San Jose is taking big steps to address a stagnant pipeline for housing tower development in its downtown area. Faced with rising costs and economic challenges, the San Jose City Council recently voted unanimously to temporarily waive several municipal fees, aiming to spur the construction of thousands of new homes. This development is significant for us at Urban Catalyst, making our projects more feasible and moving them closer to realization in a challenging economic climate.
The Economic Hurdles
The primary obstacles hindering housing development in downtown San Jose are high interest rates. This has significantly disrupted the financing of constructing modern residential towers, creating what officials call a “feasibility gap.”
The City’s Response
In response, the San Jose City Council approved a plan to waive certain fees for the next 10,000 housing units that receive building permits and pass government inspections. This decision aims to make construction more feasible for developers and encourage them to proceed with their projects.
Mayor Matt Mahan underscored the importance of this move, stating, “The cost of construction downtown is too high. It just doesn’t pencil.”
The Three-Phase Incentive Program
San Jose’s new incentive program is structured in three phases:
Phase One: 100% of city construction taxes and 50% of park fees will be waived for the first 1,000 housing units that secure building permits and inspection approvals.Phase Two: Construction taxes will be reduced by 50% and park fees by 30% for the next 1,000 units.
Phase Three: Construction taxes will be reduced for the final 6,000 units.
The goal of this phased approach is to catalyze the construction of 10,000 housing units downtown.
Implications for Urban Catalyst
The local government's proactive approach to development is one of the major reasons we chose to build in San Jose. This latest move demonstrates the city's commitment to addressing the urgent need for housing. The fee waivers enhance the financial feasibility of our projects, helping to drive investment into this crucial market.
The dire need for housing in California, and specifically San Jose, cannot be overstated. To meet its state-mandated housing goals, San Jose must build 7,775 homes annually until 2031. In the past five years, the city has managed a maximum of 1,710 homes in a single year.
Given land supply constraints, the best way to achieve these goals is to build upwards. Urban Catalyst has three high-rise projects planned in downtown San Jose that could be affected by this: Icon, a 650-unit multifamily project; Echo, a 390-unit multifamily project; and Spartan Vista, a 1,000-bed student housing project.
These initiatives by the city bring us closer to securing financing for these projects, ensuring they are economically viable and can be brought to fruition.
If you would like to learn more about our housing development projects in downtown San Jose, contact us here.
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").
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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;
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- 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;
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- 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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