Capital Stack Strategy: Rethinking Development Finance in Opportunity Zones

Opportunity Zone Development Is a Structuring Challenge First, a Capital Challenge Second

Real estate development in Opportunity Zones is not a matter of simply raising capital and breaking ground. It’s a coordination exercise between tax strategy, entity structure, debt tolerance, and long-term exit planning. And for sophisticated developers, family offices, and capital allocators, the difference between compliant and optimal lies in how the deal is built — not just how much it costs.

OZ regulations impose a framework. But within that framework is a unique window to rethink development finance — and design capital stacks that align tax benefit, sponsor return, and investor confidence.

Key Considerations for Development-Stage Capital Structures

Sequencing Gains and Groundbreaking‍

Unlike traditional private equity, OZ capital is driven by the 180-day reinvestment window on recognized gains. This can create timing friction when matching investor liquidity with project readiness. Structuring pre-development entities or using bridge equity can provide alignment without losing the compliance window.

Equity Layers with Tax-Aware Outcomes‍

Blending common and preferred equity, or bifurcating classes for OZ and non-OZ investors, allows developers to attract capital at scale while honoring the tax-sensitive needs of different LP types. OZ investors benefit from post-hold appreciation; others may seek cash flow earlier.

OZ-Compliant Debt and Leverage Thresholds‍

Debt is still king in development finance — but too much leverage can create risks for OZ compliance if the equity investment becomes economically insignificant. Managing loan-to-cost alongside tangible property requirements and valuation standards is critical.

Development Fees and Sponsor Promote Design‍

Sponsors must consider how development fees, GP promotes, and carried interest structures interact with tax treatment. A poorly structured promote can erode tax benefits or trigger unexpected recognition events.

“In OZ development, capital is abundant. What’s rare is a capital stack that respects both compliance and economics — and wins over tax attorneys, fund managers, and institutional LPs in the same room.”

Designing for the Hold — and for the Exit

OZ projects are often held for a minimum of 10 years, but they should not be held passively. Planning for stabilization, refinance, and long-term asset management from day one ensures not just compliance — but performance.

The most successful OZ developers today are those building deal models that anticipate refinancing after stabilization, offer structured exit windows post-hold, and retain investor alignment throughout. For family offices and HNW investors, that translates to trust, predictability, and long-term return — not just tax savings.

For those willing to design rather than default, OZ development is not just feasible — it’s a financial edge.