Structuring Preferred Equity in Opportunity Zones

Many Opportunity Zone developments are stalling out. Thin spreads, costly capital, and oversized equity requirements mean the math just doesn’t work like it used to. Enter preferred equity.

Jordan Brustein & Andrew Rudy of Ackman-Ziff join the show to discuss how Opportunity Zone preferred equity is being used to rescue stalled ground-up development deals, de-lever overextended capital stacks, and unlock projects in today’s challenging market.

Guests: Jordan Brustein & Andrew Rudy

About The Opportunity Zones Podcast

Hosted by OpportunityZones.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

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Episode Summary

In this episode, Jimmy Atkinson welcomes Jordan Brustein and Andrew Rudy from Ackman-Ziff to discuss how Opportunity Zone capital is being structured in today’s challenging real estate market. The conversation focuses on the rise of “structured common equity,” how this model is helping make deals pencil again, and what to expect as OZ 2.0 approaches.

The State of OZ Capital

Real estate has long benefited from strong tax incentives, but Opportunity Zones took those advantages further by extending long-term benefits to investors. Since the program’s creation in 2017, OZs have become a significant source of new housing development—by 2023, roughly a quarter of all U.S. apartments under construction were located in OZs. Even as capital costs have risen, institutional investors remain active in the space, with growing interest across multifamily, industrial, and logistics projects.

With the Opportunity Zones 2.0 legislation now enacted and program permanency arriving in 2027, Jordan and Andrew say the next few years could bring another major wave of fundraising and investment activity.

Structuring Challenges in Today’s Market

Jimmy notes that many OZ development deals have become difficult to pencil due to higher interest rates and tighter spreads. Andrew agrees, explaining that the past decade’s IRR-driven equity mindset doesn’t always fit the long-term nature of real estate. In today’s environment, replacement costs often exceed achievable values, making it harder to justify new construction on a short time horizon.

That tension has led to a search for new structures that allow OZ investors to stay active without the burdens of traditional preferred equity. The solution, Andrew says, has come in the form of “structured common equity.”

The “Structured Common Equity” Model

This newer form of capital sits between common and preferred equity. It provides limited priority rights for OZ investors—such as preferred treatment at a refinance or sale—but allows for pari passu distributions throughout the 10-year hold period.

By staying in the deal for the long term and removing mandatory repayment at interim refinancing, this structure reduces the overall cost of capital, typically by 200–300 basis points compared with merchant-build preferred equity. The approach aligns better with the OZ program’s 10-year horizon and can improve risk-adjusted returns for both developers and investors.

Example: A Boston Multifamily Project

Andrew outlines one recent case study—a 235-unit multifamily project in Boston with a $100 million total capitalization. Traditional lending covered about 60% of costs, leaving $40 million of equity to fill. Several institutional OZ funds proposed $20 million structured-common positions priced around 12–13%—lower than the mid-teens returns typical of non-OZ preferred equity.

At stabilization, an agency refinance generated $15 million of proceeds shared equally between the developer and the OZ investor, partially paying down accrued balances. Over a 10-year hold, modest rent growth and a 5% exit cap improved the equity multiple by roughly 25% compared with a conventional short-term structure.

Post-CO Recaps and Deleveraging Strategies

The same model has proven valuable for post-construction deals that need recapitalization. Many projects completed during the 2020–23 period are over-levered because lenders have tightened debt-yield requirements. New OZ equity can enter those deals through the existing Qualified Opportunity Zone entity—as long as it remains compliant and the new capital is used strictly to delever, not repatriate gains.

Andrew calls this an overlooked aspect of the OZ rules: post-CO investments can still qualify for tax benefits if structured properly. Since the risk profile is lower than ground-up development, the capital tends to be cheaper and can help sponsors remain in their deals without injecting additional cash.

Market Activity and Outlook

The current OZ market includes a mix of ground-up, mid-construction, and post-CO recapitalization deals in both major and secondary cities—ranging from Boston and Miami to Provo and Colorado Springs. While the macro environment has been challenging, deal flow continues where projects can attract appropriately structured capital.

Jordan and Andrew emphasize the importance of education and alignment between sponsors and investors. Many developers are rethinking how they structure deals as OZ funds seek creative ways to deploy capital before launching new OZ 2.0 vehicles in 2026.

The Road to OZ 2.0

With the new OZ tract map expected in 2026 and the updated program becoming fully effective in 2027, institutional behavior is likely to evolve. Early signs suggest that existing OZ funds will be able to raise larger vehicles with improved tax benefits and stronger track records. If capital inflows accelerate, competition among OZ funds could push pricing toward more flexible, sponsor-friendly equity terms.

Common Misconceptions Among Sponsors

Jordan notes that some developers remain frustrated after a few slow years in the capital markets. Many are still approaching deals with pre-2022 assumptions—expecting 90/10 capital stacks and short timelines. The current environment, he says, rewards creativity and patience. The new structures require sponsors to bring more equity and think long-term, but they can make feasible what might otherwise be an unfinanceable deal.