Hoge Fenton: Expanding the Opportunity Zone

by Valarie Klopping, on Apr 9, 2019 12:29:36 PM


Speaking at a recent panel discussion hosted by Hoge Fenton, Urban Catalyst President Erik Hayden joined City of San Jose Business Development Officer Nathan Donato-Weinstein, Seiler Tax Partner David Sacarelos, and moderator and Shareholder at Hoge Fenton, Sean Cottle.

With a lot of talk about the tax code going around lately, especially regarding the complicated nature of opportunity funds and interpreting unfinished IRS guidelines, Erik discussed the practical applications of running an opportunity fund, specifically one like Urban Catalyst—a multi-asset real estate equity fund focused on driving development. He spent many months researching and strategizing the best way to structure the fund and found that by using an operating partnership, he could workaround many of the requirements and strict timelines to build a successful business model. Part of this the plan is to finance the first few projects in cash to get the money out, then refinance and redeploy. Similarly, Urban Catalyst will really be like two funds back-to-back. In 2025-5, Erik plans to refinance and redeploy the funds into all new projects for a second round of investments. Using a narrow geographic focus and broad focus on product types, Erik wants to start in downtown San Jose—what he believes to be the best zone in California, if not the best in the nation. Subsequently, he plans to develop in the downtown Oakland zone.

Asked what the biggest risk is to future investors interested in opportunity zones and funds, Erik said people may worry that opportunity zone legislation could go away if there is a change in the presidency or administration in upcoming years. But, with these funds being proposed by Democrat Sean Parker of Napster and Facebook fame, and the legislation itself passing with bipartisan support, it is unlikely to be an issue.

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