Rebuilding Capital Stacks in Pre-C of O Opportunity Zone Projects

A New Phase for OZ Capital — Rescue, Recap, and Reposition

As interest rates reset and capital becomes more selective, a wave of Opportunity Zone projects — especially those nearing completion — are confronting a new challenge: insufficient capital at a critical point in development. These projects often have entitlements secured, construction well underway, and momentum in the market. But with a certificate of occupancy still pending, the original stack has failed to carry them across the finish line.

Rather than abandon or restructure into non-OZ pathways, these assets present a significant opportunity for OZ investors: to enter at an advanced stage with much of the entitlement and execution risk mitigated, while still accessing full post-hold capital gains exclusion.

Structuring a Compliant and Attractive Capital Stack Post-Stall

Replacing or Supplementing Equity Without Resetting the Clock‍

Fresh OZ equity can be deployed directly into the existing Qualified Opportunity Zone Business (QOZB), provided it meets substantial improvement or original use tests, and aligns with the 90% asset rule through proper timing. Structuring a new tranche as a co-investor, Class B equity holder, or preferred equity position can maintain compliance while stabilizing the stack.

Addressing Bridge Debt and Broken Mezzanine Layers‍

Many Pre-C of O projects were over-leveraged with short-term mezzanine debt or credit lines expecting rapid lease-up or refinance. Replacing these with fresh OZ equity — or rebalancing through GP-level injections — can repair loan-to-cost ratios and attract new senior debt under more stable terms.

OZ Eligibility for Recap Investments‍

Investors entering at this stage must still qualify their capital as eligible gain and invest within the appropriate timeline. That said, recapitalization efforts can be structured to preserve tax treatment through the QOF → QOZB pipeline, with appropriate entity updates and legal guidance.

“These aren’t distressed projects — they’re delayed ones. For the right OZ investor, this is a chance to enter stabilized, de-risked assets with full tax advantages and stronger equity terms.”

Who This Strategy Serves

• OZ investors looking for downside protection and near-term completion timelines
• Developers needing new LP capital without restarting the clock or losing OZ status
• Fund managers seeking to deploy capital into stabilized hard assets with impact and IRR potential

Many Pre-C of O OZ developments are simply trapped by outdated assumptions — not failed fundamentals. With clear structuring, aligned legal guidance, and strategic recapitalization, these projects can transition from stalled to stabilized while preserving the very tax advantages that made them viable to begin with.