Recently opportunity zones have been one of the hottest topics among both accredited investors and their advisors. With all the buzz, it’s important that potential investors have enough information about the funds – and what it takes to manage these investments – to make smart decisions.
Caliber was one of the first companies to launch a Qualified Opportunity Fund (QOF) and is still one of the few companies deploying a regional fund approach with multiple assets in the Southwest. We began taking capital in October 2018 and expect to raise full $500m target within the next two years.
A QOF is a corporation or partnership that holds at least 90 percent of its investments in opportunity zone assets and the project must meet several other guidelines regarding renovation and community improvement.
While some companies are fervently working to develop a qualified fund, and figure out how to manage it, Caliber has spent the last decade building our infrastructure. Fully staffed and aligned with relevant partners, we are primed and ready to handle the complicated fund management and financial reporting that comes with investment in opportunity zones.
One of the biggest, perhaps relatively unknown, risks that comes with a QOF investment is working with a General Partnership (GP) that is unable to comply with IRS testing rules. While failure to adhere to IRS rules may not impact the Limited Partnership’s (LP) tax situation, there will be fees and penalties that can eat into returns.
With this in mind, Caliber has developed a structured $500 million offering. A single large offering – compared to having a group of smaller entities ($25-$50 million) – has allowed us to work with top tax and legal experts to ensure fund compliance is met.
Each fund we open has fixed and variable costs to run, and a series of small funds offer plenty of fixed costs that can be avoided with a large, regional fund. Because of this issue, many small fund managers must utilize less expensive, and often less effective, service providers in the tax, legal, and finance fields to support their funds.
Caliber has tapped the experts at NovogradacTMto serve as our outside CPA firm. Based in San Francisco, the company specializes in the areas of affordable housing, community development, historic rehabilitation and renewable energy. Directly in its wheelhouse, Novogradac recently launched a new practice focused entirely on opportunity zones.
One of the most well-respected law firms working in this arena, Snell & Wilmer, is our third-party legal counsel. On the forefront of opportunity zones, the Snell & Wilmer team has a deep understanding of complex tax transactions from a tax and financing perspective. This expertise is necessary for deployment of capital by a QOF.
Also important, Caliber employs a full time tax, accounting, and financial reporting team with all members of leadership holding “Big 4” public accounting expertise. It is critical to have an internal team as issues come up, day to day, with the capability to answer complex questions and ensure Caliber is competitive in locking up great deals.
For the past 10 years, more than half of Caliber’s deals have been located in what are now designated opportunity zones or are the type of project that would apply to the stipulation of providing substantial investment, renovation or improvement. This makes us uniquely positioned to manage a QOF. Not only have we done many deals that qualify for an opportunity zone offering, we also have experience managing these types of projects.
Caliber’s track record proves our proficiency in handling hands-on, heavy renovation deals where most of the profit to the GP/LP will be made on the sale rather than derived cash flow from the asset. A great fit since already optimized assets do not qualify for a QOF.
Caliber’s seventh discretionary fund in a family of four currently active funds, The Caliber Tax Advantaged Opportunity Fund, LP, was launched in September of 2018 to take advantage of the recently-enacted Opportunity Zone provisions of the federal tax law. Though this fund, we can continue doing exactly what we do best while providing a once in a lifetime tax savings to current and new clients. With a pipeline of deals in these zones across the Greater Southwest Growth Markets, Caliber is be able to deploy capital quickly and effectively to keep the offering moving forward.
This $500m offering allows Caliber investors and their advisors to capture the tax reduction benefits of Opportunity Zones while investing with a tested operator, in attractive assets, in growing markets. However, investors should keep in mind that some of the tax efficiencies begin to fade after 2019 so they must act now to maximize the benefits of this new program.
If you are interested in learning more about how Caliber can help you find the right investment strategy to grow your wealth or generate stable income from your capital, contact us today.
Disclaimer: Security transactions are administered by WealthForge Securities, LLC member FINRA | SIPC. WealthForge Securities and Caliber are not affiliated. Investments in private securities, including those in commercial real estate are not suitable for all investors, contain a high degree of risk, are illiquid and may result in a loss of principal. Past performance does not guarantee future performance. Certain information contained herein may contain forward looking statements, which can be identified by the use of forward looking terminology such as “may,” “will”, “should,” “expect,” “project,” “intend,” “plan” or “believe” or similar terms. Forward looking statements are based on certain assumptions, are subject to risks and uncertainties and speak only as of the date on which they are made. Commercial real estate (CRE) debt and securities investments are subject to the risks typically associated with CRE which include, but are not limited to: market risks such as local property supply and demand conditions; tenants’ inability to pay rent; tenant turnover; inflation and other increases in operating costs; adverse changes in laws and regulations; relative illiquidity of real estate investments; changing market demographics; acts of nature such as earthquakes, floods or other uninsured losses; interest rate fluctuations; and availability of financing. Before deciding to invest in the offering, prospective investors should read the Private Placement Memorandum (PPM) and pay particular attention to the risk factors contained in the PPM. Prospective investors should make their own investigation and evaluation of the information contained in this presentation. Each prospective investor should consult their own attorney, business adviser and tax adviser as to legal, business, tax and related matters concerning the information contained herein. Diversification does not guarantee profits or protect against loss.