With Thanksgiving and the holiday season fast approaching, we at Urban Catalyst have several things to be thankful for as we head down 2023’s home stretch. After years of negotiations, we closed on the last piece of our Icon/Echo land assemblage, giving us full ownership of over half a city block in the heart of Downtown San Jose. We’ve finished the concrete podium for our Marriott TownePlace Suites hotel, called Keystone. And we expect the first tenant to open in our Paseo office-retail project next month.
When it comes to project financing, things might not be going as well as we thought they would at the start of this year. Still, we continue to press on and hold talks with numerous construction lenders for our Aquino, Gifford Place, and The Mark development projects.
As we head down 2023’s home stretch, we’re laying the groundwork for fruitful conversations with lenders over the next 12 months, which would put us in an advantageous position when the market inevitably starts to rebound in a year or two. Outside of those conversations, we’ve got a couple of permit application submittals we’re eyeing before the end of this year, meaning our development team — like our capital markets group — remains busy.
Speaking of development, the following are the latest updates on our Fund I and Fund II development projects, in alphabetical order:
Aquino: Our design team for this luxury apartment complex is working on completing the project’s construction documents and adding six additional units to Aquino’s design, bringing the unit count up to 278. We’re about halfway done with drawing our construction documents, which means we should be ready to pull our building permit in the second quarter of next year in anticipation of a July 2024 construction start.
Separately, we recently kicked off discussions with construction lenders and are raising a new fund, Urban Catalyst Multifamily Equity I LLC, to provide equity for Aquino’s development. Unlike our two Opportunity Zone Funds, UCME is specifically designed to accept funds from qualified retirement accounts.
Echo: Our capital markets team is talking to several potential financial partners interested in helping us take this 388-unit multifamily development vertical. At the end of October, we closed on the last piece of this project’s and the adjacent Icon development’s assemblage — allowing us to move forward on executing Icon while we source debt and equity for Echo, the first phase of the two-phase Icon/Echo project.
Echo (foreground) has a rooftop lounge with 360-degree views. Behind it in this rendering is a multifamily iteration of our Icon project that we're discussing with the City of San Jose.
Fountain Alley Building: This six-story project, colloquially called FAB, combines 67,000 square feet of commercial space with ground-floor and rooftop retail and restaurant areas. We’re building permit-ready and have negotiated multiple easements with neighboring Westbank, which has received planning approval for a nearby mixed-use development project and is renovating the historic Bank of Italy building across the alley from FAB.
We’ve allowed Westbank to use our project site, a surface parking lot, as a staging area for its Bank of Italy renovation. Our development and capital markets teams are waiting for the office financing markets to become more favorable before we procure a construction loan and break ground.
Gifford Place: We’re building permit-ready on our 169-unit senior living project after demolishing the project site last year. We continue to hold talks with multiple construction lenders active in the assisted living/memory care space. Additionally, we’re pursuing a third-party capital partner to complete our capital stack before we start construction.
Last month, our development and capital markets groups attended the 2023 National Investment Center for Seniors Housing & Care Fall Conference in Chicago, an annual conference for senior-related housing in the U.S. This allowed us to reconnect with multiple groups in the senior care ecosystem.
Icon: With new office leasing activity in Silicon Valley significantly below historical levels, we’re having discussions with city officials about the potential to re-entitle Icon’s 510,000-square-foot commercial office phase to residential use, which may include up to 610 or more residential units to be built in 1-2 phases on the existing commercial office phase’s footprint. We will update you on Icon’s status as we model different development scenarios.
We will likely submit a preliminary review application for our Icon residential plans (foreground, rendered) to the City of San Jose by the end of 2023.
Keystone: We’ve finished constructing this 176-key hotel’s concrete podium and its fourth- and fifth-floor wood framing. We’re underway on the remaining levels of our eight-story Marriott TownePlace Suites, which will be wood-framed. Construction proceeds as planned; we’re on track to complete Keystone as early as the second quarter of 2025.
Keystone, photographed from the southeast corner of West San Carlos and Josefa streets on Nov. 14, 2023.
Paseo: We’re wrapping up the construction of this 100,000-square-foot building’s “shell” (structure, cladding, and exterior). We’re finishing Paseo’s punch-list items — the final work items remaining before a construction project is considered complete — and expect to be done by the end of November.
Urban Putt, one of Paseo’s three ground-floor retailers, is well underway on building out a mini-golf course, full-service bar, and restaurant within our project. The company anticipates opening by the end of 2023.
Restaurant concept Eos & Nyx, which brings brunch, lunch, and dinner service plus cocktails to our project, is also well underway on building out its space. Eos & Nyx expects to open in March 2024.
Our third and final Paseo retailer, Unofficial Logging, is weeks away from obtaining a building permit from the City of San Jose to start its tenant improvements. The ax-throwing venue operator, which plans to serve food, beer, and wine at Paseo, is targeting a spring 2024 opening.
We have one retail availability left at Paseo. Colliers’ Nick Goddard is marketing that space for lease.;
Moreover, Paseo has over 75,000 square feet of creative office space for lease. We’ve heard from a few commercial real estate brokers that it’s the coolest office space in Downtown San Jose. Newmark’s Jeff Arrillaga and Shawn Kellenberger are actively marketing Paseo’s office space for lease.
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Paseo, photographed on Oct. 23, 2023.
The Mark: Our project team for The Mark, our 1,000-bed student housing tower, has been closely monitoring the Bay Area’s student housing market. In San Jose, housing specially designed for students is almost entirely occupied for the fall semester. Due to this strong demand, we’re having great conversations with many potential equity partners.
Student housing remains one of the highest-performing asset classes in the Downtown San Jose market. We continue to look for a third-party equity partner and a senior debt provider to complete our capital stack before we start construction.
An example of a living room and kitchen area within one of The Mark's units (rendered).
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.
It is anticipated that if the Company generates taxable income, such income will be considered UBTI. Tax-exempt entities should consult with their own tax counsel regarding the effect of any UBTI. See the PPM and “Federal Income Tax Consequences – Investment by Qualified Plans, IRAs and Tax-Exempt Entities – Unrelated Business Taxable Income.”
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.
An investment in the Fund is speculative, entails a high degree of risk, and no assurance can be given that the Fund’s investment objectives will be achieved or that investors will receive a return of their capital. In considering investment performance information contained in this Presentation, prospective investors should bear in mind that past, targeted or projected performance is not necessarily indicative of future results, and there can be no assurance that targeted or projected returns will be achieved, that the Fund will achieve comparable results or that the Fund will be able to implement its investment strategy or achieve its investment objectives. While the Manager’s projected returns are based on assumptions which the Manager believes are reasonable under the circumstances, the actual realized returns on the Manager’s unrealized investment will depend on, among other factors, the value of the asset and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions and circumstances on which the Manager’s projections are based. Accordingly, the actual realized returns on unrealized investments may differ materially from the Manager’s projected returns indicated herein. There can be no assurance that projected or expected realizations or distributions will occur. Furthermore, prospective investors are encouraged to contact the Manager’s representatives to discuss the procedures and methodologies used to calculate the investment returns and other information provided herein. Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, “continue,” “target” or “believe” (or the negatives thereof) or other variations thereon or comparable terminology. Due to various risks and uncertainties, such as those set forth in the Subscription Package, actual events or results or actual performance of the Fund may differ materially from those reflected or contemplated in such forward-looking statements. As a result, investors should not rely on such forward-looking statements in making their investment decisions.
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.
Certain information contained herein may have been obtained from published sources and/or prepared by third parties and, in certain cases, has not been updated through the date hereof. While such sources are believed to be reliable, neither the Fund, the Manager, nor their respective affiliates nor any employee assume any responsibility for the accuracy or completeness of such information. The use of this Presentation in certain jurisdictions may be restricted by law. Prospective investors in the Fund should inform themselves as to the legal requirements and tax consequences of an investment in the Fund within the countries of their citizenship, residence, domicile and place of business. Opinions expressed herein are subject to change without notice. The products mentioned in this document may not be eligible for sale in some states or countries, nor suitable for all types of investors; their value and the income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates, or other factors. Additional information will be provided upon request.
The above material cannot be altered, revised, and/or modified without the express written consent of Urban Catalyst.
