A survey found that 51% of real estate investors were considering investing in opportunity zone funds (OZFs) in 2019, while a further 12% are interested in the longer term.

A less widely publicized part of the 2017 Tax Cuts and Jobs Act in the US was the creation of 8,700 "opportunity zones" - distressed areas in which capital gains tax on regeneration projects can be deferred.

Although raising real estate funds to focus on 'opportunity zone' is a nascent sector, it is attracting a lot of interest from investors, pointed out a Preqin survey.

"OZFs are seen as a way to generate high returns - investors are primarily targeting diversified value added and opportunistic funds rather than lower-risk core vehicles," said the Preqin survey report.

Fund managers are moving into the space to serve this appetite, and there are now 62 OZFs in market seeking a total of $16bn from investors.

"Opportunity zone funds are an emerging trend in US real estate at the moment, promising significant tax advantages for regeneration projects. The benefits are clear - investors can expect to reduce their tax burden on any distributions they receive, boosting returns," said Tom Carr, Head of Real Estate.

"However, investors should beware a rush into this nascent industry: for tax incentives to be worthwhile, the underlying investments still need to perform well. OZFs by their nature are focusing on assets in distress......................

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