As the country’s biggest state by both population and economic output, not to mention the world’s fifth largest economy, California has always been the subject to more than its share of mythologizing. But a lot of those myths are just that, as we wrote initially in October 2021.
Still, the myths keep coming. Here are three more we want to bust:
1. Myth: No one is going back to the office.
Reality: There is a lively debate about how and when to go back to the office, but it’s clear now that many workers will be going back. Kastle International Systems, which tracks key swipes, reporter that for the week ending June 8, the average office occupancy for the country’s 10 major metro areas stood at 44%, up from 41.2% the week before and the highest level since the start of the pandemic. Some markets are higher, some are lower but most are seeing occupancy trends move upward. And here’s another fun fact: daily office occupancy has never been 100%; pre-pandemic it averaged around 60-70%.
2. Myth: Tech workers are getting laid off.
Reality: Yes, some people are getting laid off in today’s slowing economy. That’s true but that’s just a small part of the story. The reality, as reported here, is different. As the headline says, “There still aren’t enough workers to go around.” Tech companies continue to hire and their footprint in places like downtown San Jose continues to grow.
According to Dice, the unemployment rate among tech workers in May was just 2.1%. While that was up from 1.7% in April, it compares to the national rate is 3.6%. In May, tech employers posted some 623,627 jobs representing a year-over-year increase of 52 percent, again according to Dice. Tech may be slowing a little, but it’s still a growth story. Pay is pretty good, too. Average income all in was about $170,000/year in 2021, according to one report, way above the national average of $71,000. Some tech salaries are up 20% or more, according to The Wall Street Journal.
3. Myth: No one is going back to the office, part 2.
Reality: Here’s another indication the office market is far from dead: rents are rising and investors are paying big bucks for existing office buildings. The Real Deal reported that a “dramatic” hike in rents in San Jose appeared to be driven by return to office. Colliers recently reported vacancy rates for the Peninsula in the 9-10% range, well below San Francisco. Investors don’t buy office buildings expecting them to sit empty. Companies, which have the best insight into their own future hiring plans and space needs, don’t either. Here again, the rumors don’t square with the facts.
Myths can make for entertaining stories, when it comes to investing you want to be guided by the facts. If you’re considering an investment in San Jose, and are interested in making that investment through an Opportunity Zone fund, you can learn more here.
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").
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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.
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