Qualified Opportunity Zone Fund Closes at $465M

Cresset Partners and Diversified Real Estate Capital are riding the wave of the successful capital raise with the launch of a follow-on vehicle.
The Preston. Image courtesy Cresset Partners

Cresset Partners and Diversified Real Estate Capital have closed Cresset-Diversified QOZ Fund, the companies’ first Qualified Opportunity Zone fund, having raised $465 million in capital commitments. The investment vehicle’s success has also prompted the launch of a follow-on fund, Cresset-Diversified Qualified Opportunity Zone Fund II.

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Cresset and Diversified were at the forefront of the federally designated QOZ program when they launched Fund I in December 2018. The vehicle garnered interest from a diverse crowd that included single family offices, real estate investors, entrepreneurs, corporate executives and legal professionals. With an eye on well-positioned urban neighborhoods in high-growth markets across the U.S.., Fund I is investing in seven core real estate developments in the multifamily, office and ground-level retail sectors. Cresset-Diversified partnered with Hines on four of the projects, including the inaugural development, The Preston, a 373-unit, Pelli Clarke Pelli-designed residential high-rise with ground-level retail already underway in downtown Houston. According to the LOCUS National Opportunity Zone Ranking Report, downtown Houston ranks in the top 10 of the 30 leading metro areas for opportunity zone multifamily development based on smart growth potential.

Fund I’s three remaining projects are joint venture endeavors with leading developers DDG & Gerding Edlen, Washington Property Co. and Lennar. The Fund I investments share a common financial foundation, as they are all supported by low leverage, which produces an attractive risk-adjusted return and paves the way for potential refinancing upon project completion and stabilization.

Going for seconds

Fund II, patterned after Fund I, is concentrating on high-growth urban markets for office, multifamily and retail investment in collaboration with top developers. There are, however, a few changes with the follow-on fund, most notably the increased capital raise goal of up to $750 million. Additionally, Fund II will pursue as many as nine projects and will expand its sector focus to include industrial. While Cresset-Diversified has not yet made any firm commitments under the second vehicle, it has identified projects for consideration, including mixed-use, multifamily, retail and office pursuits in top-tier markets from the West Coast to the East Coast and points in between.