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THE 2ND REASON FAMILY OFFICES ARE NOT INVESTING INTO OPPORTUNITY ZONES


 In the last blog that I wrote I discussed how family offices are not investing into opportunity zones, and based upon a study I did through the Family Office Real Estate Magazine – ONLY 17% of the family offices said they were going to.   The first reason I mentioned was a lack of understanding of the zones 100%.   The second reason and the purpose of this blog is to explain the 2nd reason why family offices are not investing in opportunity zones.   The deals aren’t that great.   For example I was looking at a ground-up constitution (great opportunity for higher returns than an in-place asset), of a Class A apartment (great property type for demand)  in North Hollywood (great location) with a seasoned operator (great experience) who was well personally invested (great alignment of interest) and yet the deal didn’t make sense.   The target was 16.5% with a 13.5% preferred return to an investor.  On the surface, this all looks great, but then when you start to dig in, a slight change in cap rates on the sale drives the IRR down significantly.  Also, you should be seeing high teens low 20’s on a development deal for your risk.   And of course, the question is what about the opportunity cost???  In the end, the tax benefits didn’t outway the benefits of the investment as a whole.   These deals that family offices are being presented aren’t that good, or as good as people thought they would be.  Family Offices have patient capital so they can afford to wait until they find something that makes 100% sense. Until then, they will not be investing.

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