Like many people, Nick Parrish,managing director for Cresset Partners, believed that OpportunityZones had started to gain momentum before COVID-19 hit.

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"It was slow out of the gate,"Parrish says. "It was a program that was often talked about, butthe actual capital activity was pretty minimal. I think it wasbecause it was a new asset class, and there were complicated andevolving regulations."

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But early in 2020, things startedpicking up with a significant amount of capital flowing into thespace. Cresset closed its first Qualified Opportunity Zone Fund inMarch and is targeting $400 to $500 million for Fund 2.

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"Investors were getting dealsdone, and the strategy finally had its footing," Parrish says."Then COVID-19 comes along and takes the wind out of everyone'ssales."

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When that happened, Parrish saysOpportunity Zone investments, like many other things, went into a"state of paralysis."

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"Everybody was reactive and notproactive," Parrish says. "So, anecdotally, deal activity slowedacross the board."

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But in recent weeks, thesituation has begun to turn around. "You have started to see peoplecoming back to the space," Parrish says. "I think it is driven by acouple of facts. One of those is that the government pushed outsome of the deadlines, which gave investors more time toinvest."

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Parrish says the extension ofthose deadlines, including the IRS's decision to push out the dateto roll over capital gains into a Qualified Opportunity Zone fund(QOF), has brought investors back. But that's not the onlyattraction.

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"I think people have come torealize that the long-term thesis around Opportunity Zones hasn'tchanged," Parrish says. "It's a 10-year-plus investment horizon,which gives you the ability to be very patient and think verylong-term." 

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While rental income has taken ahit across commercial real estate over the past few months, Parrishdoesn't think that will be a huge deal a decade fromnow. 

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Capital gains are also drivingOpportunity Zone investments. 

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"The crisis caused people totrigger gains that they may not have otherwise triggered," Parrishsays. "Panic selling is still selling. And so you may have hadsituations where liquidity-driven investors realized gains that aregoing to create a significant tax liability. Now they've got thishuge tax liability, and that's going to drive them to look atsolutions like Opportunities Zones."

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In the process, these investorsnow understand that the stock market doesn't always keep going up,which could also spur Opportunity Zone investment.

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"The crisis has caused people torealize that markets don't always go up," Parrish says. "It's goodto be diversified." 

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Taken together, Parrish thinksthe rocky stock market, the long-term horizon and the extendeddeadlines bode well for Opportunity Zones.

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"I think investors will come backaround to Opportunity Zones, and we're starting to see some ofthat," Parrish says. "I think you'll see that heat up going intothe second half of the year as these deadlines [to invest]increasingly approach."

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Leslie Shaver

Les Shaver has been covering commercial and residential real estate for almost 20 years. His work has appeared in Multifamily Executive, Builder, units, Arlington Magazine in addition to GlobeSt.com and Real Estate Forum.