As part of an occasional series on our investors, today we share a Q&A we recently conducted with a Bay Area resident who was looking to lighten some of the tax burden from capital gains made on real estate.[1]
Today we turn the Investor Spotlight on David Cheung.
Q: Tell us a little about yourself
A: I live in Los Altos Hills and have lived in the Bay Area since 2008. I have my own company in cloud service and cloud hosting. That’s my day job. I have also been investing in real estate, which has been generating very nice capital gains. I’ve been doing this for the past five years.
Q: In the past, did you have to take the tax hit from selling real estate?
A: Yeah. I’ve been making Uncle Sam very happy.
Q: How did you get interested in Opportunity Zones and Urban Catalyst in particular?
A: This year I talked to a friend about minimizing the capital gains tax, and the Opportunity Zone discussion came up. In addition to my friend, I talked to my tax lawyer, and they are really the people I lean on when I have tax issues. So they basically validated the Opportunity Zone Program--that it’s really a valid approach and strategy to possibly minimize taxes.
The Opportunity Zone Program reminds me of the 529 college fund that I invested in for my son. If the government is willing to offer a tax-deferred investment vehicle, grab it—maximize it.
Q: What made you decide to invest with Urban Catalyst?
A: Over time I had the chance to talk to (Urban Catalyst’s) Erik Hayden and Jake Devine and the team, and it became pretty obvious to me this is a good way to really optimize my capital gains.
Before investing, I also talked to other commercial real estate people-- through my business I’m helping build a hotel in San Jose—and they gave us validation as well. A friend who knows Erik told me Erik is a very reputable guy and this is a good firm, and you don’t have to worry about the quality of their investment.
Q: Did you look at other OZ Funds besides Urban Catalyst?
A: Not really. I had multiple validation from my sources. They all told me this is a good opportunity to invest in San Jose, and Urban Catalyst is a very solid company with Erik as a solid leader. I made the decision very fast; within a few weeks I made the decision to invest in Urban Catalyst.
Q: Why invest in San Jose development?
A: I believe San Jose will go through a 10- to 20-year development period, with Google and other big firms building in San Jose. This investment is a very good opportunity to potentially capture some of the growth and also help minimize the capital gains tax, so that’s a powerful combination. That’s how I came to invest in Urban Catalyst.
Interested in learning more? Contact us today.
[1] Please note, this testimonial may not be representative of the experience of other customers; is no guarantee of future performance or success and does not represent a paid testimonial.
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.
