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Private Equity Real Estate Investors Remain Wary of Opportunity Zones

While many are considering Opportunity Zone investments, few have entered the market thus far.

Private equity real estate investors remain reluctant to jump into Opportunity Zone plays, according to the latest research from London-based firm Preqin, which attributed the attitude to uncertainty surrounding program regulations and the inherent risk of investing in low-income and distressed neighborhoods.

Based on a survey conducted in January 2019, 51 percent of these types of investors are considering investing in Opportunity Zones over the next year. But an overwhelming majority of respondents—92 percent—were not involved in Opportunity Zone deals at the time of the survey.

Of the respondents who do plan to invest in Opportunity Zones over the next 12 months, 66 percent are planning to target only one fund pursuing that strategy, with another 27 percent looking to invest in two to three funds. Only 7 percent of respondents foresee targeting four or more funds for Opportunity Zones.

The majority of respondents—87 percent—also plan to limit the amount of capital devoted to such funds to less than $50 million. Four percent are willing to allocate $50 million to $99 million to the strategy and 2 percent see themselves allocating between $100 million and $394 million to Opportunity Zone funds. Only 7 percent of respondents foresee themselves allocating $350 million in capital or more to such vehicles.
 
As of February, there were 62 Opportunity Zone funds in the market, Preqin reports, with an aggregate value of approximately $15.9 billion. Of those, the highest number of funds (31) had capital allocations of $100 to $349 million. Eleven funds had capital allocations of $500 million or more and another eleven had capital allocations of $50 to $99 million. Seven funds had capital allocations below $50 million and two funds had capital allocations of $350 to $499 million.

 

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