Erik Hayden of Urban Catalyst discusses his agency’s second OZ fund, which is able to embrace a ground-up growth undertaking that includes 300+ items of multifamily housing and 420,000 sq. toes of workplace house in downtown San Jose, CA.
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Webinar Highlights
An overview of Urban Catalyst, a agency uniquely centered on Opportunity Zone investing in San Jose, CA. An overview of the Opportunity Zone program together with its historical past, the tax benefits, and the most typical varieties of capital positive factors.The macroeconomic traits that time in the direction of San Jose as a premier vacation spot for actual property growth, together with tech migration among the many MFANG firms (Microsoft, Facebook, Apple, Netflix, Google). The three standards Urban Catalyst seems for in an actual property undertaking. How Google’s plans to construct 7 million sq. toes of workplace house and 6,000 residential items will impression the native San Jose economic system. Plans to develop the Icon/Echo properties in downtown San Jose, together with: Icon: 420,000 sq. toes of workplace house designed to draw prime quality tenants. Echo: 300+ multifamily constructing that options an infinity pool and rooftop eating space. The components which have led to a housing disaster in Silicon Valley, and the chance that creates for builders. How Urban Catalyst’s “Project First” method differentiates this agency. The significance of performing due diligence on builders, markets, and asset courses prior to creating an Opportunity Zone funding. Overview of the timeline for Urban Catalyst’s Fund II initiatives, together with a refinance and distribution program in 2026. The fourth, seldom-discussed tax profit that some Opportunity Zone funds can ship to traders.
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Industry Spotlight: Urban Catalyst
Urban Catalyst is an actual property fairness fund centered on ground-up growth initiatives in downtown San Jose. Urban Catalyst closed its profitable Fund I in December 2020; that fund was a multi-asset actual property fund centered on ground-up developments consisting of workplace, mixed-use, scholar housing, senior housing and a resort.
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Webinar Transcript
Jimmy: Erik Hayden’s agency Urban Catalyst efficiently closed their Opportunity Zone Fund I after elevating $131 million. And now they’re going out elevating, I feel it’s $200 million. Is that proper, Erik?
Erik: That is right. Good to see you, Jimmy.
Jimmy: Good to see you as nicely, Erik. I used to be hanging out with you in San Jose final week. You gave me a website tour, actually spectacular what you could have occurring over there in the Silicon Valley. I’ll flip it over to you. You obtained half-hour. And then only for everybody else’s sake, you’re going to be in a fund breakout session after this in a separate adjoining session, and we’ll present the hyperlink and a few directions on the way to be part of you in that room when you find yourself completed with your formal presentation right here. If you could have any one-on-one questions that you simply wish to ask Erik, or if you wish to discuss with him one-on-one, that will be an excellent time to take action, however that’ll be a half an hour from now. Erik, go forward.
Erik: All proper. No, I’m trying ahead to speaking with everybody in the breakout session after my presentation. All proper. So I’m going to share my display. I’m gonna inform you a little bit bit about Urban Catalyst. Jimmy gave us an excellent introduction, however I undoubtedly wish to undergo all of it. So, Urban Catalyst, we’re structured similar to a standard actual property fairness fund. We’re centered on doing ground-up actual property growth initiatives in Downtown San Jose, and we’re additionally an Opportunity Zone fund. And that permits us to provide the Opportunity Zone tax advantages to our traders. As Jimmy talked about, we’re at present elevating a $200 million fund. Just to kick us off, we’ve been featured fairly prominently in the information during the last couple of years. Just plenty of constructive buzz about what we’re doing right here in Downtown San Jose. We’ve had over 200 information articles written about us, however in all probability most necessary of these, we have been named by “Forbes” journal as one of many prime 20 Opportunity Zone funds in the nation. And , it’s good to get that nationwide validation from “Forbes” that we’re doing issues the correct manner right here.
Jimmy talked about the Opportunity Zone 101. So, I’ll provide you with simply my temporary 101 earlier than you get to your 11:00 session, that’s in order to get the tax advantages related with the Opportunity Zone program, you must have a capital positive factors occasion. Here are the three commonest ways in which folks have capital positive factors occasions. In our fund, we have now discovered that the sale of inventory is the most typical kind of capital positive factors occasion that folk have. And, , it makes plenty of sense as a result of there actually has by no means been a protected harbor for traders to shelter their capital positive factors from the sale of inventory earlier than this program was created. Then, after all, simply to remind everybody, when you could have that capital positive factors occasion, you could have 180 days to take a position right into a Qualified Opportunity Zone fund in order to get these tax advantages. We don’t need anybody to overlook their deadline and, , miss out on this system in the event that they’re .
And then listed below are the three most important tax advantages that you simply get as part of this program. The first is you’re in a position to defer paying capital positive factors taxes on that capital positive factors occasion till 2027. The subsequent is if you pay your taxes in 2027, you get to scale back these taxes by 10%. So you get a ten% discount. For each $100 that you’d have owed in taxes, you solely must pay $90. And these are nice, however it’s actually the third profit that’s the greatest profit. And that’s after traders’ cash seasons in our fund for 10 years, all the income from the fund itself are tax free from a federal capital positive factors perspective. So right here at Urban Catalyst, what our plan is is to construct these ground-up growth initiatives, after which maintain them till we get to that 10-year mark. And then we plan to promote these property, liquidate the fund. And that’s after we returned the vast majority of the advantages or the vast majority of the income to our traders.
It was nice listening to from John concerning the general program. I’ll provide you with just a bit little bit of temporary historical past about this system, after all, it was created as part of the 2017 Tax Cuts and Jobs Act. When it got here out, the Treasury and the IRS stated that there can be three rounds of clarifications. You can see right here these dates of these three rounds of clarifications. We had our attorneys put collectively how clear they thought this system was after every spherical. So, you’ll be able to see this system itself wasn’t actually finalized till December of 2019. This is a graph of investments into Opportunity Zone funds nationwide. You can see earlier than these April tips got here out, not a complete lot of funding in the Opportunity Zone funds, however as soon as the ultimate rules got here out in December of 2019, , we noticed that enhance in velocity. Just taking a step again right here in the Bay Area, these are the Opportunity Zones in inexperienced.
For this fund, we’re centered on San Jose, and much more particularly, we’re centered on Downtown San Jose. You can see that there are 4 census tracks that cowl all of Downtown or most of it. You know, it’s fascinating right here at Urban Catalyst, once I shaped Urban Catalyst, my plan was simply to create an actual property fairness fund to give attention to doing ground-up growth in the Downtown space. It was primarily due to the general macroeconomic traits all through Silicon Valley, all pointing in the direction of Downtown San Jose as the subsequent place to do growth on a big scale. And it was solely after I began forming Urban Catalyst that I realized concerning the Opportunity Zone program and that in all places that I used to be planning on constructing these buildings was already positioned in the zone. So, I assumed, boy, wouldn’t it’s good to have the ability to give my traders these further tax advantages related with this program? And that’s how we turned an Opportunity Zone fund.
When we speak about these general macroeconomic traits in Silicon Valley, what I’m actually speaking about is tech migration. I imply, everybody is aware of there’s plenty of huge tech firms right here in the Valley. Here are simply a few of them are on the display. But for this instance, I’m particularly going to give attention to what we name the MFAANG firms, and that’s Microsoft, Facebook, Amazon, Apple, Netflix, and Google. You know, 20 years in the past, on the time of the .com, Google was only a startup. And now, it has extra workplace house than another firm right here in Silicon Valley. As these firms have simply grown and grown and grown, and, , you suppose Palo Alto and Mountain View are form of the middle of the Silicon Valley universe. They’re very small cities. So as these firms have grown, they’ve been searching for further house, not solely have they, , expanded all around the world and all around the nation, however right here in Silicon Valley, they’ve made some huge strikes.
We’ve seen during the last 10 years them actually going into the town of Sunnyvale. Let me provide you with some statistics that provide you with an concept of actually, , how giant that is. Right now in the town of Mountain View, Google owns or leases 95% of the workplace house in all the metropolis. Very comparable right here in Cupertino, Apple owns or leases 85% of the workplace house in that metropolis. And now, in the town of Sunnyvale, Google and Apple mixed, they personal no less than greater than 50% of the workplace house in that metropolis. So, Sunnyvale had room to develop during the last decade. Development has simply been going gangbusters there, however now it’s utterly constructed out. And it actually begs the query, nicely, now that that is constructed out, the place will these firms proceed to develop? And the reply is straightforward. It’s into Downtown San Jose. Amazon has had a toe maintain right here in the Downtown space for numerous years. Microsoft and Apple have simply made main land purchases right here in San Jose. And Google is actually the large story, the huge mega-campus that they’re planning right here proper in the Downtown space. And I’ll get to that in a little bit bit.
But what has occurred in Downtown San Jose, , due to this migration, and that is from the view or the lens of an workplace perspective, we’ve seen workplace rents double in the final 10 years. We’ve additionally seen emptiness charges that traditionally have been above 25% drop to under 10%. And 10% is actually that line the place it modifications over from, name it, tenant market to a landlord market, and if you begin to see ground-up growth happen. We’ve been builders for fairly a while right here at Urban Catalyst, and we’ve accomplished growth initiatives all around the Bay Area. When we do growth anyplace, there are three issues that we wish to see. The first is we wish to guarantee that there’s a requirement for all of our initiatives. And by the best way, Downtown San Jose has all three of this stuff. The demand for initiatives in Downtown is actually pushed by the Silicon Valley job engine. We wish to guarantee that transit and bodily infrastructure is already in place. San Jose in the Downtown space is actually the one true city atmosphere in Silicon Valley. Diridon Station slated to be the most important practice station on the West Coast. It already has quite a lot of mass transit choices that hook up with it, together with Caltrain and now BART.
BART is planning to come back by Downtown and join into Diridon Station. BART, for these of you that don’t know is the most important mass transportation system right here in the Bay Area. And then San Jose State University, , with 35,000 college students, it’s the second-largest college in the Bay Area, and it’s proper right here in the guts of Downtown. We additionally wish to do enterprise in a spot the place the native authorities desires to see growth occur. Throughout most of California, that isn’t the case. It’s very difficult to get your constructing permits, however it’s virtually the other right here in Downtown San Jose. They wish to see growth occur. This is an image of my companion, Josh and I with the mayor of San Jose, Sam Liccardo. Sam has been the mayor for seven years. And earlier than that, he was the council member representing Downtown for eight years. And it’s actually the insurance policies that he has put into place that has streamlined that pre-construction course of and made it a lot simpler for builders, and actually attracted builders to the Downtown.
These are my earlier than and after slides, simply to provide everybody an concept of the revitalization that’s occurring right here in Downtown San Jose. This is the present skyline in San Jose. If all the initiatives which are at present in the planning course of are constructed over the subsequent 10 years, Downtown San Jose will triple in dimension. You can see all the future deliberate growth, and Opportunity Zones couldn’t have come at a greater time to assist spur this revitalization. You can see Urban Catalyst initiatives in each Fund I and Fund II in purple. Here’s my two dimensional map of Downtown simply to proceed speaking about what’s taking place down right here. This black line represents the Opportunity Zone. Urban Catalyst, our headquarters are proper right here. So we’re proper in the zone…we’re proper subsequent door to Adobe’s World Headquarters and Zoom’s World Headquarters. San Jose State University that I discussed is correct right here.
And then that new BART line is working beneath Santa Clara Street, station Downtown, after which connecting into Diridon Station, that huge practice station. Now the large information right here in Downtown during the last couple of years actually has been Google’s huge buy of land. Google during the last 4 years has spent about $450 million on the acquisition of over 80 acres. The plans that they not too long ago had authorized at metropolis council present them constructing roughly 7 million sq. toes of workplace and 6,000 residential items. At build-out, this might be Google’s largest campus on earth. They plan to start out development in about 18 months and we’re excited to have them. Of course, right here’s a rendering of what their future campus seems like. We name it the mega-campus. I’m certain that’s not their advertising title, however it’s an excellent title for now.
Besides Google, we’ve seen only a ton of different builders coming into Downtown in current years. Two notable ones, Jay Paul and Westbank mixed, they’ve spent virtually a billion {dollars} on land acquisition. They’re planning tens of millions of sq. toes of recent product. Here’s an instance of what their initiatives appear to be, simply to form of provide you with a taste of what’s taking place down right here. Of course, , we noticed this wave of growth coming to Downtown right here at Urban Catalyst. And our plan was to actually get it on the bottom ground, purchase properties earlier than they have been scooped up by huge tech firms and different builders and, , that’s precisely what we did with the acquisition of our Fund I and Fund II initiatives. In blue right here, you’ll be able to see our Fund I initiatives. We had six in that fund. As Jimmy talked about, we raised $131 million for these initiatives. We closed the fundraising final December. We began fundraising for Fund II in January of this 12 months.
Here’s what these six initiatives appear to be. We begin development on all of those in the subsequent eight months. This one might be our first one after we begin development on this subsequent week. Pretty thrilling for us right here at Urban Catalyst. We have 2 100,000 sq. foot mixed-use workplace buildings in this fund. We have an extended-stay enterprise resort. We have a senior residing facility. This is 184-unit multifamily undertaking, after which an 800-bed scholar housing high-rise proper subsequent to San Jose State. So this was Fund I, and now we’re right here with Fund II. Fund II is right here in orange. You can see we’ve managed to amass virtually half of a complete Downtown San Jose City block. We’re proper throughout the road from City Hall. We’re proper subsequent to that future mass transit station. Santa Clara Street is actually the principle drag of the central enterprise district right here in Downtown San Jose. So only a incredible location for brand new growth. And that is what Fund II seems like. We have two initiatives, Icon and Echo.
Icon is there on the left. It’s a 420,000 sq. foot workplace high-rise. On the correct, Echo is a 300-plus unit multifamily high-rise. Here’s a special perspective of our initiatives. You know, once I speak about these initiatives, what I like to speak about is the demand. And demand for multifamily is all the time fascinating right here in the Valley as a result of, clearly, all through the state of California, we have now what folks name a housing disaster. It’s very true right here in Silicon Valley. We’ve created six jobs for each housing unit that we’ve constructed for over 30 years straight. And that has led to a few of the costliest housing, each on the market and for lease in all the world. A little bit statistic, if we wished provide and demand to hit equilibrium right here in Silicon Valley, we’d must construct 150,000 housing items in a single 12 months. In historical past, we’ve by no means constructed greater than 5,000 in a single 12 months. So it’s like we’re by no means gonna get there, we actually can’t construct multifamily quick sufficient to satisfy the demand. At Urban Catalyst, after we construct multifamily, we love to do it the correct manner with plenty of facilities for our residents. Here is a visible of what our podium pool deck seems like. We have an infinity pool, an indoor-outdoor health middle, two-story widespread areas for our residents the place they’ll hang around, , pool tables, shuffleboard. We’re even considering perhaps pickleball on the deck, which might be form of thrilling.
Up on the roof of Echo, and, after all, that is the multifamily undertaking, we have now an workplace space for our residents. It doubles as a eating room in the night. There are some hearth pits, actually making the most of the views from the highest of this constructing. Now onto our Icon workplace undertaking, this is able to be a view in case you have been say on the eighth ground of City Hall trying throughout the road. You know, after we construct workplace, the demand is a little bit bit totally different than the demand for multifamily as a result of though Silicon Valley does have a robust demand to construct new workplace house, we are able to construct it quick sufficient to satisfy the demand. So at any time when we construct ground-up workplace, there are actually three issues that we have now to have to achieve success to draw, , that high quality tenant and compete with different new workplace coming available on the market. The very first thing is location. We talked a little bit bit concerning the location, , subsequent to the mass transit station. I imply, constructing high-density growth subsequent to mass transit, I imply, that basically is growth 101, city planning 101, actually.
We additionally, , after we’re constructing in Downtown San Jose, we compete with all of Silicon Valley. Downtown is a incredible location from a value level perspective towards the remainder of the Valley. So from a location perspective, we actually like this undertaking. Fantastic location. Second factor we wish to see is what I name performance. And that’s ultimately, we’re going to be turning over a chilly shell to our future tenants for build-out, and so they’re going to wish to see every thing good. So which means we have now the proper parking ratios, which this undertaking has, we have now the large fats boy ground plates, and we’re planning on having 40,000 sq. toes per ground, and that’s virtually an acre of internet sq. footage per ground. And that’s actually what the large tech firms are searching for nowadays. We even have 14-foot floor-to-floor heights. So you could have that huge open, ethereal workplace feeling. We’re using plenty of indoor-outdoor house. You can see on the outside, we have now some exterior staircases, we have now balconies. A few slides again right here you’ll be able to see we have now some rooftop decks on the very prime, after which at totally different ranges.
This is actually to make the most of the 300 days a 12 months of sunshine we have now right here in Downtown San Jose. It’s a few of the finest climate in the world. The last item that we wanna see to have a profitable growth undertaking is we wish to have a undertaking that basically seems good. I name it architectural aesthetic magnificence. We’re using WRNS as our architect for this undertaking. They’re one of many premier workplace architects right here in Silicon Valley. They simply completed doing Microsoft’s campus up in Mountain View. And they’ve designed this constructing. They name it Lanterns for the large two-story lit-up areas. And I’m actually happy with how their design has turned out. Here’s one other rendering of one among our workplace rooftop decks. Now, what makes Urban Catalyst totally different than different Opportunity Zone funds is, , most different Opportunity Zone funds, they’re huge funds, they’re are nice at elevating cash, their plan is to simply elevate a ton of money, exit, scramble across the nation and search for builders which have initiatives positioned in Opportunity Zones. Of course, right here in Silicon Valley, we have a look at Steve Jobs and Steve Wozniak and we predict, “Did these guys exit, elevate a bunch of cash, after which employed somebody to construct them a pc?” And the reply is not any, after all, not. They constructed a pc after which they took it out to the market.
And that’s precisely what we’re doing right here at Urban Catalyst. We’re not simply the fund managers, however we’re additionally the builders of all of our initiatives. And, after all, we have now growth initiatives in our portfolio, and now we’re taking these initiatives out to the market to finance. Also, one other factor that I simply can’t stress sufficient at any time when I discuss with any potential traders is, , if you hear about Opportunity Zone funds, you hear concerning the tax advantages. Don’t get me unsuitable, nice tax advantages, we’re huge followers of them right here at Urban Catalyst, however what actually issues is the underlying actual property. Because if the largest tax profit that you simply get is after 10 years you get tax-free income, , there higher be income after 10 years, or what’s actually the purpose of this system from an funding perspective? So, understanding who’re the builders? You know, what’s their observe report and expertise? What are the initiatives? What are the asset courses? That’s what actually issues. And so right here at Urban Catalyst, we see ourselves as a strong, basic actual property fairness fund and growth firm. And we see the Opportunity Zone tax advantages actually as simply the icing on the cake for our traders.
A little bit bit about me. I’ve been a developer my complete profession. I’ve accomplished a number of billion {dollars} price of initiatives right here in the Bay Area. In basic, I construct institutional high quality and scale initiatives. What which means is I actually simply construct huge initiatives with a typical exit technique of promoting to publicly traded REITs to giant institutional fairness teams. Here at Urban Catalyst, I’ve 5 companions. And actually my plan, once I began Urban Catalyst, was to construct an all-star staff of Downtown San Jose builders. I did that by bringing on Josh and Paul. Josh is our chief working officer. For 12 years previous to becoming a member of Urban Catalyst, he labored for an organization referred to as Barry Swenson Builder. They’re big landowners right here in Downtown San Jose. While Josh was there, he obtained to expertise constructing quite a lot of totally different asset courses as he was the lead developer and managed their complete Downtown portfolio.
Paul Ring, Paul for 15 years previous to becoming a member of Urban Catalyst was the pinnacle developer at The Core Companies. He specialised in multifamily and below-market-rate housing right here in Downtown San Jose. And I had the good expertise about 10 years in the past working as a three way partnership companion with Paul. I obtained to look at him handle his staff, and I actually appreciated his type. Now, Paul manages our staff of 14 growth and development professionals that we have now working right here at Urban Catalyst constructing our initiatives. Of course, we’re not simply builders, we’re additionally fund managers. Morgan Mackles, I’ve recognized Morgan for manner over 25 years. He and I went to highschool collectively. We’ve been very shut mates for a lot of, a few years. Morgan is our head of investor relations. He has spent his profession constructing scalable and repeatable gross sales processes. He’s accomplished it for giant and small firms, startups all the best way as much as Fortune 500, and he’s the first purpose why we have been so profitable elevating $131 million in our first fund.
Sean Raft, Sean is our chief administrative officer, and now our basic counsel. He’s an lawyer. Sean manages all of our monetary consultants, our authorized staff, our accountants that do our tax and audit. Sean additionally does all of our compliance with the SEC and with the Opportunity Zone guidelines and rules. Sean’s on the National Working Group that advises the Treasury and the IRS on any ongoing clarifications to the Opportunity Zone program. Just a very easy solution to say it’s Sean actually dots the I’s and crosses the T’s right here at Urban Catalyst. So these are the 5 companions. Combined, we’ve accomplished over $5 billion price of ground-up actual property growth right here in Silicon Valley. You can see the heavy focus of initiatives that we’ve accomplished in Downtown San Jose.
And now I’m going to modify gears and speak about our timeline a little bit bit. You know, each Opportunity Zone fund is created just a bit totally different. So I wish to inform you how Urban Catalyst is structured and actually what our plan is over the subsequent 10 years. So, think about we’re elevating $200 million. Our minimal funding dimension is $250,000. Our common funding dimension in each Fund I and Fund II is a little bit over $350,000. We elevate cash we’re anticipating for 3 years, and we base this on the truth that we raised on common $65 million a 12 months in Fund I. So to get to that $200 million, it ought to take us three years or so. Just for everyone’s reference, right here’s the place you pay your taxes in 2027, and right here’s the place Urban Catalyst is planning on promoting our property and returning all of these income to our traders after 10 years, after the 10-year-hold.
Now, the primary time that we plan to provide a refund to our traders by a distribution is thru our Refinance and Distribute program. The manner that this works, and this is quite common and we do that fairly a bit in growth, we’re beginning development right here in early 2023. Our initiatives might be constructed in 2025. We will lease them up and stabilize them, then we’ll exit and we’ll get everlasting financing. We take that everlasting financing and we pay again the development loans that we use to construct the buildings, after which any extra refinance proceeds, we plan on passing these by to our traders, and that’s tax-free. Right now, we’re focusing on distributing roughly 65% of our traders’ preliminary funding again to them in 2026. And the purpose, after all, can be that we’re distributing sufficient cash for our traders to pay their taxes in 2027. Obviously, nothing is assured with funding right into a fund like ours, and you must learn our non-public placement memorandum in order to grasp all the dangers related with investing into Urban Catalyst. But it’s all the time good to explain our marketing strategy.
After the refinance occasion, , we have now stabilized property, these property might be money flowing actually for the remainder of the length of the 10-year maintain till we promote the properties for the large win in 2034. This can also be the place I like to speak about what I name the fourth hidden advantage of the Opportunity Zone program. You know, we went by the primary three, which have been deferred paying taxes until 2027, 10% low cost if you pay your taxes in 2027, after which tax-free income after 10 years. But the fourth profit actually is an fascinating one, and it’s just for Opportunity Zone funds which are structured as an LLC, as Urban Catalyst is. And that’s, , as an LLC, we’re in a position to cross by losses to our traders. And that is actually necessary as a result of as anybody is aware of that owns actual property, usually actual property house owners depreciate their property on their tax returns yearly. That’s no totally different right here at Urban Catalyst, we simply have these huge buildings, however we’ll be depreciating these property after which we’re in a position to cross by that depreciation to our traders. And it’s very important we anticipate that on a million-dollar funding, we’ll have roughly $600,000 in passive losses that we cross by to our traders over the course of the fund.
Now, right here’s the place that additional profit comes in. Typically, actual property house owners after they promote their property and so they promote it for the next value, they must pay again all of that depreciation that they’ve claimed, nonetheless lengthy they’ve owned the asset. They name that depreciation recapture. Noone likes depreciation recapture. For Opportunity Zone funds, there isn’t any depreciation recapture. So all of these passive losses that you simply’ve collected over the course of the fund, you’ll be able to both use them to offset different passive revenue. And in case you can’t, you’ll be able to simply roll them ahead endlessly. When we promote these property, no depreciation recapture. So not solely tax-free income, however you don’t must pay again the depreciation. In reality, what occurs to that depreciation is actually fascinating. When we promote the property, it converts from passive losses to lively losses and may offset issues like bizarre revenue, which of us love that as a result of bizarre revenue is often a a lot increased tax price. So right here’s every thing put collectively so far as our timeline. One last item I wished to share with you is our bonus items program we have now your Urban Catalyst.
I’ll simply clarify this actually shortly. When you make investments into Urban Catalyst, you’re shopping for items in our fund, we have now one class of shares. We have three other ways in which we give bonus items. The first is our Time Incentive Credit. This is to reward traders for earlier funding. For instance, we’re right here on the finish of July, however in case you’re to take a position in July, you get 7.25% bonus items. That means in case you purchased $100 price of our items, we offers you $107.25 price of our items. Second manner we give bonus items is our Multiple Ventures Program. This is for traders in our first fund. We’re rewarding them for investing once more into our second fund. And then lastly, our Volume Incentive Program, the more cash in which you make investments, the extra bonus items that you simply obtain. Of course, that is cumulative. We do have plenty of add-on traders. So, you can begin with the minimal after which add on and obtain bonus items on your complete quantity at a later date.
These issues add collectively. So, let’s say you invested $300,000 this month, you’ll get your 7.25% plus your 1% for a complete of 8.25% bonus items. And that’s how our program works. Of course, to study extra about Urban Catalyst, please go to urbancatalyst.com. We would love to speak with anybody who’s in collaborating in our program. And Jimmy, with that, I’ll cease sharing and switch it again to you.
Jimmy: Fantastic. Well, thanks, Erik. Very nicely accomplished once more. A number of pleasure taking place in that space of Silicon Valley, Downtown San Jose, in specific, appears ripe for revitalization. We’ve obtained a number of questions right here. And simply to reiterate what I stated on the prime of Erik’s presentation, he’s going to be in a devoted fund breakout session, which might be beginning in about 5 extra minutes. I’m gonna submit the hyperlink for that in the chat proper now. And we’re going to move on over there in a couple of minutes right here. So there’s really going to be concurrent tracks going. You can keep right here in the principle session for our instructional panel, beginning at 11:00 a.m. That’s in 5 minutes on tax coverage and Opportunity Zones. But if you wish to get with a gaggle of traders such as you and chat with Erik for one more half hour or so, you may get in this separate Zoom assembly with Erik. You may even flip in your digital camera, flip in your microphone, you’ll be able to really discuss to him like an individual one-on-one. So head on over there in a couple of minutes, however let’s get to some Q&A right here. We’ve obtained a couple of good questions from the viewers. Dane asks, “Erik, is Urban Catalyst in a position to obtain any California state tax credit or incentives that may be layered into the OZ fund?”
Erik: So, the reply is we in all probability might, however we’re not using any further incentives. Really the three most important incentives that we’re giving are the advantages related with investing into actual property, all the advantages related with having an LLC pass-through entity, after which all the advantages related with the federal Opportunity Zone program.
Jimmy: Good. Vicky asks is a crucial query. “Can we get a recording of this later?” And the reply is sure. I’m recording all these periods and the recordings might be made accessible later this week. Rick asks, “Erik, are you able to deal with the California tax for closeout and annual payouts?” Excuse me.
Erik: Sure. So the vast majority of the distributions that we make over the course of the 10-year interval must be tax-free, each federally and state, and that’s our refinance and distribute. And the vast majority of that money circulate after you pay your taxes in 2027 is [inaudible 00:31:15]. That is paying again your preliminary funding so it’s non-taxable. At the top of the 10-year interval, clearly, California doesn’t conform with the federal program. So California state taxes might be due after we promote the property after 10 years, however in the general program, it’s a really minor inconvenience in the case of our general returns.
Jimmy: Terrific. Brad asks, “What is the pref that Urban Catalyst is paying? And what charges are you charging, growth charges, property administration charges, leasing charges, gross sales charges, acquisition charges, and so on.?”
Erik: Sure. So to study all about our charges, please learn our non-public placement memorandum. It goes right into a ton of element. But a high-level overview, we cost developer charges, after which we cost fund supervisor charges. From a fund supervisor perspective, we’re fairly commonplace, we’re at 2% and 20%. Two p.c administration charges per 12 months. And then on the finish, after we promote all of our property, after our traders obtain their a refund, plus a 6% return per 12 months, which could possibly be referred to as the pref, however it’s a little bit bit totally different, after they obtain all their cash plus a 6% return per 12 months, there’s an 80/20 break up of the income, the place the 20% go to Urban Catalyst. That’s actually to incentivize us to have simply wonderful initiatives which have plenty of income. From a growth charge perspective, we have now fairly commonplace charges there as nicely. We have an acquisition charge, disposition charge, developer charge, and a financing charge. Those are our main charges. We have another smaller ones, however these are form of the large ones.
Jimmy: Paul factors out that Silicon Valley is likely one of the wealthiest counties in the United States and the residence of many billionaires. He desires to know the way a lot of your capital is raised from native traders in Silicon Valley which are in all probability most acquainted with what’s taking place in San Jose.
Erik: Sure. So, we elevate about 70% of our funds, no less than in our first fund, 70% of our traders have been right here in the Bay Area. As far as billionaires, I don’t suppose we have now any billionaires in the fund. The majority of our traders are simply common of us. There are plenty of tech staff who…, a reasonably typical investor can be a tech worker. They have a ton of cash tied up in the corporate that they work for, , perhaps Facebook, Google, Uber, , Amazon and, , majority of their property are both tied up in that or their main residence. And they’re all the time trying to diversify their portfolio, however they by no means wished to take the tax hit promoting their inventory. Now that Opportunity Zone funds have been created, they really feel that they’ll diversify their portfolio with the tax benefit and so they’re making the most of that.
Jimmy: Terrific. Well, time has run out right here for Erik in the principle session. Erik, thanks for collaborating, thanks for becoming a member of us right now, thanks on your time. Great presentation as all the time. And only one extra last reminder, Erik’s gonna head over into the Zoom breakout session. Now, it’s a separate Zoom assembly the place you’ll have the ability to flip in your microphone and really discuss with Erik one-on-one with a gaggle of different traders. I’m gonna paste that hyperlink in the chat proper now. So click on the little chat icon on the backside of your Zoom app if you wish to pull up that hyperlink. Erik, I’ll allow you to go. You ought to head over there earlier than folks begin exhibiting up.
Erik: All proper. Thank you a lot, Jimmy. Take care.
Jimmy: All proper. Thank you, Erik.
https://opportunitydb.com/2021/08/unique-oz-opportunity-in-san-jose-with-urban-catalyst/
