HOW TO GET YOUR PROJECT FUNDED.
HERE’S WHAT OPPORTUNITY ZONES INVESTORS ARE LOOKING FOR.
- Strong Sponsor – An OZ investor is looking to place money into capable hands for a long period of time and to take a passive role. The investor wants to see that the project has a highly active, incentivized sponsor (i.e. with skin in the game) and a solid track record of delivering on similar real estate projects. Just having a good piece of property and a good development idea is not enough: you need a developer that can absolutely deliver.
- Low Execution Risk – In addition to a strong sponsor, the OZ investor wants to know that the project will proceed expeditiously. Remember that, for the OZ investor, the clock is ticking, and the investor needs to place and employ funds within strict timelines. Therefore, it is important that the project has all its regulatory approvals (zoning, planning, etc.) in place and all its other financing is secured (debt financing and equity, as well as grants, abatements and other financial assistance as necessary).
- Assured Return – Because of the long horizon and illiquidity of the investment, it is less critical that the return be fabulous (no harm in that, of course!) and it is more important that the return be very well assured. OZ investors will typically prefer a solid but modest return that is backed by strong market fundamentals and with the necessary protections for the passive investor than a speculative play. So, look for a strong business plan backed by a good market analysis.
- Ready to Close – Again, because of the strict timing requirements and because the benefits of the OZ program will taper off after 2019, a project ready to close on the equity subscription agreement within a short timeframe will be key. The ideal would be a project closing in the first half of 2019, as some investors who realized gains in 2018 will need to have their funds locked up by then.
The list above is from the “Perfect Pitch” by R. Michael N’dolo, Vice President of Camoin Associates.
N’dolo suggests aggregating six to ten projects and pitching them to Opportunity Zone investors as a group. This approach would have the advantage of not only being able to get some economies of scale, but also being able to diversify risk across project types and geographies.