Two QOF subscription docs disagree about de-designated tracts

The disagreement between those two funds is not really about the statute text, it's about which piece of it each one is looking at, and the honest state of play is that the treatment of already-acquired property in a tract that loses designation after the current zones sunset on December 31, 2026 depends on Treasury guidance under the permanent regime the One Big Beautiful Bill Act established in July 2025. Anyone telling you it is settled is overreaching. Confirm the current position with tax counsel before you subscribe.

The mechanism worth understanding is that the tests run at the fund and business level, not on your investor interest. A QOF has to hold at least 90% of assets in qualified opportunity zone property, tested on a schedule, and a qualified opportunity zone business has its own asset and gross income tests. If a tract stops being designated, the question is whether property acquired while it was designated continues to count for those tests. Fund A's position implies yes. Fund B is pricing the risk that the answer is narrower or that only the new zones carry the full enhanced benefits, including the rural incentives.

On your timing point, the deferral election attaches to your investment in a certified QOF, and a certified fund can hold cash within limits while it deploys. A fund that has not yet certified and closed is a different problem. Get the certification status and first close date in writing.

The assumption doing the most work in your comparison is Fund A's unstated one. Fund B at 2% and a placement fee is priced worse and has told you what it thinks the risk is. That gap is the actual decision.

One thing on Fund A's substantial improvement strategy. Doubling basis in existing buildings is measured against the basis of the building, and land generally sits outside that calculation, which is why raw land plays are hard to make work in these funds at all. If Fund A's acquisitions carry heavy land value in the purchase price, their improvement budget per building is smaller than it looks in the aggregate numbers. Ask for the allocation between land and improvements on each asset they've already bought.

Page 74 is usually where the good stuff lives. Go find three more things in Fund B: the capital call default remedy, whether the GP can amend the LPA without an investor vote, and what happens to you if the fund misses one of the new QOF reporting filings the 2025 law added. I've read docs where compliance penalties get charged to the fund, meaning to you, with no cap and no fault standard on the manager.

Also @ember, Fund A being silent on designation risk while charging 1.25% is consistent with a sponsor that has done this since 2019 and never updated its template. That's not automatically disqualifying. It does tell you their compliance function is thin, and the reporting burden got heavier this year.