The Role of Family Offices in Opportunity Zone Investment

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Launched more than a year ago as part of US President Donald Trump’s tax changes, Qualified Opportunity Zones have already caused plenty of discussion among wealth managers. To some degree, they dovetail with the trend of “impact investing” by targeting disadvantaged communities. These are designed to put money and resources into poorer parts of the US and areas with particular challenges, whether they be lack of affordable housing, high crime, poverty or lack of opportunity. To take advantage of the full tax benefits offered, qualifying investments in these areas need to be held for ten years, making them ideal for “patient” capital.

The program offers a fantastic tax benefit, with tax-deferred money going in and tax-free growth upon exiting. With family offices typically being able to commit capital for time frames of their own choosing versus serving outside investors, they have an exceptional opportunity to participate in this program making a financially profitable investment with a positive social impact.

Real-estate families are more likely to participate in this program on their own rather than invest in a fund relying on a sponsor’s expertise. Even with the tax benefits of the program, the underlying investment still has to pencil out and make sense aside from these benefits.

Over the last handful of years, family offices have consistently increased their portfolio returns by investing into real estate. It is expected that they’ll take advantage of this program, although the underwriting may differ from typical real-estate investments. What remains to be seen is if the tax benefits and social benefit of investing in these areas will off-set the increased risk associated with them.

As long as you’re clear on the guidelines around these opportunity funds, they are very easy to create and really do have the power to transform the country, if appropriately deployed. We’ll have to wait and see how this plays out, not only over the coming years but in the decades to come, but one thing is for sure, there really are no limits as to how big the program can go.

If you have any questions about the role of family offices in Qualified Opportunity Zones or anything else surrounding Opportunity Zones, please don’t hesitate to contact me.