Martin Muoto, mutual fund manager and developer in Los Angeles, plans to raise $ 1 billion to invest in black and colored communities in major urban markets.
After the summer, businesses and investors across all segments of commercial real estate – and the financial institutions that fund it – have pledged billions to bridge the racial wealth gap and eradicate the financial legacy of systemic racism. Muoto, who is black, said the problems of racism had a tremendous focus and he believes that people want to focus on possible solutions.
“We said, ‘OK, let’s give these companies a chance to actually do what the PR and lip service say,” Muoto told Bisnow.
Courtesy of SoLa Impact
A SoLa Impact project under construction in Los Angeles.
The $ 1 billion company known as the Black Impact Fund would actually be two funds: one of $ 500 million for qualified opportunity zones and another $ 500 million fund for projects nearby, but not in these areas designated by the federal government. The latter is aimed at companies already receiving significant tax incentives, including foundations and pension funds, and offers institutions the opportunity to get involved in Black Impact Fund projects.
Collecting money and investing in black and brown communities has been in Muoto’s wheelhouse for several years. Muoto is the CEO and founder of SoLa Impact, an urban real estate fund with properties across southern Los Angeles. He operates a total of three funds with an investment volume of more than USD 180 million.
The Black Impact Fund also enables a portion of all increases in value and fees that are earned to fund the affiliated Black Impact Community Fund. This will be used to add residential properties for sale and rent to the communities that host the Fund’s projects.
The idea for the Black Impact Community Fund was a direct response to what Muoto calls “legitimate criticism” of the Opportunity Zone program, which helps wealthy investors get even richer, unlike the communities in which those investments are made to generate substantial profits.
That wasn’t the original goal. When the OZ program was launched in 2017 by the Tax Cuts and Jobs Act, it was touted as a win-win plan designed to encourage investment in distressed areas and give investors breaks from capital gains taxes.
Investors channel their capital gains into Qualified Opportunity Zone funds so they can defer paying taxes on those gains. The money in these funds will be invested in real estate or a company in one of nearly 9,000 designated areas across the country for at least five years.
The zones selected by the state governments should mainly be in low-income or historically disinvested districts. However, in Los Angeles and most major cities, critics noted that many OZs are located in neighborhoods that have already seen a surge in investment.
Muoto said the Black Impact Fund has an answer to how they enrich the community through their projects by setting a fixed percentage of appreciation for creating additional housing. Muoto said it will publish updates on how much the community fund has generated and what projects the money has been used for in an annual social impact report.
Courtesy of SoLa Impact
Martin Muoto and an employee on site on a SoLa Impact project.
Critics of the current version of the OZ program, including President-elect Joe Biden, have called for reforms similar to Muoto’s self-reporting on steroids.
Biden proposed a three-part approach that would require detailed reporting and disclosure of the impact of OZ investments on the community. Setting restrictions on which projects can receive the tax benefits of the program because of these effects; and incentives for investors to work with local organizations and nonprofits to create a charitable plan for each investment.
“We cannot fill the racial wealth gap if we allow billionaires to use opportunity zone tax breaks to replenish their wealth instead of investing in projects that benefit poor, low-income communities and Americans struggling to make ends meet.” come, “reads a page from Biden’s campaign website.
Urban Institute research analyst Jorge González says it is entirely possible that the momentum to build a just economy for all Americans that emerged from the summer’s urgent, heated protests and racist settlements will turn investors into funds like Muoto with stated goals aimed at securing benefits for the community.
Gonzales is the co-author of a widespread Urban Institute report from June 2020 that reported that the Opportunity Zones program is currently not providing economic or community development boosts for the areas that investing seeks to improve.
“I think there is a possibility that this is a catalyst for some investors who weren’t even interested or weren’t aware that it could have an impact on investments,” said González.
However, González noted that the investors participating in the program are doing so in order to generate a return. He said that many of the mission-driven investments he has seen over the course of his research fail to produce the internal returns investors expect. If the return is not enough, these investors are not interested.
Muoto’s previous funds have specialized in multi-family rental apartments and have achieved double-digit average annual returns since the first fund was launched in 2014. According to Muoto, the Black Impact Fund will primarily invest in apartment buildings. The “sweet spot” that eyes are on buildings with 50 to 100 units, which generally translates to between $ 10 million and $ 25 million in total development costs.
The Black Impact Fund launched in early December, but Muoto said it already tied a number of individual investors and about half a dozen institutional investors, including university foundations. Muoto said he expects fundraising in three to six months, which he thinks is typical, but added the caveat that institutional investors need more time to make decisions.
“The response was overwhelmingly positive,” said Muoto.
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