Bridge launches opportunity zone initiative – Exclusive

The strategy taps a new federal program that encourages investment into low-income communities by offering tax benefits on an estimated $6.1trn of eligible unrealized capital gains.

Salt Lake City Aerial View, Utah. USA

Bridge Investment Group is launching an investment strategy to build new buildings and redevelop existing properties within designated “opportunity zones” across the US.

The Salt Lake City, Utah-based manager’s initiative will take advantage of the new federal program created as part of the 2017 Tax Cuts and Jobs Act, which seeks to attract private investment into low-income communities around the US by offering tax benefits.

Bridge will be one of the first institutional real estate managers to launch a nationwide initiative, whereas other managers targeting opportunity zones have come out with more regional strategies, according to Inna Khidekel, managing director in the firm’s capital markets group.

Since the introduction of the program, several firms have announced their intentions to capitalize on it, including New York-based RXR Realty, which is reportedly seeking $500 million for its opportunity zone strategy. Venture capital firm Revolution has likewise launched a direct real estate platform that will include opportunity zone investments, PERE previously reported. Normandy Real Estate Partners, which focuses on investments in the northeast and mid-Atlantic region, is also reportedly raising an opportunity zone fund targeting $250 million.

Bridge plans to source potential investments throughout the US via its more than 1,000-person operating platform and its established network of local developers, co-chief executive Jonathan Slager told PERE. Since the announcement of the US program, Khidekel has seen a lot of investor interest in opportunity zones, particularly from high-net-worth individuals and family offices in the market.

Bridge declined to comment on the investor base or the investment structure for its new initiative, but PERE understands that the firm will likely look to its previous investors – which include family offices, foundations and pension funds – for capital support. The Starr Foundation, Healthy Communities Foundation, Albuquerque Community Foundation and family office Dancap Private Equity have all made commitments to Bridge funds, according to PERE data.

Already, Bridge has spotted more than $500 million of potential investments for a wide range of property types, including multifamily, office and retail, according to Slager. Older buildings can be repurposed into creative office space or demolished to make way for new ground-up multifamily developments, he added.

Under the opportunity zones program, investors qualify for a deferral and partial reduction in the inclusion of taxable income for capital gains that were reinvested into these zones. If they hold the investment for at least 10 years, they may qualify for a permanent exclusion from taxable income from capital gains made on the sale or transfer of an investment. An estimated $6.1 trillion of unrealized capital gains qualify for investment in opportunity zones, according to the Economic Innovation Group.

Slager believes the new opportunity zones initiative complements the experience of Bridge’s principals, who have a 25-year history of working in underserved communities. Through its workforce and affordable housing initiative, the firm previously made investments in Class B and C multifamily units that meet the Community Reinvestment Act requirement that at least 51 percent of the units are occupied by families earning less than 81 percent of the area’s median income. Bridge declined to provide performance data on its previous investments in lower-income areas.

Founded in 1991, Bridge has invested in multifamily, office, senior housing, medical properties, affordable housing and real estate debt strategies. The firm currently holds more than $12 billion in assets under management.