QOZ Funds

QUALIFIED OPPORTUNITY ZONE FUNDS

A Qualified Opportunity Zone (QOZ) fund is structured as an LP, LLC, or REIT that invests in properties located within federally designated Qualified Opportunity Zones (QOZs). Under the "Invest in Opportunities Act" of 2017, QOZs are census tracts identified by the U.S. government to promote economic development and offer certain federal tax incentives. As of April 2022, there are over 8,700 QOZs across the United States.

Most QOZ funds generate little to no operating income during the initial years, since development and construction projects often sit at the higher end of the real estate risk–reward spectrum. However, this dynamic also means QOZ funds can potentially offer higher total returns compared to other non-traded alternative investments. Typical equity offerings for individual QOZ funds range from $100 million to $500 million. In some programs, the fund plans to refinance completed projects and provide partial liquidity to investors for the purpose of paying deferred federal capital gains taxes.

QOZ funds are offered as private placements and generally aggregate capital from accredited investors to acquire and complete developments or revitalization projects in designated zones. Most funds include multiple projects across different zones; some have contractually secured all projects before launching their offering, while others secure certain projects only after raising capital.

QOZ ZONE DESIGNATION

To determine which census tracts qualified as Opportunity Zones, government officials applied QOZ criteria in 2018 to 2010 census data—at a time when many tracts had not yet recovered from the Great Recession. Had 2018 data been used, many of these tracts might not have met the income thresholds required for designation. As a result, certain projects located in designated zones may have proceeded irrespective of zone boundaries, driven by underlying demand and demographic trends.

Designation Authority Zones identified using 2010 census data under the Invest in Opportunities Act of 2017.
Number of Zones 8,700+ census tracts across U.S. states and territories designated as QOZs (as of April 2022).
Zone Criteria Qualified tracts had lower-than-threshold median income or were adjacent to such areas.
Potential for Revitalization Designed to spur private capital into historically underserved communities and promote new development.

FUND STRUCTURE & CHARACTERISTICS

QOZ funds typically have no operating history prior to offering. Interests are sold under exemptions from federal and state registration provisions, which means fund interests are subject to transfer restrictions. Because these funds rely on private placements, there is no guarantee the fund's investment objectives will be met, and investors should expect a long-term commitment—often a minimum of 10 years—to fully realize the tax benefits.

Entity Types Structured as Limited Partnerships (LPs), Limited Liability Companies (LLCs), or Real Estate Investment Trusts (REITs).
Capital Aggregation Pools equity capital—often $100–$500 million per fund—from accredited investors to finance multiple development or redevelopment projects within designated zones.
Project Diversification Most funds include several projects across different Opportunity Zones to mitigate concentration risk.
Operating History Very few QOZ funds have any prior track record; all underwriting is forward-looking and based on projected development timelines.
Liquidity Plan Some funds intend to refinance stabilized properties and distribute partial liquidity to investors to help cover deferred taxes.

KEY STRUCTURAL POINTS:

Since management teams of QOZ funds often negotiate construction loans, development budgets, and eventual refinancing in parallel, execution risk can be higher than in stabilized real estate offerings.

RISKS & COMPLIANCE

Investment in a QOZ fund carries multiple risk factors, including—but not limited to—the following:

REGULATORY & TAX QUALIFICATION RISKS

Qualification Under Code Section 1400Z-2 A QOZ fund must meet multiple IRS requirements—including the 90% Test (asset location), "original use" rule, and working capital safe harbor. Failure in any area may jeopardize the fund’s tax status.
Changing Tax Laws Future legislative changes could impact the tax incentives that drive the Opportunity Zone program.
IRS Audits The fund’s tax returns may be audited. The IRS could challenge deductions or reclassify assets, delaying or eliminating projected tax benefits.

OPERATIONAL & DEVELOPMENT RISKS

No Guarantee of Acquisitions There is no assurance that the fund will complete all identified acquisition targets, which may impact projected returns.
Environmental & Permitting Property acquisitions are subject to environmental due diligence and remediation, which can delay timelines or increase costs. Unexpected environmental liabilities can negatively affect project design and feasibility.
Construction & Stabilization Development projects in Opportunity Zones can face construction delays, cost overruns, or inability to secure tenants, which postpones any distributions to investors.
Market Conditions Disruptions in financial markets, rising interest rates, or broader economic downturns can reduce demand for new developments and adversely affect rental rates or capital raising efforts.

MANAGEMENT & GOVERNANCE RISKS

Reliance on Key Personnel The success of a QOZ fund depends heavily on the skill and experience of its General Partner, principals, and development teams. There is no requirement that these individuals devote full time to the fund's operations.
Limited Investor Control Investors have no say in day-to-day operations, asset management, or disposition decisions.
Transparency Private placements often lack the reporting rigor of publicly traded funds.

This overview is for informational purposes only and does not constitute an offer to buy or sell securities. QOZ funds are speculative, illiquid, and involve substantial risks, including loss of principal. Consult your advisor for a full review of program details, tax implications, and risks.

1031 Capital Solutions
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services through Concorde Asset Management, LLC (CAM), an SEC-registered investment adviser. 1031 Capital Solutions is independent of CIS and CAM. The rules and regulations of the Qualified Opportunity Zone (QOZ) Program are complex, and compliance with the QOZ Program comes with significant challenges such as appreciation unpredictability, certain neighborhoods may be less accommodating to development, illiquidity for up to ten or more years, availability and cost of construction and development financing uncertainty, development and redevelopment real estate risks, as well as a number of Jobs Act interpretation uncertainty which may impact future risks, if any.