How to Underwrite Pre-C of O Opportunity Zone Projects as an LP

Risk-Aware Capital in a Time-Constrained Framework

Deploying OZ capital into real estate projects that are nearing completion — but haven’t received their certificate of occupancy — can be a smart move for investors seeking tax-free appreciation and reduced construction risk. But unlike ground-up deals, Pre-C of O investments carry unique underwriting complexities that must be addressed at the fund, project, and developer level.

The reward: significantly lower entitlement risk, shorter delivery timelines, and the same post-hold capital gains exclusion. The risk: poor execution, compliance missteps, or rescue financing terms that erode investor protections. Sophisticated LPs must evaluate with precision.

Core Questions Every OZ LP Should Ask Before Investing

Is the project still OZ compliant?‍

Confirm that the project remains within the Qualified Opportunity Zone Business (QOZB) framework — particularly the 90% tangible property requirement, ongoing business activity, and safe harbor rules. If construction paused, did the developer maintain QOZB status, or will it need to be re-established?

What portion of the capital stack is being replaced — and why?‍

Understand whether this is a rescue recap (e.g., replacing failed mezzanine) or a strategic top-up. Investigate whether the original underwriting failed, or if macro conditions simply outpaced assumptions (interest rates, rent growth, construction costs).

Is the developer still incentivized — or are they underwater?‍

Ensure that the developer still has meaningful skin in the game. If prior equity has been wiped or heavily diluted, review how their interests are aligned with new investors, especially under a 10-year hold scenario.

Can the pro forma support a long-term hold with no refi event?‍

Many OZ investors assume refinance at stabilization, but the market may not cooperate. Underwrite the project as if it must be held for 10 years with no liquidity events — and ensure the projected IRR and equity multiple still meet your threshold under that scenario.

“Late-stage OZ projects are like second-half plays: the foundation is poured, but timing and execution still determine the outcome. Smart LPs bring discipline, not just capital.”

Final Considerations — and Red Flags

• If the developer cannot produce a clean project history (permits, change orders, draw requests), walk away.
• If legal or CPA teams are unclear about how OZ compliance will be preserved post-recap, request written guidance before signing.
• If investor terms feel rushed, opaque, or overly sweetened — assume the worst until proven otherwise.

That said, many Pre-C of O OZ projects present rare entry points: tax-exempt upside, stabilized hard assets, and better-than-market terms — all with most construction risk already absorbed.

If diligence is done right, these deals can be among the most attractive plays in the entire Opportunity Zone landscape.