Real estate capital raising and syndication
How do I raise money for opportunity zone projects?
Short answer
Start with a project that is already well built, then put it in the zone and show investors the real numbers. Most OZ investors I meet want a solid deal first and the tax benefit second. Find the people already active in OZ, build trust with a co-GP or partner, and talk to a securities attorney about your structure.
I would start with the deal, not the tax break. Many of the investors I talk to who focus on opportunity zones say the hard part is finding the right project. There are so many out there. If yours is sound on its own, the zone helps you. If it is weak, the zone will not save it.
Who is actually writing OZ checks
Many of the people I interview already have an OZ focus. Jake had just sold his business and told me his focus right now is opportunity zones. He looks at real estate and at operating businesses inside the zones. He wants cash flowing projects, not startups.
What caught my attention was what he looks for. He wants someone who has their act together, even if the business is not fully running. Then he can help push it into the zone. He said that gives investors a bigger opportunity to maximize their strategy.
Jake explains what he wants to see in an opportunity zone project before he puts his own capital in.
Underwrite the deal without the tax benefit
One sponsor in our joint venture webinar made a point I agree with. He does not count the tax benefits in his return projections. He said people appreciate that. He also said most investors still expect high teens over a ten-year hold on ground-up development.
"I don't underwrite any tax benefits into my IRRs, and I think people appreciate that."
That is a useful test for you. Run your numbers as if the zone did not exist. If the project still works, the tax benefit is a bonus for your investors. Many investors talk to their own tax advisors about that.
This webinar covers how to close deals with co-GPs and peers, including how OZ deals compare on return expectations.
Build the relationships before you need the money
The same sponsor told me he focused on one market and got to know it very well. Most of his deals came off market. He also said that once an investor or co-GP gets to know you and trusts you, people are more flexible than you would expect on things like the capital you put in.
Another firm I interviewed, a multi-family office in the Midwest, was looking at OZ real estate and private equity. They source through their network and by attending conferences. They also said higher hurdle rates could mean fewer new builds pass the test. They thought buying and fixing existing property or finishing stalled projects might be more attractive.
Scale matters too. Another capital raiser I spoke with represents a ground-up OZ development in Boston next to UMass. It is a $3 billion opportunity cut into phases, and they focus on the first 200 million in equity for the first two builds. Investors liked that a longer relationship with the developer was possible.
This clip shows how one capital raiser packages and presents a phased opportunity zone development to investors.
Summary and key takeaways from this video
Opportunity zone rules are technical, so many sponsors talk to a securities attorney about how they raise and how the fund or project is structured. I am not giving legal or tax advice here.
More from my talks
One more point on who you approach. If you go to investors who do not know you, do not know your industry, and are not local to the opportunity, you will often have a hard time raising money from them. In my experience that is true in opportunity zones too. Start with people who are close to the project and the zone, because they can see the neighborhood and understand the market for themselves. Familiarity with you, your sector and your location comes first. The tax story only matters once an investor already believes in you and the place.
"But if you go to people, and you're raising capital, and they don't know you, they don't know your industry, and they're not local to the opportunity, you're probably never going to raise money from them."
From the source
- Jake sold his business and now focuses on opportunity zone real estate and businesses that produce cash flow.
- A Boston opportunity zone development next to UMass is a $3 billion opportunity, with the first 200 million in equity targeted for the first two ground-up builds.
- One sponsor said most investors still look for high teens returns over a 10-year hold on ground-up development.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Small Business & Yield Investor - Recently Liquid Private Investor Mandate Interview, 10 Advanced Capital Raising Strategies That Took Raising $1 Billion + 10+ Years to Find Out, Joint Venture & Co-GP Webinar - How to Close Deals with Peers & Partners in the Family Office Club. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around opportunity zone qualification, offering structure review and investor tax considerations. Do not use AI to write your own legal agreements.
Where to start
- Write down the deal and run the numbers without any tax benefit.
- Talk with a securities attorney and a tax advisor about the project and entity.
- List the family offices, funds and developers already active in OZ.
- Go to conferences and meet co-GPs before you need their capital.
- Many sponsors talk to a securities attorney about their raise before speaking to investors.
More questions on this
Do investors expect lower returns on an OZ deal because of the tax break?
Not from what I hear. One sponsor told me he does not underwrite tax benefits into his returns, and investors still expected high teens over a ten-year hold on ground-up development.
Should I focus on new builds or existing property?
A Midwest family office I interviewed thought higher hurdle rates could favor buying and fixing existing property or finishing stalled projects over ground-up builds. Your own market and numbers should decide.
Can operating businesses use opportunity zones too?
Jake told me he looks at operating businesses in opportunity zones as well as real estate. Many sponsors talk to counsel about that.
Related questions
- What is a preferred return in a real estate syndication?A preferred return is a stated annual return, often quoted as a percentage like 8%, that investors in a syndication get paid before the sponsor shares in profits.
- How much of my own money should a sponsor co-invest?A sponsor should put in an amount that is meaningful to them, and there is no universal number.
- How do I raise capital for a self-storage acquisition?Find the property first, then raise the equity against it.
- What do 1031 exchange investors look for in a syndication?1031 exchange investors look for a deal they can understand quickly, a structure that fits their exchange deadlines, and a sponsor who clearly knows how exchanges work.
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