Two QOFs on my desk with the 2027 map sitting right in the middle

What happens to your money in Fund A between when you wire it and when they actually buy something? They say deployment runs through late 2026. So your cash sits in the fund's account for a year and a half earning what, and does the fund get penalized if it's holding cash at a testing date? I don't understand who eats that if it goes wrong, you or them.

@verity read my thread from a couple weeks back before you sign anything on Fund B. Single asset, ground-up, no reserve line in the budget, and when the bids came in high the sponsor issued a capital call. I declined it and got diluted, and then the deal never happened at all and my deferral came due anyway. Ask Fund B one thing: what's the reserve, in dollars, and what happens to a member who doesn't fund a call. The answer will be in the operating agreement and it will not be in the deck.

"20% promote over an 8% pref" is the part I can't pin down. Does that mean the fund keeps 20% of everything after I get 8%, or 20% of the whole profit once 8% is cleared? I've seen both described and they aren't the same number at all.

Taking the pieces in order.

@juniper, both structures exist and the difference is real money. A pref with a full catch-up gives the sponsor its 20% of all profit once the 8% hurdle is cleared. A hard hurdle gives them 20% of profit above the 8% only. Read the distribution waterfall section and follow one hypothetical dollar through it. If the document is ambiguous, that ambiguity is itself information about the sponsor.

@verity, on the timing question you raised in point 2. The One Big Beautiful Bill Act, Public Law 119-21, signed July 4, 2025, made the Opportunity Zone incentive permanent and replaced the fixed deferral deadline with a rolling five-year deferral for investments made after 2026. The current set of designated tracts sunsets at the end of 2026 and a newly designated set takes effect January 1, 2027, with the full enhanced benefits, including the rural provisions, tied to the new designations. The Act also tightened tract eligibility and added reporting obligations on qualified opportunity funds. How any of that applies to your specific gain, including the recapture split you mentioned, is a question for your CPA in writing.

The practical consequence for your desk: a fund deploying into currently designated tracts through late 2026 is operating on the old map, and whether a given tract carries forward is not knowable from a sponsor's expectation. Ask Fund B to put their designation assumption in writing and tell you what the plan is if the tract is not redesignated.

On fee drag, your different answers come from the gross return assumption. Run the fund at three gross figures, including one where the project underperforms, and see whether the tax benefit still carries it. The tax treatment does nothing for a deal that loses money.

Ask both sponsors what the fund administration and reporting line costs annually and who pays it. The new filing obligations on funds mean somebody is doing that work, and on the small funds I've seen the cost lands on the fund and comes straight out of distributions. On a $50k check it's noise. On $340k across ten years it isn't.

Fund B's construction debt is the whole story and it isn't in what you posted. Ground-up 90 units means a construction loan, a rate structure, a maturity, and a refinance assumption at the end. Ask for the term sheet. Specifically the spread, whether there's a cap and who bought it, the completion guaranty, and what the exit debt service coverage looks like at the rent they've underwritten. Confirm anything they tell you against the actual lender document, not the summary page. If the refi assumption is a lower rate than today's, that's a bet you're taking, not a projection.

Fee arithmetic, roughly, because you asked. 2% acquisition on cost plus 1.5% annual on invested capital for ten years is about 17% of your capital gone to fees before any promote, and that's if they never charge a disposition fee (check whether they do). Fund B at 1% annual is about 10%, and then takes 25% of profit with no pref, which is worse than A's 20% over 8% at most outcomes I modeled. B is only cheaper if the deal is mediocre. A is cheaper if the deal is good. That's a strange bet to make on a first-time OZ sponsor.

What happens at year 10 is the question I'd want answered before the fee question. Long hold is the entire point of the program, so ask both funds in writing: at the end of the hold, what is the liquidation mechanism, who decides the sale timing, and can the manager extend? I've read fund agreements with a manager option to extend twice by two years each, which turns your ten year plan into fourteen at their discretion. Also ask whether there's any transfer right at all if your life changes in year six. Usually the answer is effectively no, and that's fine as long as you knew.

Fund B pays you nothing for probably four years. Construction, lease-up, stabilization, then maybe a distribution. If any part of you wants income out of this $340k, B isn't it and A barely is.

Ask Fund B where the land came from and what the sponsor paid for it. If they or an affiliate bought the site two years ago and are contributing it into the fund at today's appraised value, they've already taken a profit before you show up, and your basis in the deal is set by their appraisal. I'd want the original purchase price, the date, and the appraisal that supports the contribution value. There are rules about related party property in this program, and how they apply to a specific contribution is a question for a tax attorney, not for the deck.

Genuinely asking, if the tax benefit only shows up in year 10, what makes anyone hold that long other than the tax benefit?

@verity get the construction budget with the contingency line visible. On ground-up multifamily I'd want to see 5% minimum on hard costs, and I've watched 3% evaporate before the slab was poured. Also ask whether the GC contract is signed, whether it's a GMP or cost-plus, and what the escalation language says. A deck that says "hard cost $/unit" with no signed contract behind it is a wish. Sponsor's 600 conventional units is a decent sign, but ask when those were built. Bidding in 2019 and bidding now are two different jobs.

@marlow that's not a strike against it. A ten year no-distribution hold is exactly what land has taught me to be comfortable with, and the program is built for people who can leave capital alone. The real test is whether verity can leave $340k alone for a decade without needing it, and only verity knows that. @rigging, plenty of people hold long because the asset gets better, and the tax treatment is the reason to hold in one wrapper rather than another.

Third option. Pay the tax, buy the building you can see, run it yourself. You net $260k, you control the timing, and nobody takes 25% of your profit for showing up. I know that's not the room this thread is in, but the two funds you described both charge real money for execution risk you can't observe. At least when I blow a deal it's my own arithmetic that did it.

Following up on @compass's question because it bit me sideways once. The fund has to hold a set percentage of its assets in qualifying property measured at semiannual testing dates, and cash sitting around is what fails that test unless the fund fits it inside the working capital provisions. There's a penalty on the fund for a shortfall. Ask Fund A directly: what were your holdings at each of the last two testing dates, did you pass, and if you didn't, what did the penalty cost and who bore it. A sponsor with three prior funds has that answer on hand or has a problem.

Nobody has asked about the rents. Every unit I own taught me that the underwritten rent is the assumption that breaks first, and OZ tracts are designated because they're distressed, which means the comps supporting a ground-up rent number are often outside the tract. Ask Fund B for the rent comp set with addresses and distances, and ask what happens to the pro forma at 10% below those rents with three extra months of lease-up. If the deal only works at the top comp, the tax benefit is decorating a thin deal.

Small thing next to the rest of this, but on a 90 unit lease-up in a tract like that, ask who's doing the tenant screening and what the assumed bad debt and turnover figures are. If they've put 2% bad debt in the model I'd want to know where that came from.