Confusion is mounting over real estate’s most buzzed-about federal program, but there still may be an excess of players trying to get in on the action
It was a telling moment for those fixated on Opportunity Zones.
“Who the hell is EJF and their expertise as it relates to real estate?” Anthony Scaramucci asked on a December conference call to promote his $3 billion Opportunity Zone fund.
The rhetorical question seemed to be an attempt to reassure potential investors that EJF Capital would be a qualified partner for Scaramucci’s firm, SkyBridge Capital. But the former White House communications director’s swagger wasn’t enough to move the needle — and the two hedge funds parted ways a month later.
SkyBridge attributed the split to concerns from its distribution partners that EJF didn’t have enough experience managing real estate funds. “It’s a difficult investment environment,” the firm’s president, Brett Messing, told The Real Deal. “People get more risk-averse. And being risk-averse means bringing your clients a track record and someone who might be a little more known for being associated with real estate.”
The quest for another OZ partner was short-lived: SkyBridge announced in late January that it had teamed up with the property investment firm Westport Capital Partners. But its split with EJF was one several signs that OZs are a less straightforward investment opportunity than originally thought.
Companies that launched funds in New York are still figuring out the best ways to raise capital and when and where to deploy it. And despite the program’s goal of revitalizing downtrodden parts of the country by providing tax breaks for those who pour money into new developments, some of the city’s OZs are located in relatively posh neighborhoods with projects from sponsors better known for luxury skyscrapers than affordable housing.
Since being shoehorned into the Tax Cuts and Jobs Act of 2017, OZs have faced multiple challenges — from a fragmented fundraising landscape to the record-long government shutdown. The political standoff has slowed the overall process, delaying several key guidelines and canceling an Internal Revenue Service hearing last month intended to focus on tax breaks and proposed regulations.
That has created an environment where a growing number of people are realizing how much they still don’t know about OZs. Roughly half a dozen New York real estate players have announced plans within the past year to set up related funds, with most looking to raise between $100 million and $500 million. But while firms across the board are thrilled about the program’s potential, virtually none can say exactly how it will all work out.
“There are still a lot of questions,” said Bryan Woo of Manhattan-based developer Youngwoo Associates, whose firm launched a $500 million OZ fund with the real estate crowdfunding startup EquityMultiple. “It just becomes that much harder to have a serious conversation with an investor, because that investor is going to want some kind of legal guidance.”
Many are scrambling to fill that information vacuum — dozens of law firms with tax or real estate practices have issued white papers detailing potential regulations, commercial brokers are frantically searching for opportune sites, and fund managers are seeking out investors by the thousands.
“There’s lots of speculation out there, a lot of which is not fully accurate,” said Steve Glickman, a former senior economic 上海龙凤论坛sh1f