The San Jose metro’s rent-to-own gap is the widest in the nation

In January, we published a blog about how the San Jose metropolitan area has the largest disparity between the cost of owning and renting in the nation. At the time, the median monthly rent in San Jose was about $2,454 compared to the median monthly cost for homes with a mortgage of $3,760, a 34.5 percent difference, according to a LendingTree survey. The $1,300 cost difference was 38 percent higher than the average difference in the country’s top 10 metro areas, the December 2022 survey found.

Fast forward to now, and not only is the San Jose metro’s rent-to-own gap still the widest in the nation, but monthly homeownership costs have continued to balloon. The average 30-year fixed mortgage rate has increased by 129 percentage points since December 2022, to 7.78 percent as of Sept. 27, according to TheStreet and Bankrate. The latest analysis of the metro’s rent-to-own gap, from a Redfin report updated in June, found that the typical home in San Jose is 165 percent more expensive to buy than rent, the highest “homeownership premium” in the nation’s 50 most populous metro areas.

The rent-to-own gap, as defined by Redfin, compares a homeowner’s estimated monthly mortgage payment on a single-family home, a condo/co-op, or a townhome with an estimate of what the monthly rent would be on those same homes. Redfin used a 6.5 percent mortgage rate, the average rate in March, to calculate the rent-to-own gap in the U.S.’s 50 most populous metro areas. In the San Jose metro, the estimated median monthly mortgage cost is a little over $11,049, while the estimated median monthly rent is $4,176, Redfin’s report said. The area’s median mortgage cost is over three times higher than the national average, and its rent-to-own premium — calculated by dividing the median mortgage cost by the median monthly rent — is over six times higher than the average premium in the U.S.’s 50 most populous metros, Redfin found.

Moreover, if you’re looking for any properties in the San Jose metro with a monthly homeownership cost that's lower than monthly rent, you’re out of luck since there are none, Redfin found. That’s the case in the San Francisco and Oakland metros, too, the company’s data show.

“San Jose and San Francisco are the No. 1 and No. 2 most expensive places to rent in the country,” Jeff Tucker of real estate listings website Zillow said to the San Francisco Chronicle in June. He continued: “But $3,000 for rent suddenly seems like kind of a bargain compared to five, six, $7,000 on a mortgage. The cost of homeownership there is just mind-boggling, really.”

Although 11 consecutive rate hikes from March 2022 to June have more recently fueled the San Jose metro’s rent-to-own gap, several factors playing into the disparity have been apparent for years — namely, a severe lack of new apartments and median home price values exceeding average rent growth. Since 2010, the number of new multifamily units in the San Jose metro represents less than 1 percent of existing inventory, according to CBRE. And between 2010 and 2019, median home prices in the area spiked by 124 percent, well ahead of the 74 percent jump in average rents during that time, according to RentCafe.

The upshot of the San Jose metro’s huge rent-to-own gap is that it creates a built-in incentive for apartment developers like us to pursue projects in the region, aided by the fact that San Jose’s housing crisis was recently deemed the worst of any major U.S. city. Our Aquino and Echo development projects would collectively add 667 apartments to the city’s apartment inventory, while our planned Gifford Place >facility would bring 169 senior housing units within walking distance of Downtown San Jose.

You can learn more about those three projects and the rest of our development portfolio by filling out a form on our “Contact Us” webpage.

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.

UCME Disclosures:

THIS PRESENTATION IS neither an offer to sell nor a solicitation to buy securities. The offering and sale of interests in uc multifamily equity i llc (“ucme”) is only being made and can only be made by delivery of ucme’s private placement memorandum (“ppm”), CERTAIN ORGANIZATIONAL DOCUMENTS, SUBSCRIPTION AGREEMENT AND CERTAIN OTHER INFORMATION TO BE MADE AVAILABLE TO INVESTORS (“OPERATIVE DOCUMENTS”) BY UCME’S SPONSOR.

This Presentation is for informational and discussion purposes only and is not, and may not be, relied on in any manner as legal, tax, investment, accounting or other advice or as an offer to sell or a solicitation of an offer to purchase any securities of the Fund.  Any such offer or solicitation shall only be made pursuant to the final confidential PPM (as amended or supplemented from time to time, and including the subscription agreement attached thereto, the “Subscription Package”) and the Fund’s Operative Documents, which will be furnished to qualified investors on a confidential basis at their request and should be reviewed in connection with any consideration of an investment in the Fund.  This Presentation does not constitute a part of the Subscription Package and no person has been authorized to make any statement concerning the Fund other than as will be set forth in the Subscription Package and any representation or information not contained therein may not be relied upon. The information contained in this Presentation must be kept strictly confidential and may not be reproduced (in whole or in part) or redistributed in any format without the express written approval of Urban Catalyst Manager IV LLC (the “Manager”). By accepting this document, the recipient agrees that it will, and will cause its representatives and advisors to, use the information only to evaluate its potential interest in the Fund and for no other purpose and will not, and will cause its representatives and advisors not to, divulge any such information to any other party.  Neither the Fund nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein and nothing contained herein should be relied upon as a promise or representation as to past or future performance of the Fund or any other entity. Any potential investor considering an investment in the Fund that is on behalf of an employee benefit plan or individual retirement account (or governmental, church, or foreign plan subject to laws similar to those governing employee benefit plans and individual retirement accounts) is strongly encouraged to consult with its own legal and tax advisers regarding the consequences of such an investment. A prospective investor may only invest in the fund if such person is an accredited investor as defined in rule 501 of regulation d. Investing in the fund will involve significant risks, including possible loss of such person’s entire investment.

There are substantial risks associated with the federal income tax aspects of an investment in the Company. The income tax consequences of an investment in the Company are complex and recent tax legislation has made substantial revisions to the Code. Many of these changes affect the tax benefits generally associated with an investment in real estate. A further discussion of the tax aspects (including other tax risks) of an investment in the Company is set forth in the PPM under “Federal Income Tax Consequences.” Because the tax aspects of the Offering are complex, and certain of the tax consequences may differ depending on individual tax circumstances, prospective investors are urged to consult with and rely on their own tax advisor concerning the Offering’s tax aspects and their individual situation. No representation or warranty of any kind is made with respect to the Internal Revenue Service’s (the “IRS’s”) acceptance of the treatment of any item by the Company or an investor.

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Congress has recently enacted several major tax bills that substantially affect the tax treatment of real estate investments including, but not limited to, the tax provisions of the CARES Act. These changes will have a substantial effect on the type of activities in which the Company intends to engage, and certain of those effects are set forth under the appropriate subheadings under “Federal Income Tax Consequences.” In many instances, Congressional Committee reports have been relied upon for the interpretation and application of these new statutory provisions. While the Code authorizes the Treasury Department to issue extensive substantive regulations regarding recently adopted Code provisions, few have been issued to date. In addition, Congress could make substantial changes in the future to the income tax consequences with respect to an investment in the Company.

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No representation or warranty is made as to future performance or such forward-looking statements.  None of the information contained herein has been filed with the U.S. Securities and Exchange Commission, any securities administrator under any securities laws of any U.S. or non-U.S. jurisdiction or any other U.S. or non-U.S. governmental or self-regulatory authority.  No such governmental or self-regulatory authority will pass on the merits of the offering of the Fund or the adequacy of the information contained herein.  Any representation to the contrary is unlawful. Statements contained in this Presentation are based on current expectations, estimates, projections, opinions and beliefs of the Manager.  Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon.  The performance of the Fund is subject to risks and uncertainties, including those discussed in the Subscription Package. All prospective investors must read and carefully review the PPM in its entirety and including all risk factors and disclosures.

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