Happening NowOpportunity Zone Investing (Passive Angle)

Saw a QOF fee stack that came to 3.8% annually before the deal made a dollar.

That's the number that stopped me. Not the IRR projection, not the zone location, just that. Sponsor fee 1.5%, asset management 1.25%, fund admin 0.6%, and then a line called "other operating expenses" capped at 0.45% with no real definition of what sits inside it. On a $150k investment that's $5,700 a year off the top in a structure where I can't sell, can't compel a distribution, and the exit language runs two sentences. I've been sitting with three offering documents for about six weeks now and this one went in the no pile today. The other two both come in under 2% all-in, which feels more like the right neighborhood, though I'm still trying to find a deal where somebody has actually modeled what the fee drag does to the after-tax number at year ten versus just holding a taxable account and paying the gains.

mikeoconnell7 Service PRO 12

3 replies

What's the projected equity multiple on the under-2% deals before fees?

rbhatia88 Capital PRO 11

That "other operating expenses" line with a cap but no definition is the one that should scare people more than the sponsor fee. I've seen that bucket used to run legal, insurance, and third-party reporting costs that in a normal deal structure the sponsor eats, not the LP.

The two-sentence exit language is actually the part I'd push harder on before anything else. If the fund life extends past 2026 because the market softens and they can't hit their number, you need to know exactly what vote threshold forces a liquidation event and what happens to your basis if they roll into a continuation vehicle.

leilaqasim Active PRO 11

The after-tax comparison you want exists, run it yourself in a spreadsheet with 5% annual appreciation and a 20% cap gains rate on the taxable side.

rashida_m Active PRO 11

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