The Carlysle QOZ Project by Acquity Realty

Jimmy Atkinson of OpportunityDb and Greg Ovalle of Acquity Realty discuss a 21-story, mixed-use Class A hi-rise building Opportunity Zone project located two blocks from Google’s new 80-acre San Jose campus.

Webinar Highlights

  • Background on Acquity Realty, their track record, and what makes their single-asset “accidental Opportunity Zone” project unique.
  • The bull case for San Jose and built-in demand from GAFA (Google, Apple, Facebook, and Adobe).
  • The partnership with Webcor / Obayashi
  • Details on The Carlysle property and projected returns.

Featured on This Webinar

Industry Spotlight: Acquity Realty

Acquity Realty

Headquartered in San Jose, Acquity Realty generated long-term wealth through a build-to-core investment strategy focused exclusively on northern California and Silicon Valley. Their focus is on multifamily, office, urban core mixed-use developments.

Learn more about Acquity Realty

Webinar Transcript

Jimmy: Welcome to today’s presentation. I’m Jimmy Atkinson, founder of the Opportunity Zones Database and host of the Opportunity Zones Podcast. And today, I’m having a discussion with Greg Ovalle, who also goes by OV.

OV is an EVP partner at Acquity Realty, a development firm that specifically focuses on mixed use multifamily office in Silicon Valley. Today, Greg is gonna spend a few minutes walking us through an OZ development that he has in the works in San Jose. So, Greg, thanks for joining me today on our webinar chat. How are you doing?

Greg: I’m doing great. It’s Friday, and thanks for having me, Jimmy. Yeah. We’ve got a fun project that’s nearly done and look forward to sharing some details with you.

Jimmy: And so why don’t you start walking us through it a little bit. What is the development? What is the project look like exactly?


Greg: Jimmy, our site is right downtown San Jose. We’re right across the street from Zoom’s headquarters, a block from Adobe’s global headquarters about one-and-a-half million square feet, the SAP Center. And we are right there where the star is, the Carlysle. So, to the left of that, there’s a couple of noticeable things. The biggest train station west of the Mississippi, Diridon Station is right there.

And then Google is building their third and largest global campus within blocks of us. They’re gonna be building out space for 20,000 to 25,000 new employees. They also have campuses in Sunnyvale and Mountain View, but San Jose is super pro-business, great transportation access. You can see the map in the bottom right that shows you where we are in relation to San Francisco. And we’re right by San Jose State University that cranks out more electrical engineers than anybody else does in the Bay Area. We’ve got Stanford and Cal nearby. So, the demographics of our area are pretty unbelievable.

Jimmy: Good. And you’re familiar with working in this area, you work a lot in Silicon Valley. Can you tell us a little bit more about Silicon Valley and your track record in the area?

Greg: Yeah. My partners and I have been in the real estate business for about 35 years. We do most of our projects, development with institutional partners. I’ll give you an example of a couple of projects we’re doing in a minute. Our track record and last billion-and-a-half dollars of development is IARs and just south of 50%, equity multiples about 3.9, no capital calls, haven’t lost a dollar.

So, we’ve got a fantastic track record. Let me show you a couple of projects to give you an example. We’ve got relationships with some of the larger users in the space. This is the building we retrofitted, reconfigured an empty building, and leased a long-term to Apple Computer. It was a tremendous home run. Actually, a couple of blocks from our project, we’re doing a 130-unit apartment building, and our JV partners and institutional partner, it’s Cigna Realty Advisors, one of the biggest insurance companies in the world, and doing some other projects with them. So, we only work in this area. It’s our backyard and we know it.

And consequently, we have some advantages where most of the development when we do is off-market deals. So, it’s something that we conceive of usually with a landowner. And the incidence of our project here, which I’m gonna go to this slide to give you an idea where it is. This is our site right here. It’s right next to the freeway. And then just to give you a perspective, Google is putting in there and has already acquired this 80-plus acres of land. So, it’s a pretty tremendous story. Silicon Valley is unique in a couple of different ways. You’ve got a lot of technology companies that they generate a lot of money and they’ve done extremely well during the pandemic. So, we’ve seen very little…

Look, California, Northern California was affected by the pandemic, especially San Francisco, which is an entirely different market than ours. But if you look at how much money these companies make, and we call it GAFA, Google, Apple, Facebook, and Amazon. To give you an example, we’ve got about 100 million square feet in Silicon Valley. GAFA takes up over 50% of it. And they just continue to…This is where the software engineers are, and that’s what really drives our economy here. So, we have a huge housing shortage, which is great for multifamily. And when people build new offices, guess what, 78% of them are pre-leased before they’re built. So, it’s a very unique dynamic that way. Let me just show you one thing about our area.

So, our project is right downtown San Jose and that circle is a 2-mile circle if you wanted to ride a bike. What we’ve plotted here are companies that are actually headquartered within 4 miles, not offices, just headquarters, and then we have so much venture capital here. We get more than any other state by a factor of 7x to 10x. We plotted out the companies here that have at least $100 million in venture funding. And so this is literally our backyard. So, it’s a pretty special area.


I mentioned Google. This is what Google is building, and the blue star right in the middle of the map, that’s where our project is. So, we didn’t build this project to follow Google. Actually, they announced this after we had acquired the site and started all the pre-development work. So, it’s just a bonus for us. They’re gonna start occupying space in 2023, 2024. That’s when we’re starting to occupy our space in this building that we’re building, which is Q3 of 2023.

Jimmy: And you started working on this site or started acquiring it before the opportunity zones were even designated, I believe. It’s almost as though, I think you’ve shared this term with me before, it’s an accidental opportunity zone project for you. Can you tell us a little more about the project itself and the fact that it’s a single asset deal that you’re raising capital for? Tell us a little more about it.

Greg: Yeah. So, yeah. Here’s the building, the Carlysle, we have a great team on it, which I’ll get to in a minute. But we are an accidental QOZ, we’re not raising a QOZ fund, we’re not doing QOZ developments all over the country or the state. We normally don’t, we just happen to have an amazing site that was a QOZ that’s a couple of blocks from a Google campus. So, we normally don’t specifically target QOZ investors. And Jimmy, you and I got introduced and I saw your demo day and some incredible funds that were pitching. We’re different. I’ve got a single asset fund. And by the way, the complexity as a developer to do a QOZ, you got to have great experience and advisors and legal counsel, which we have, but it’s confusing.

And also, this was our first introduction at QOZ Investors understanding how the deferral, the elimination, and the reduction in taxes working. And I would say, outside of our institutional investors, we’ve raised over $120 million of capital on this. It’s a combination of institutional capital and high net worth individuals and family office that understand the cap gains and tax benefits. But we just happen to have a great site that’s a great real estate project, and it also happens to be a QOZ. So, we’re rounding out the last bit of our capital stack. And the idea was to maybe get this in front of a couple of people that are part of your network and see where that goes. But this is our one and only QOZ project, but it’s an exciting one.

Jimmy: Yeah. I think that’s one of the things that makes your project different from a lot of the other funds or projects out there that are raising capital is that yours is almost done raising capital. And you also have a lot of institutional capital, a lot of debt financing that you’re already taking advantage of. Do you have that slide with your capital stuff? Because I think that would be interesting to show the viewers today.

Greg: I know which one we’re getting to. Let me get to this one here so that…

Jimmy: Go ahead. You take it away, then.

Greg: Yeah. Jimmy, if you’re following me on this one, we’ve got…By the way, this is a great time to build because debt rates are super low. So, we’ve got a really unique capital stack here, we’ve got you $120 million of equity, a big portion of that institutional capital, and $220 million of 15-year fixed debt, which is super advantageous. It gives us a lot of refinance flexibility. But as a discrete single project, we can talk to people about forecasts and anticipated returns. And for a 10-year QOZ investment, this is a little over a 16% IRR, 16.2%, and a 2.8 equity multiple. Our cash in cash is really, really interesting because the fact that we’ve got such advantageous debt. And it’s a factor of time and why the pandemic’s affected a lot of things. We’re gonna be building during the recovery and we’re gonna be hitting the ground running as everything recovers. And things are recovering here in Silicon Valley now. And it’s not years out, but we’re pretty excited to get this project finished and topped off and start moving shovels.

Jimmy: Sure. Yeah. I’ll bet. And in case anybody can’t view the screen or maybe they’re listening to this in podcast format, can you go over? You’ve got it on the screen right now, but can you go over some of the projected returns that you have?

Greg: Yeah. You know, about 16.2, 10-year IRR, I guess the taxable equivalent would be north of 21% cash on cash in the 20s, and an equity multiple of 2.8. We have a very advantageous waterfall for investors. They get to a 2x equity multiple before we participate on our pro-rata basis, even though we with our institutional partners we’ll own about 77% of the project. But yeah. I think for a comparison of a fund, that’s many, many projects, the good news is the timing on this is we’re gonna start a 10-year clock pretty quickly, which can take advantage of all the reduction and tax basis that we have which is part of the QOZ.

Jimmy: Sure. Sure. And why is the timeline accelerated on this particular project? And maybe you can tell us just in more general detail what makes your project unique? What makes it different?

Greg: Actually, you know what, that’s a good tee up for me. I got a good slide on this. So, a couple of things, right. The location is just fantastic. It’s triple-A location-wise based upon the tenant demand. We have a great track record, I mentioned long-term in the area that’s very specific. This is a single-use…excuse me, single-use fund. Therefore, we can talk about discrete timelines and discrete return metrics or performance.

Jimmy: A single asset, mixed-use property fund. Yeah. That’s it.

Greg: Thank you. Yeah. I think we always do co-investments with an institutional partner and they have a different level of scrutiny and due diligence. And I think for people that follow on and invest in this, it gives them a lot of confidence with respect to the validation and the diligence has been undergone. So, this one has pretty significant. And then timing is a combination of things. We’re last money in, we’re raising less than…we have less than $3 million left.

Jimmy: And how much have you raised so far? How big is this?

Greg: Equity over $120 million.

Jimmy: Got it.

Greg: So, quite a bit. Again, not a fund but all for this project. Timing, the fact is it makes our debt advantageous because the interest rates are low, and then we’re timing it so that we hit the market as things start hitting on all cylinders. Since it’s in our backyard, we’ve got some pretty significant entitlement advantages. We’ve entitled a lot of projects in downtown San Jose, I think more than any other developer except Google.

So, on our side, we have a higher FAR, meaning I build more buildings on the small piece of land than if somebody started a project across the street tomorrow. We also have some grandfathered reduction in fees. And then we get to eliminate low-income housing on our project, but we have to pay a fee for that. But our fee is about 1/5 the cost of what a developer that’s gonna start something in the next 3 to 12 months is going to have to pay and that will continue to go up.

We have a tremendous housing shortage in Northern California, which I’m sure you’ve read about and then some people have moved to other areas. I think a lot of people have bet against Silicon Valley before. It’s the economy. It’s got long-term credibility and I was gonna say I’ve got an interesting slide for you here. CB Richard Ellis ranked all the markets nationally on a development opportunity ranking. And for office, they picked San Jose the number one in the country just recently. So, this just came out. So, this is not me promoting our…obviously, we are bullish on it and we’re a little biased but from a development opportunity index, number one, the previous performance. So, if you see the rankings in the green on the bottom right there and strength to supply. And multifamily, it’s always been super, super strong. I think multifamily, also CB Richard Ellis forecast is number two. So, it’s a unique area. And it’s an area we know and why we love some other parts of the country, we’re just not gonna develop there because we don’t have any kind of special secret sauce. We don’t have any advantages and this is our home ground.

Jimmy: Sure. Yeah. Silicon Valley and San Jose, in particular, I think, is definitely a key differentiator for the project that you’re raising capital for. Tell us a little about the general contractor partner because I know you’re really excited about that. What do you got cooking there, OV?

Greg: Oh, yeah. Thanks. So, our partner and general contractor on this is a significant global builder called Obayashi. Their California or U.S. entity is called Webcor, one of the 15th largest global builders in the world. So, they’ve done a lot of things here in Northern California, Samsung’s headquarters, Oracle’s headquarters, SFO, San Francisco International Airport, a number of the new terminals.

So, very deep balance sheet, unbelievable track record of doing Class A mixed-use hi-rise development. They self-perform a lot of functions, and they’ve got some unique cost advantages. And for us, we’ve got a GMP that’s just a fantastic risk mitigation and a great partner. We couldn’t be more excited than to partner with Obayashi and Webcor on this.

Jimmy: Yeah. That’s great. So, what else do you have for us today, OV? Can you tell us a little more about the benefits that some of the investors in your project will be able to take advantage of? There’s benefits beyond the OZ benefit if I’m not mistaken.

Greg: Yeah. And why don’t I talk about that for a minute? So, we’ve got…Actually, let me go to one side here. We’re building a really big building on a really little site. Let me go to this one here. It’s less than an acre. So, we’ve got…because of the LLC structure and because of the non-recourse debt that we’ve got or obtained, we have the ability to use all of the tax rules to the benefit of our partners, and that’s the institutions and the outside investors. We’re gonna use accelerated depreciation and a cost segregation analysis, but we get to distribute those distributions, those depreciation offsets to all of our investors on a pro-rata basis.

So, all the scheduled income should be pretty much shielded and offset from income tax. Everybody’s situation is a little bit different. But if you think about tax benefits in two buckets, I’ve got QOZ benefits, which are 10-year capital gains on a federal basis, and then our project also has income offsets because of the depreciation. And that adds up pretty significantly because I’ve got a $350 million building on less than an acre site. So, it’s got a lot of asset or building to depreciate. So, that’s a big differentiator.

Jimmy: Absolutely. A lot of depreciation that’ll pass through directly to the investors there. That’s impressive. And what else you got for us, OV? Did you have the slide on the capital stack? I asked about that earlier.

Greg: Oh, God. I think I did. Yeah. Simple as this, it’s like I’m maybe solving for the last $3 million. So, again, there’s some great projects out there. Ours is discrete, but we’ve got most of the…We’re far from conceptual. Our 10-year clock will be starting in the next 30 to 45 days. And fully entitled, we’re in contract, all the financing is lined up. And when we talked about the team, Steinberg Cart great mixed-use architects, ABBA, which is our project management group that does unbelievable work for people like Google, and Oracle, and Disney.

And it’s a combination of a lot of things, but we want to share this with your group. And I think we’re gonna pop in temporarily, Jimmy, to your QOZ world. We’re not always gonna be there because we’re an accidental visitor. We’re super excited about it. If we have opportunities to do more great real estate projects that happen to be in QOZ, we will do that. But again, our focus is on just doing these great mixed-use and multifamily projects in Silicon Valley, Northern California. And we’re excited about it.

Jimmy: Yeah. Well, welcome to our world, OV. Happy to have you here. That capital stack chart is really impressive because you really have already put together a lot of the pieces of the puzzle, and you’re just looking for the remaining $3 million, which could come in as OZ equity. I think it’s a tremendous opportunity for the right investor who’s looking for something like this.

Greg: Yeah. And by the way, this is a striking building. So, we can take down, I think one…couple points. We have great location, very iconic-looking building near transportation, we have a pretty efficient capital organization, so we can take investments down to $50K. So, I think some of the other funds in our area, I think that the smallest check is $250. But this is, by the way, a cross-section of the building. So, the top 12 floors are apartments. They actually have some views of the mountains and you can actually see San Francisco on a clear day. The offices on the next lower five floors and then all of our parkings, five floors of parking below that make the building set up up on a pedestal. So, we can have a view around the area, which is pretty cool.

Jimmy: You mentioned earlier, Greg, you’re ready to possibly close this and get that 10-year clock ticking within the next 30 to 45 days. Just…

Greg: Yeah.

Jimmy: So, just for the people who are watching or listening right now, we’re recording this in about mid-April. So, you’re talking about a timeline about mid-May to end of May of 2021.

Greg: That’s right. That’s right. Yeah. So, we’re not raising money over the next 6 to 24 months for a fund, it’s like…This thing, it’s in the blocks and it’s ready to go. So, I’m glad that we have the timing to share this with your network. And like I said, the accidental QOZ guys in a pretty exciting area. By the way, I would say two-thirds of our investors are from California. They understand the mechanics of Silicon Valley and how this work. It’s a pretty unique area that way.

Jimmy: Yeah. Understandable. And what is your exit strategy 10-plus years from now when you go to dispose of the asset potentially? So, that’s when the Opportunity Zone equity investors actually get to take advantage of that huge tax benefit eliminating capital gains on the sale or disposition of the asset. What are your thoughts?

Greg: Oh, yeah. So, it’s funny. We’ve used some very…I think we’ve done well because we’ve always underwritten things conservatively. But, Jimmy, I’m gonna answer your question, but I wanna show this chart. We underwrote using some lowered projection numbers, which is the blue lines that we adjusted for COVID. But those green lines are 10-year historic growth for office and apartment. So, 10-year hold strategy, we have to do that for the QOZ. We wanna continue to hold this. I think some of our investors might wanna sell, but based upon our location, the amount of development going on around it. The fact that we’re in the Bay Area, we got an ocean on one side and a bay on the other side and a super great economy. We hope to have this project for a while.

But institutional buyers for Class A projects like this in Silicon Valley, we have seen a tremendous amount of offices and large institutional quality multifamily projects change hands at unbelievably high multiples, even during the pandemic. So, I’m not saying anything is recession-proof, but this is well-timed and well-located, and we have to execute on a number of levels, but it’s got a lot of things putting it on the proper glide path. But there’ll be an interesting conundrum to deal with in 10 years from now. Hold it or sell it. But sometimes people come across with an economic incentive that makes decision-making easier one way or the other.

Jimmy: Sure, sure.

Greg: Awesome.

Jimmy: What else you got for us today, Greg? Do you wanna tell our viewers and our listeners where they can go to learn more?

Greg: Yeah. Jimmy, I think, yeah, so anybody that’s interested, I think if you go to the OpportunityDB website at this URL, which is .com/ar, which is Acquity Realty, they can fill in a form and get more information and we can get connected to you, Jimmy. But that’s it. As you can imagine, we’ve got a lot of information on the project, we’ve got a lot of demographic information, and it’s all passed muster on institutional due diligence. So, it’s a good story.

Jimmy: Yeah. Very good, Greg. Well, pleasure speaking with you today. Thanks for telling us a little bit more about your project. And for our viewers and our listeners out there today, please do visit our website to learn more about Acquity Realty and this particular Opportunity Zone project or accidental opportunity zone project as Greg likes to call it. And you can find out more at the URL on your screen right now, that is And there you can read a little bit more about the project and you can fill out a contact form to request more information. It’ll head straight over to OV so you can get in touch with the man himself.

All right. Thank you, Greg. Appreciate you joining me today.

Greg: Jimmy, thanks for having me. It was a pleasure.