How can a Qualified Opportunity Fund make investments in multiple Opportunity Zone projects?

Answers

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  Marko Belej

  Taft

  August 03, 2022

  A qualified opportunity fund (QOF) can invest in multiple projects by forming a separate LLC that is owned 99% by the QOF and 1% by another person, to hold each project (which is intended to qualify as a qualified opportunity zone business (QOZB)). If a QOZB fails ECONOMICALLY, i.e., the QOF loses its investment in the QOZB, then such failure may not have an effect on the QOF's qualification as a QOF, because the interest in the QOZB will be removed from both the numerator and denominator for purposes of the QOF's 90% test. If the QOZB fails to qualify as a QOZB, then the QOF's interest in the QOZB would become a "bad" asset for purposes of the 90% test and the QOF might then fail that test.

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  Matthew Rappaport

  Falcon Rappaport & Berkman

  August 03, 2022

  This is why it's a good idea to form multiple QOFs, though if you invest in one QOF through multiple QOZBs, you could remain compliant if the offending investment is a small enough part of the portfolio.

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