We get a lot of questions from potential investors wanting to know about opportunity zones and in particular if the Urban Catalyst Opportunity Zone Fund II, LLC could be a good fit to help them shield their capital gains.
I’ve compiled a list of top five most frequently asked questions - let’s take a look:
- Will there still be demand for office space with a hybrid workforce?
All indications are the office sector in Silicon Valley is moving up and to the right. The reason: Tech. Google and other big tech companies have been increasing their presence in San Jose and the surrounding areas. In fact, a new study by commercial real estate firm CBRE found, according to the Mercury News, that office leasing activity in Silicon Valley and San Francisco “has soared during the first nine months of 2021 compared with the same period in 2020 and is rising far more quickly than what’s the case for office leasing nationwide.” In fact, “Bay Area companies are ramping up their office leasing both locally and nationally to accommodate an increase in hiring,” - What experience does your leadership team have?
This is one of my favorite questions because I love to talk about what each of the partners brings to the table. Three of us have backgrounds in Silicon Valley development, and we see this as a key differentiator for us: we’re not just fund managers, but we are also experienced local developers. We have done over $5 billion in development projects in Silicon Valley, with a heavy concentration in downtown San Jose. You can read more about our leadership team in this recent blog. - What is the potential 10 percent tax reduction about?
There is a sense of urgency around this one. One of the major potential benefits of the Opportunity Zone program is a 10 percent reduction in capital gains taxes on your initial capital gains event when you pay your taxes in 2027. This goes away after 2021. - What is the Bonus Units Program?
The Urban Catalyst Bonus Units Program is unique to our Fund. We introduced this program in Fund I and it was so popular we kept it for Fund II. In short, when you invest in Urban Catalyst, you are buying units in our fund, and you’re paid out based upon the number of units you own. The Bonus Units Program enables our investors to increase their number of units in our fund. This brief video explains the program in greater detail. - What is the projected timeline? How does an Opportunity Zone investment work?
To qualify for the maximum tax opportunities of investing in an Opportunity Zone fund--potential tax-free profits on your capital gain--you need to keep the investment for 10 years. However, our fund’s objective is to make some distributions to our investors prior to the end of the 10-year period, the first expected in 2026 when we refinance. You can watch this video for a larger discussion of the development and potential payout timeline. If you have additional questions, please contact our team.
If you’re interested in learning about the potential tax benefits of Opportunity Zone investments, contact our team. Remember, the 10% reduction in capital gains taxes ends this year on December 30, 2021 so don’t wait too long.
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.
The above material cannot be altered, revised, and/or modified without the express written consent of Urban Catalyst.
