If you are considering investing in an Opportunity Zone Fund such as ours, it’s worth understanding why and how. We put together these five top questions we get asked from our investors:
- Why should I invest in an Opportunity Zone (OZ) Fund?
Qualified Opportunity Zone (QOZ) funds are one of the few ways to potentially defer capital gains taxes on the sale of a business, company stock or real estate. Qualifying individuals can delay paying those taxes until December 31, 2026 by investing in the fund. Equally important, after ten years in a QOZ fund, investors may adjust the basis to the fund’s fair market value on the date that the QOF is sold or exchanged. In other words, they may potentially avoid paying capital gains taxes on gains from the fund.
And it’s not just the tax advantages that make these investments compelling. OZ funds are intended to add value to cities and neighborhoods, creating jobs and opportunities for those in economically underserved areas. An investment in an OZ fund helps support this and, for some investors, offers diversification into a new asset class: commercial real estate. In this way, OZ-driven renewal and growth can be a win for everyone. - How does the 180 day deadline apply to OZ funds?
This applies to the length of time you have to reinvest your gains. The IRS states: “Generally, you have 180 days to invest an eligible gain in a QOF. The first day of the 180-day period is the date the gain would be recognized for federal income tax purposes if you did not elect to defer the recognition of the gain.”
So if you have – or expect to have – a qualifying capital gain you need to move fast to take advantage of the tax deferral benefits of an OZ fund. - Why San Jose? What’s so special about downtown San Jose?
We love San Jose but it’s not just us. The real estate consulting firm JLL named San Jose the #1 city in the U.S. for attracting innovation-oriented industries. Bloomberg recognized it as part of the #1 region in the country poised for post-pandemic recovery. Google, too, has weighed in with a huge vote of confidence for downtown San Jose, pledging to invest as much as $19 billion to develop a new transit-oriented, mixed-use neighborhood. San Jose sits at the center of one of the most dynamic regions in the world. That’s pretty special. - Will there still be demand for office space with a hybrid workforce?
The Pandemic has unquestionably reshaped the office market, but demand isn’t going away. Locally, office occupancy improved in much of Silicon Valley during Q1. We think things head up from here as workers – and managers – discover again the value of in-person work.
Lena Tutko is the research director for Silicon Valley and the Peninsula for Colliers, a commercial real estate firm. She has noted that, “A lot of the transactions that are really driving the market are from the major tech companies,” with Google, Apple, Facebook app owner Meta Platforms, LinkedIn and Amazon have been particularly active in expanding into new office spaces through leases or purchases.
Big tech kept growing through the pandemic. Now they need a place to put all those workers. Many of them are choosing office buildings in downtown San Jose. - Why Urban Catalyst?
In a word, experience. Our founders have backgrounds in Silicon Valley development. We’re not just fund managers; we’re also local developers and have collectively done over $5 billion in development projects in Silicon Valley, with a heavy concentration in downtown San Jose. You can read more about our leadership team in this recent blog.
Have more questions? We’d be happy to help you. For more information, contact us.
Important Disclosures
The contents of this communication: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, (ii) offers can be made only by the confidential Private Placement Memorandum (the “PPM”) which is available upon request, (iii) do not and cannot replace the PPM and is qualified in its entirety by the PPM, and (iv) may not be relied upon in making an investment decision related to any investment offering by an issuer, or any affiliate, or partner thereof ("Issuer").
All potential investors must read the PPM and no person may invest without acknowledging receipt and complete review of the PPM.
With respect to any performance levels outlined herein, these do not constitute a promise of performance, nor is there any assurance that the investment objectives of any program will be attained. All investments carry the risk of loss of some or all of the principal invested. Assumptions are more fully outlined in the Offering Documents/ PPM for the respective offering. Consult the PPM for investment conditions, risk factors, minimum requirements, fees and expenses and other pertinent information with respect to any investment.
These investment opportunities have not been registered under the Securities Act of 1933 and are being offered pursuant to an exemption therefrom and from applicable state securities laws. All offerings are intended only for accredited investors unless otherwise specified.
Past performance are no guarantee of future results. All information is subject to change. You should always consult a tax professional prior to investing. Investment offerings and investment decisions may only be made on the basis of a confidential private placement memorandum issued by Issuer, or one of its partner/issuers. Issuer does not warrant the accuracy or completeness of the information contained herein. Thank you for your cooperation.
Real Estate Risk Disclosure:
- There is no guarantee that any strategy will be successful or achieve investment objectives including, among other things, profits, distributions, tax benefits, exit strategy, etc.;
- Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
- Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
- Potential for foreclosure – All financed real estate investments have potential for foreclosure;
- Illiquidity – These assets are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
- Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
- Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits
- Stated tax benefits – Any stated tax benefits are not guaranteed and are subject to changes in the tax code. Speak to your tax professional prior to investing.
Opportunity Zone Disclosures
- Investing in opportunity zones is speculative. Opportunity zones are newly formed entities with no operating history. There is no assurance of investment return, property appreciation, or profits. The ability to resell the fund’s underlying investment properties or businesses is not guaranteed. Investing in opportunity zone funds may involve a higher level of risk than investing in other established real estate offerings.
- Long-term investment. Opportunity zone funds have illiquid underlying investments that may not be easy to sell and the return of capital and realization of gains, if any, from an investment will generally occur only upon the partial or complete disposition or refinancing of such investments.
- Limited secondary market for redemption. Although secondary markets may provide a liquidity option in limited circumstances, the amount you will receive typically is discounted to current valuations.
- Difficult valuation assessment. The portfolio holdings in opportunity zone funds may be difficult to value because financial markets or exchanges do not usually quote or trade the holdings. As such, market prices for most of a fund’s holdings will not be readily available.
- Capital call default consequences. Meeting capital calls to provide managers with the pledged capital is a contractual obligation of each investor. Failure to meet this requirement in a timely manner could elicit significant adverse consequences, including, without limitation, the forfeiture of your interest in the fund.
- Opportunity zone funds may use leverage in connection with certain investments or participate in investments with highly leveraged capital structures. Leverage involves a high degree of financial risk and may increase the exposure of such investments to factors such as rising interest rates, downturns in the economy or deterioration in the condition of the assets underlying such investments.
- Unregistered investment. As with other unregistered investments, the regulatory protections of the Investment Company Act of 1940 are not available with unregistered securities.
- It is possible, due to tax, regulatory, or investment decisions, that a fund, or its investors, are unable realize any tax benefits. You should evaluate the merits of the underlying investment and not solely invest in an opportunity zone fund for any potential tax advantage.
The above material cannot be altered, revised, and/or modified without the express written consent of Urban Catalyst.
