PODCAST RECAP: From Ambiguity to Permanence: The Evolution of Opportunity Zone Investing

The landscape of real estate investing is frequently shaped by the intersection of market dynamics and government policy. 

Jeff Feinstein, our Managing Partner, joined Brandon Sedloff on The Distribution by Juniper Square, a podcast aimed for the private markets, in which they invite some of the biggest names in commercial real estate, venture capital, and private equity for open and honest conversations about what’s happening across the industry to explore the evolution of Opportunity Zones (OZs). 

Jeff provided a unique perspective on how tax-advantaged investing has matured from a misunderstood concept into a permanent fixture of the tax code. This conversation unpacks the mechanics of the program, the shift from temporary legislation to permanent policy, and the strategic considerations for investors looking to capitalize on capital gains through real estate development.

Key discussion points are noted below. 

An Early Mover in the Opportunity Zone Space (10:17)

Pinnacle Partners has established itself by focusing on the specific needs of investors holding realized capital gains. The firm has raised approximately $300 million in assets under management (AUM), which has been deployed to capitalize nearly $1 billion in multifamily development projects. Jeff noted that Pinnacle Partners further distinguishes itself by functioning as a capital partner rather than a direct developer.

Their approach involves:

• Market Selection: Identifying high-growth markets across the 8,700 designated zones.
• Developer Selection: Partnering with best-in-class local developers who have extensive experience and presence in those specific markets.
• Joint Venture Structures: Creating Co-GP (General Partner) agreements where Pinnacle provides the majority of the equity (often 90-95%) while the developer executes the project.

Capital Strategy And Fund Structure (19:30) 

In the early days of the program, ambiguity led Pinnacle to pursue single-asset structures, funding one project at a time. As the regulations clarified and the firm matured, the strategy evolved into multi-asset funds. This evolution offers investors diversification across multiple projects and markets. Pinnacle operates using a “direct to sponsor” economic model, often providing a single promote structure that is designed to be friendly to Limited Partners (LPs), maximizing returns by avoiding double-promote scenarios common in fund-of-funds models.

Strategies For Nurturing Investor Relationships (29:33) 

Distribution and relationship building have been critical to Pinnacle’s growth. Initially relying on a personal network of technology executives in Seattle, the firm expanded its reach by focusing on Registered Investment Advisors (RIAs).

Key strategies include:

• Education: A significant portion of the firm’s efforts goes into educating CPAs, CFAs, and investors about the mechanics of OZs and pairing strategies (e.g., tax loss harvesting).
• Due Diligence: Meeting the high standards of RIAs through SEC registration, audits, and institutional custody partners like Schwab.
• Solving Client Problems: Positioning OZs as a solution for clients with “held away” assets (assets not under direct management), such as crypto or investment properties.

The Importance Of Tax Efficiency (30:42) 

For modern investors and their advisors, tax efficiency is paramount. While asset classes like private credit offer income, they are often tax-inefficient. Opportunity Zones provide a complementary strategy within a holistic portfolio. The permanence of the legislation allows advisors to plan consistently, using OZs as a tool for managing liquidity events and optimizing after-tax returns. The ability to defer taxes and eventually eliminate capital gains on the new investment makes it a unique “triple threat” in tax planning.

Who Benefits From Opportunity Zones? (25:54) 

The primary beneficiaries of Opportunity Zones are taxable investors with capital gains. This distinguishes the program from traditional institutional capital, such as pension funds, which are typically tax-exempt and therefore do not benefit from the program’s tax incentives.

The target investor profile includes:

• Individuals: People selling concentrated stock positions, cryptocurrency, businesses, or real estate.
• RIA and Family Offices: Entities managing wealth that includes significant taxable events.
• Short-Term Gain Holders: Investors like hedge fund managers with short-term gains (taxed at higher ordinary income rates) can also utilize the program.

Catch the full podcast on Spotify or Apple Podcasts. 

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Get in touch with Jeff or our Investor Relations team below to learn more about OZ investing.

Past performance of Pinnacle Partners OZ Funds is not indicative of future results. There can be no assurance that the fund’s objectives will be achieved or that cash distributions will, in fact, be made or, if made, whether those distributions will be made when or in the amount anticipated or that certain tax benefits will be available to investors. An investment in the fund is illiquid, speculative, and will involve significant risks. It is only offered to suitable and qualified investors. Full details about the fund and its associated risks can be found in the fund offering documents. 

Nothing in this blog post should be construed as tax advice.  Please confer with your tax adviser to determine if an investment in an OZ fund is right for you.