Golden Opportunity: How private equity profits from the federal Opportunity Zone tax incentive

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Key points

• PESP has identified $16.2 billion dollars raised for Qualified Opportunity Funds by about 200 private investment firms. The top 5 Qualified Opportunity Fund investors were Bridge Investment Group Holdings ($3.7 billion), CIM Group ($2.3 billion), Griffin Capital Company ($1.63 billion), Cantor Fitzgerald in partnership with Silverstein Properties ($1.1 billion), and Argosy Real Estate Partners ($376 million), all of which are private equity firms. Bridge and Griffin are now owned by an even larger private equity firm, Apollo Global Management. 
• Private equity firms benefit from the program by raking in billions of dollars in reduced capital gains taxes and fund management fees each year.
• Opportunity Zone tax benefits come at great cost to United States taxpayers. For fiscal years 2020–24 alone, Opportunity Zones will cost the federal government $8.2 billion, with the bulk of the bill only coming due in 2028.
• CIM, Cantor Fitzgerald, and Apollo, the parent company of Bridge and Griffin, each have personal, business, and/or political ties to President Trump or members of his family. 
• Previous research shows that Opportunity Zones may contribute to displacement in historically disinvested neighborhoods.
• Some experts familiar with the Opportunity Zone incentive have expressed worry that instead of encouraging new projects, the tax break is a tax windfall for already planned projects. In Los Angeles, CIM Group sold its own properties to its Opportunity Zone fund. At each property, the firm scored entitlements — and in some cases even finished development — and then sold them to the fund at a healthy premium. These deals allowed the sites to qualify as new investments, making them eligible for Opportunity Zone tax benefits. 
• Bridge Investment Group’s troubling history of eviction filings is present even at its Opportunity Zone properties. 
• Opportunity Zone housing is not required to be affordable, and rarely is accessible to people with low incomes. Griffin Capital Management even describes one of its Opportunity Zone projects as luxury housing.
• While PESP recommends that the Opportunity Zone incentive be abolished entirely, it will likely be made permanent and possibly be expanded under the upcoming tax legislation of 2025.

Introduction to Opportunity Zones

What are Opportunity Zones?

The 2017 Tax Cuts and Jobs Act created the Opportunity Zone program with the stated goal to inject capital into communities that have historically experienced underinvestment. Over 8,700 Low Income Community census tracts were designated by state governors as priority areas for redevelopment. These eligible tracts generally were chosen based on high poverty and/or low median income criteria as determined by the US Census. The Opportunity Zone tax cut was not properly scrutinized due to Congressional pressure to quickly pass the larger tax bill that encompassed the provision.

The tax break program works by allowing investors to roll over capital gains into specially designated funds called Qualified Opportunity Funds (QOFs). QOFs are then used to purchase property and redevelop projects within the designated Opportunity Zones. QOFs must invest at least 90% of their assets directly in Qualified Opportunity Zone Property located in Opportunity Zones, and real estate project investments have to result in properties being “substantially improved” in order to qualify. When capital is invested in an Opportunity Zone and held for at least a decade, the investor becomes eligible for capital gains tax reductions and possible exemptions. For this reason, funds usually have a fixed term of ten years, during which investors cannot add or remove funds after the initial commitment.

Redevelopment projects eligible for the tax break can include multifamily real estate development, but also other commercial real estate and business development as well. Opportunity Funds can finance a broad range of projects including office, retail, and industrial real estate, housing, infrastructure, and existing or start-up businesses. However, legal scholars have argued that the program tends to favor real estate investment because it is simpler to maintain location-based statutory requirements for housing than other types of business investments. 

Only extremely wealthy people and institutional investors are able to participate in opportunity funds, with many funds having six digit minimum investment thresholds. 

Former Napster CEO and billionaire Sean Parker, one of the key founders of the Opportunity Zone initiative, said of the program, “Instead of having government hand out pools of taxpayer dollars, you have savvy investors directing money into projects they think will succeed.”In reality, the truth is that Opportunity Zone tax benefits come at great cost to United States taxpayers. As noted by a 2023 Urban Institute whitepaper, “The Joint Committee on Taxation estimates that for fiscal years 2020–24, Opportunity Zones will cost the federal government $8.2 billion,” with the largest piece of the incentive starting to come due only in 2028). This more or less amounts to a multi-billion dollar subsidy for Wall Street. 

The billionaire and far-right political activist Peter Thiel “bet me a million dollars that I wouldn’t get it done,” said Parker regarding his effort to implement Opportunity Zones. “So that was part of my motivation.”

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