Diversified Portfolio Of San Jose OZ Projects, With Urban Catalyst

In this webinar, Erik Hayden reviews many of the projects from Urban Catalyst’s first OZ fund, and also provides details on the multiple projects in UC’s second OZ fund.

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Webinar Highlights

  • Background on the OZ tax incentive and qualifying investment amounts;
  • Details on the Opportunity Zones in downtown San Jose;
  • The impact of Adobe, Zoom, and Google as major employers and developers in San Jose;
  • Why many major developers are flooding into San Jose and taking up large projects downtown;
  • How Urban Catalyst saw these trends coming, and made opportunistic acquisitions of land in downtown San Jose;
  • Review of Urban Catalyst Fund I and Fund II projects, including 400+ units of multifamily, 500,000 square feet of office space, senior living, and hospitality;
  • A deep dive into each of the four projects that make up Urban Catalyst’s Fund II, including Echo (multifamily), Icon (office), Gifford Place (senior living), and the Keystone Hotel (hospitality);
  • The unique value proposition of San Jose as a place where companies can find affordable office space at scale;
  • Trends in office sales and leases in San Jose throughout the pandemic;
  • Urban Catalyst’s unique status as both a fund manager and a developer, and why this is important for investors;
  • The timeline for Urban Catalyst’s OZ projects, including refinancing and distributions;
  • Live Q&A with OZ Pitch Day attendees.

Featured On This Webinar

Industry Spotlight: Urban Catalyst

Urban Catalyst is a real estate equity fund focused on ground-up development projects in downtown San Jose. Urban Catalyst closed its successful Fund I in December 2020; that fund was a multi-asset real estate fund focused on ground-up developments consisting of office, mixed-use, student housing, senior housing and a hotel.

Learn More About Urban Catalyst

Webinar Transcript

Erik: Well, thank you, Jimmy, always a pleasure to be here. Great to talk to you again. And thank you, everyone, for joining Pitch Day. I’m glad you’re excited to learn more about opportunity zone funds. Today I’m gonna talk about Urban Catalyst Opportunity Zone Fund II. We’re structured a lot like a traditional real estate equity firm that does ground-up development projects. And we focus on downtown San Jose, California. And, of course, we’re also an opportunity zone fund, that allows us to give those tax benefits to our investors. Really, just to, you know, kick us off, we’ve been featured pretty prominently in the news here in San Jose over the last few years.

We’ve had over 250 news articles written about us. Really just a lot of positive buzz about what we’re doing here in downtown San Jose. Probably most important of those, we were named by “Forbes Magazine” as one of the top 10 opportunity zone funds in the country. So, you know, nothing like getting a little national validation from “Forbes” that we’re doing things the right way.

To talk a little bit about the program, I’m sure most folks know about the program. But just a little refresher, in order to get the tax benefits associated with opportunity zones and opportunities zone funds, you have to have a capital gains event. These are the three most common ways that folks have capital gains events. So if you have that capital gains event and you invest into a qualified opportunity zone fund within 180 days, you can qualify for those tax benefits. We always put this slide just to make sure that everybody realizes there is a time limit associated with the program. And everyone who’s had a capital gains event is somewhere in that 180-day window.

Two major tax benefits associated with the program. The first, of course, you’re able to defer paying capital gains taxes until you pay your taxes in 2027. Second, being after investors’ money seasons in our fund for 10 years, all of the profits from the fund itself are tax-free from a federal capital gains perspective. So, here at Urban Catalyst, our whole plan is to build these buildings, lease them up, stabilize them, hold them until we get to the end of that 10-year mark, and then sell the assets, and liquidate the fund. And that’s when we plan on returning the majority of the profits to our investors. And, of course, those profits are tax-free. Just taking a step back, here are the opportunity zones throughout the San Francisco Bay Area.

Obviously, for our fund, we’re so focused on San Jose, and even more specifically, downtown San Jose. You can see four opportunity zones cover almost all of downtown. And, you know, it’s kind of interesting, when we first started Urban Catalyst a little over four years ago, our whole plan was to do ground-up development projects in downtown San Jose. And that was mainly because of the overall macroeconomic trends throughout Silicon Valley, all pointing towards downtown San Jose as the next place to do development on a large scale. But it’s only after I started forming Urban Catalyst that we learned about the Opportunity Zone program, and that everywhere we wanted to build these buildings was already located in an opportunity zone. We thought, “Well, wouldn’t it be nice to give these additional tax benefits to our investors?”

You know, we’ve been developers here in the Bay Area in Silicon Valley and San Jose for a long time. So creating a fun-to-do ground-up development, very natural for us. And then opportunity zone funds, just a little bonus.

You know, downtown San Jose has everything that we wanna see when we do development really anywhere. First is, of course, we wanna make sure that there’s demand for all of the different types of projects that we’re building. That demand in downtown San Jose is really driven by the Silicon Valley job engine. We wanna make sure that transit physical infrastructure is already in place. In downtown San Jose, really is the only true urban environment in Silicon Valley.

Diridon Station is slated to be the largest train station on the West Coast. It’s right in the heart of the city. It already has a variety of mass transit options that connect to it, including Caltrain, which gets you up to San Francisco in about an hour. And now Bart, which is the largest mass transportation system in the Bay Area, is fully funded to connect through downtown San Jose into Diridon Station.

And then San Jose State University, you know, with over 35,000 students, this is the second-largest university in the Bay Area behind Cal Berkeley. And it’s right in the heart downtown.

And then finally, you know, we wanna do business in a place where the local government wants to see development happen. Here in California, that is not typically the case. Most local jurisdictions, somewhat anti-development. It’s almost the complete opposite here in downtown San Jose. They wanna see development, and they want it now.

This is a picture of my partner Josh and I with the former mayor of San Jose, Sam Liccardo. He was the mayor for eight years and a lot of the policies he’s put into place are what streamlined the development process here in downtown San Jose. And now, our new mayor, Matt Meighan, he’s continuing Sam’s legacy of being very pro-development.

To give everyone an idea of just the massive revitalization that’s happening here in downtown San Jose, I’d like to show this before and after slide. Here’s the current skyline in San Jose. If all of the projects that are currently under construction or are in the planning process are built out, say, over the next 10 years or so, downtown San Jose should almost triple in size.

You can see Urban Catalyst, both our Fund I and Fund II projects there in red. To continue talking about the local market here in downtown San Jose, I like to show this two-dimensional map. This black line, this is the opportunity zone. Our headquarters is right here. So we’re right here in the zone. We’re right next to Adobe’s World Headquarters and Zoom’s World Headquarters. It seemed pretty fun over the last couple of years, Adobe just completed this million-square-foot office high-rise and moved 3,000 employees in this January. It was great seeing them line up on their first day to head in.

And also, being next to Zoom is pretty interesting. You know, we share a parking garage with Zoom. And when they started coming back into the office a few months ago, all of my employees started to complain there was nowhere to park. But, of course, I always thought if anyone was gonna work from home forever, it would definitely be Zoom. So that was pretty interesting when they started coming back into the office. Here’s San Jose State University, it’s right here, this red dash line, this is where that new Bart line will be running with a station here right in the heart of downtown and then connecting into Diridon Station, which is that large train station I was talking about.

Now, really the biggest story that’s been happening here in downtown over the last five years has been Google’s just massive acquisitions. Google has acquired over 80 acres worth of property here in downtown. They spent almost a little over half a billion dollars on that acquisition. The plans that they had approved at the city a couple of years ago show them building around 7 million square feet of office and 6,000 residential units. At build-out, this will be Google’s largest campus on Earth.

Google started construction on this campus towards the end of last year. It is a 10-year $19 billion build-out. And it’s really just exciting to see this getting started. Makes a lot of sense for Google, of course, their employees primarily live in San Jose, and then they have to commute up to Mountain View. So to be closer to their employees is a big deal to them. And, of course, to be in just a great metropolitan city like San Jose. And what this means to downtown, you know, San Jose is the 10th largest city in America with over a million people. Downtown has about 100,000 people. This campus alone is expected to bring between 40,000 and 60,000 additional people to downtown San Jose, creating additional demand for all of the different types of projects that we’re building in both on Fund I and Fund II.

So, yes, Google has been a big story, but Google is not the only story. Other big developers have flooded into downtown over the last few years. Four really notable ones, you know, Boston Properties, a publicly traded REIT has come in. West Bank, they’re an international development group, have selected San Jose is one of their top target cities. Heinz, the largest development company in the country, has just acquired their first project. And Jay Paul, who is a regional developer fresh off building about 26 buildings in the city of Sunnyvale, just North of San Jose, has made a big move into downtown San Jose.

And these folks are building some pretty incredible projects. In fact, some of them are already done. J. Paul has finished this million-square-foot high rise. Boston Property is about halfway done with this one. And then over here, West Bank just broke ground on this a couple of months ago. So we’re starting to see these really get started. Here at Urban Catalyst, you know, we saw this wave of development coming and our whole plan was to get it on the ground floor and acquire properties before they’re scooped up by all the other big developers, tech companies. And really, that’s exactly what we did with the acquisition of our Fund I and Fund II projects.

You can see, in Fund II, which is our current offering that we’re talking about today, we have four projects. Two of them are over here right next to City Hall on Santa Clara Street, this is Icon and Echo. Right next, the future BART Station, really making it the epitome of transit-oriented development. Santa Clara Street is really the main drag of the Central Business District and it’s right across the street from city halls. So we really like this location. And then over here right next to Google, we call this Downtown West. We have these three projects. Two of them are in Fund II right here. These are 300 yards away from Google’s first phase of their massive development project.

Here are what the four projects look like in our opportunity zone Fund II. We have Echo. Echo is just about 400 units of multifamily. We have Icon. Icon is 500,000 square feet of office. We have Gifford Place, this is a senior living facility, 165 units. And more specifically, it’s assisted living and memory care. And we have the Keystone Hotel. This is 176 Key extended state business hotel. It is a Marriott Town Play Suites. And I’ll talk about these projects in a little bit more detail.

And we’ll start off with Echo. You know, talking about multifamily, and especially the demand for multifamily here in Silicon Valley is kind of a no-brainer. I mean, all of California, we have a housing crisis. It’s especially true here in Silicon Valley, where we’ve created six jobs for every housing unit that we build for over 30 years straight.

In fact, we can’t build housing fast enough to meet the demand. In Santa Clara County, a recent statistic came out, if we wanted supply to equal demand so we didn’t have such, you know, crazy housing costs here, we’d have to build around 150,000 housing units. And we’ve never built more than 5,000 housing units in a single year in history.

So, we’re pretty far behind the eight ball when it comes to the creation of new housing. And while this is pretty terrible for our society, I mean, our median home price now is $1.6 million here in San Jose. We just got ranked the most expensive big city to live in America. It is pretty good for developers of multifamily because it means we’ll have high occupancy rates and solid rents. Here’s a different view of Echo.

So here’s Echo. And we’ll get to our Icon office project. This is the backside of Icon. Nice thing about Echo, you see this project in the background right here, this is called Miro Towers. It’s 630 units of apartments. It was just completed about a year ago. It’s great to have your best comparable right next door, Miro towers, leasing up 35 units a month, it has the highest rents in the city. So we’re able to comp right off of that for our rents.

You know, whenever we build multifamily, we like to build just really great amenities for our future tenants. This is our podium pool deck. You can see we’ve got this nice infinity pool. We’ve got these cabanas. Back here, this is a two-story amenity space. This is an indoor-outdoor fitness facility. In here, we have, you know, a dining room and kitchen area, a lounge area, and then the back, we even have a speakeasy. Up on the 26th-floor views and all directions with these really nice, you know, lounge outdoor area with fire pits. And then on the inside, this is an office space kind of similar to like a little mini we work, but this is for our tenants.

So, if they’re choosing to not work in their units, they have a place they can come and have more of a communal work experience. We put these into our buildings for many years way before COVID. They’re very popular.

Switching gears, we can talk about Icon. Icon is our office project. You know, our office has been getting a lot of bad press across the country as far as the development type. However, here in Silicon Valley, throughout the pandemic, we saw pretty strong office demand, especially for Class A office. And although our return to work has been slower than the rest of the country, you know, places like Austin, Texas are already almost 100% back in. Here in San Jose, we’re only at about 65% back in the office. We’re lagging the rest of country by 8 to 12 months.

Class A office has done a lot better than Class B and C. And really, for us when we build new office, certain aspects that we have to have, this project has all of them. The first is, of course, the old mantra, location, location, location. Really fantastic location right on Santa Clara street, right next to that bar station. And we talked about how much we liked this location in downtown. The other thing is, here in San Jose, our competitive market area is all of Silicon Valley. So how do we compete against the rest of the valley? How do we compete against Mountain View, Palo Alto, Menlo Park? We compete because our office space is about 50% of the cost. And that’s great.

You can have a much more affordable office building. At the same time… This is one of the only places you can get space at scale. If you wanted to lease, you know, 500,000 square feet in Menlo Park, you might be in 10 or 15 different buildings. And tenants in general like to be in one building, if they can be. Another thing or the second thing that we have as a must-have is what I call functionality. First thing is parking. We have a really nice eight-story parking garage here, the buildings built on top of. We also have these really big floor plates. These are 40,000 square feet per floor.

That is what all the tech tenants wanna see. It is the new way that office buildings are built. And it’s really redefining what Class A office is here in downtown San Jose, making… The only buildings we’re truly gonna compete with are some of the other new development projects that are coming online. And the new development projects coming online are coming online at a pace, really matches what absorption is here. So, we’re very confident about this project.

The last thing is what I call architectural aesthetic beauty. That means you have to have a good-looking building. We utilized one of the premier architects here in the valley to design this project, WRNS. They’re fresh off doing Microsoft’s big project up in Mountain View. And we’re really pleased with how this design has turned out. We really like the ins and the outs of the exterior balconies and staircases, rooftop gardens, and decks, really taking advantage of the 300 days a year of sunshine that we have here in Silicon Valley in San Jose.

Next up, the Keystone Hotel. Keystone Hotel, Extended Stay Business Hotel, and I mentioned Marriott Town Place Suites, we’ve had our flag with Marriott since 2019. This project, of course, during COVID, multifamily rents or, sorry, hotel rents went down pretty significantly. They bounced back, especially with luxury and vacation hotels pretty quickly. But business hotels did live. We just got back to pre-pandemic levels this last summer, which is what allowed us to finish the financing for this package and start construction.

So we started vertical construction on this project about a month ago. It’s always nice to have projects under construction when you’re looking to invest into a fund.

Here’s a picture of us, of course, ripping down some of the buildings at this site. Building the site is now, you know, completely clear buildings. It’s about a four-foot-deep hole as we’re about to lay the foundation. Extended Stay Business Hotels are great. Our average guest stays for 15 days and every room has its own kitchen. This summer, our operator who operates about six of these hotels throughout Silicon Valley mentioned that Facebook had leased 100% of the rooms in every single building for their interns for the summer.

Gifford Place, our final project in this fund, Gifford Place, this is our senior living facility. Again, it is assisted living and memory care, more specifically. They haven’t built a project like this in downtown San Jose in over 40 years. San Jose is the number one market in the country for senior living for a variety of reasons but has a lot to do with our aging population.

They call it the grey wave and also has to do with our median income being high enough that people can afford to put their parents and grandparents into facilities like this. We’re really excited to deliver this project into the downtown market because, of course, gives seniors access to all of the cultural amenities that we have here in downtown San Jose.

We broke ground on Gifford Place about six months ago. We have not started vertical construction, but we did knock down all of the buildings. This is a picture of our groundbreaking. They even let me drive one of the backhoes, which was pretty exciting.

They gave me like a two-minute tutorial and I managed not to hurt myself or anyone else. That was a lot of fun. You know, what makes Urban Catalyst different than most other opportunity zone funds is most other funds out there, their whole plan is to go out, raise a bunch of money, and then, you know, find a developer somewhere in the country that has projects in an opportunity zones, they can make a partnership.

Here at Urban Catalyst, we’d like to look at Steve Jobs and Steve Wozniak, we think, “these guys go out, you know, raise a bunch of money and then hire someone to build them a computer.” The answer is, of course, not. They built a computer, then they took it out to the market. And that’s exactly what we’re doing here at Urban Catalyst. We’re not just the fund manager, but we’re also the developers of all of our projects.

And we have projects in our portfolio, and now we’re taking those projects out to the market. Another thing I like to talk about with all of our potential investors is, you know, when you hear about opportunity zone funds, what you hear about are the tax benefits. You know, don’t get me wrong. We’re pretty big fans of the tax benefits here at Urban Catalyst. But when it really comes down to it, the biggest tax benefit you’re getting is you’re getting tax-free profits after 10 years.

You know, there better be profits after 10 years, or really, what’s the point of the entire program? So, understanding who the developers are that are building the projects, the local market that the projects are being built in and what the asset classes are, that’s really what matters. Here at Urban Catalyst, we see ourselves as a solid fundamental real estate development company and equity fund. And we see the opportunity zone tax benefits as the icing on the cake for our investors.

A little bit more about us, I’m the founder of Urban Catalyst. Been a developer my entire career, done several billion dollars’ worth of ground-up development projects all throughout the Bay Area, but a lot of focus in Silicon Valley and San Jose specifically.

Generally, I build institutional quality and scale projects, pretty much means I build large income-producing buildings. Typical exit strategy is to sell them to a publicly-traded REIT or a large institutional equity group. We have five partners here at Urban Catalyst. We now have 43 people that work here in total. And when I first formed Urban Catalyst, I knew we’d be doing a lot of real estate projects. Wanted to bring on two real estate experts to be my partners. Brought on Josh Burroughs and Paul Ring. I’ve known both these guys for over 10 years. They both have significant experience owning, managing, and developing real estate, a lot of focus in San Jose.

Josh, for 10 years, was the lead developer at Barry Swenson Builder. They’re a regional developer here in Silicon Valley, one of the largest property owners, developers, and contractors. He got experience building just a variety of asset classes. Paul Ring, very similar, for 15 years, before he joined Urban Catalyst, he was the head developer at the Core Companies. And they focused on multifamily and below-market-rate housing almost exclusively here in downtown San Jose.

Paul is our Head of Construction and Development, now manages 18 people. Those 18 people are responsible for all of our development and construction. And Josh is our Chief Operating Officer.

Of course, we’re not just developers and real estate experts, we’re also fund managers. Morgan Mackles is our Head of Investor Relations. So he does all of our fundraising. It’s been great working with Morgan. He and I have been very close friends for over 25 years. We met in high school. He was a groomsman at my wedding, Morgan has spent his career building scalable and repeatable sales processes. He’s done it for small and large companies, you know, startups, all the way up to Fortune 500. And he’s the primary reason why we’re so successful in our Fund I fundraise. We raised $131 million in two years.

And why we’re doing so great here in Fund II, Fund II, of course, a $200 million fund, we’ve raised just over $133 million to date in that fund. Last but not least, Sean Raft. Sean is our General Counsel and Chief Administrative Officer. So Sean manages all of our accountants that do our tax and audit our finance consultant, our legal team. He does all of our compliance with the SEC. And with the opportunity zone rules, regulations are kind of an easy way to say it, Sean really dots the I’s and crosses the T’s here at Urban Catalyst.

So these are the five partners combined. We’ve done over $5 billion worth of ground-up real estate development in Silicon Valley. And you can see the heavy concentration of projects we’ve done in downtown San Jose. We’ve been doing development around here for a very long time and very successfully. And now we have opportunity zone funds as our financing mechanism to build our buildings. All right. Now for the fun part, everybody loves project timelines.

So, of course, it is a 10-year hold to get tax-free profits. So you can see, we’re in the middle of our three-year fundraising period for this fund. We plan on closing the fund at the end of this year in December.

We mark 2027, this is an important date because this is when investors have to pay taxes on their initial capital gains event. So keep that one in mind. And then out here in 2034, this is when we plan on selling our assets and when the investors receive the majority of the profits. Now, 2034 is a long time to wait to get distributions. We do plan on making distributions long before then, really starting in 2026. And that’s through our refinance events. This is pretty typical. Sometimes I call it developer 101 because this is what we do very often. And that is we build our buildings, we lease them up, they stabilize, we go out, we get permanent financing. We take the permanent financing, we pay off a construction loan, and then access refinance proceeds, we distribute those to our investors.

Our overall goal is to have distributions in 2026 large enough so that investors, when they pay their taxes in 2027, can use our distribution to pay those taxes. Now, obviously, my attorneys like me to say, “There are no guarantees associated with investing in Urban Catalyst. So please read our private place memorandum to understand all the risks.” But this is our business plan. We do plan on returning around 40% of our investors’ initial investment back to them in 2026 as a part of this program. We also will have two other refinance events, one in 2027 and one in 2028.

After all of those refinance events, it’ll be about 62% of our investors’ initial investment return to them through this mechanism. Refinance events are great because they’re a distribution of debt, means they’re tax-free. It’s kind of like a home equity line of credit. You know, you don’t have to pay taxes on it. We really like that aspect of refinance. And, of course, we liked that in development in general, but it’s nice to be able to include it in this program.

After our refinance events, we’ll have these stabilized assets. Those assets will be cash-flowing throughout the duration of the whole period. So, it’s nice to have cash flow from the assets. We plan on passing through that cash flow to our investors before we sell the properties in 2034. One interesting thing about the cash flow, you know, our structure as an LLC allows us also to pass through losses.

So, we’re gonna be sending our investors a K-1 every year. And every year on the K-1, we expect losses, in fact, pretty significant losses. At the same time, we’ll be distributing cash flow. This cash flow, of course, passive income, can be offset by the passive losses. We plan on having more losses, and cash flow should make all of this cash flow tax-free. That’s very nice.

And then what I call the third hidden benefit of the Opportunity Zone program is, you know, a lot of our passive loss is going to be coming from the depreciation of our stabilized assets. You know, anybody that owns real estate, they depreciate their assets every year on their tax returns, very typical. The difference for us, of course, is we’re able to pass through that depreciation now as passive loss to our investors.

Now, here at the end, when we sell the properties… Typically, when you sell your property, if you sell it for more than you bought it for, government says, ”You took all those losses. You’re gonna have to pay taxes on.” Which is called depreciation recapture. Everybody hates depreciation recapture. And one of the really nice part about the Opportunity Zone Program is there is no depreciation recapture. All those passive losses that we pass through to our investors, now they get to keep them. And then, of course, tax-free profits.

So, a little bit of a recap, we have our tax-free refinance event, we have our tax-free cash flow, and we have tax-free profits from the sale of the property from a federal perspective. So, overall, it’s a pretty nice program. You know, we’re wrapping together all the benefits associated with the ownership of real estate, utilizing a passive entity like an LLC, and the Opportunity Zone Program really to maximize the benefits from a tax perspective for our investors.

One last thing to talk about before we open it up to some Q&A, we do have a Bonus Units Program here at Urban Catalyst. This was a really popular program in our first fund. So we did continue it here in our second fund. And the way that it works is if you invest into Urban Catalyst, what you’re doing is you’re buying our units, and then you’re paid out based on the number of units that you own.

For example, our first Bonus Units Program is our Time Incentive Credit. So, for example, if you invest this month 2.25% bonus units, that means if you buy $100 worth of our units this month, we give you $102.25 worth of our units. You can see this goes down every month throughout the duration of the fundraising period. So it really rewards investors for earlier investment.

Next is our Multiple Ventures Program. This is for investors who have invested into our previous funds or have invested into our Delaware Statutory Trust. They get 4.5% bonus units if they come into our Opportunity Zone program. So it’s really a loyalty rewards program. And then finally, our Volume Incentive Program, this rewards investors for more investment. Minimum investment size in this fund is 250,000. You can see that bonus units start at $300,000. They go all the way up to $1.9 million. And then what we do is we add together all three of these columns to get your total amount of bonus units.

All right, with that, Jimmy, that’s the end of my presentation.

Jimmy: Here I am, Erik. I lost the buttons for a second there. We’ve got quite a few questions here. We’ve got about four or five more minutes to answer some questions. And then, Erik, you’re gonna shift into your own breakout session in a few more minutes here. I’m gonna post the link for that breakout session in just a moment. It’s gonna be a separate Zoom session. If you’re interested in following up more one-on-one with Erik, maybe not exactly one-on-one, but it’ll be a smaller group in there, we usually get about a dozen or so people to join those, hop on over to that breakout session.

And then to come back into the main session, use the link that you used to join the main session earlier today. But, Erik, to fire off some questions here for you now while we have you for a couple of minutes in the main session, Andre asks, ”Hey, Erik, you mentioned a speakeasy in one of your developments. I was under the impression that that would be considered a sin business and is not recognized as opportunity zone-eligible. Am I wrong? I have an OZ fund that would potentially benefit from this type of QOZB.” What do you say to that, Erik?

Erik: So, our speakeasy is not a business. It is just a room in our building where people… It kind of has like a little secret door. Obviously meets all the fire codes and everything. But it’s just kind of a secret hidden away room. And it’s an amenity for our tenants so that that they can use it if they, say, wanna host the party, they can have a keg in there or something like that, or they can serve whiskey. We also sometimes in previous projects have had, like, local breweries do tastings in there. So, it is not a business, so it does not count as a sin.

Jimmy: Yeah, it’s not a liquor store, per se, which is one of the, I don’t know, five or six sin businesses. So yeah, you’re in the clear there. Good answer there, Erik. We have a question about, let’s see, what development projects do you anticipate starting next? You’ve got four in this fund. Do you anticipate adding in more, do you think?

Erik: We don’t anticipate adding any additional projects into this fund. And the reason we decided to further diversify our portfolio in Fund II and add two additional projects was mainly because of the timeline of our office construction in Fund II. You know, we wanna make sure we have that refinance event for our investors prior to 2027 so we can make distributions for them to pay their taxes. And initially, in this fund, we had base that upon a refinance of office. We’ve delayed the timeline of our startup construction for office by about 12 months, which would push that refinance event into late 2027, which would be too late. So by adding a senior living facility and a hotel, both of those projects should be complete and refinanced prior to 2027. So that was the main reason why we did it. But adding a little diversity never hurt any fun.

Jimmy: Excellent. Oh, by the way, I did just post the link for Erik’s breakout session. We’ve got him here for another one or two minutes. And then if you have more questions for him, wanna talk with him in a smaller group setting, head on over to that breakout session. And, Erik, you should click that link to that breakout session when we’re done here in another 60 or 90 seconds or so. I think you should have it there in your chat. Let’s see. Next question for you from Matt. Matt asks, ”Did Urban Catalyst build these projects and then sell them to the OZ fund or was the fund already created and then construction started? How was that structured exactly?”

Erik: So, in this fund, the only project that we have started is the Keystone Hotel. The way that it works is we do acquire the land, but, in general, we acquire it through the opportunity zone fund itself. So it isn’t us as developers acquiring land or building the buildings and then transferring into the QOZ, it’s really the QOZ does it all.

Jimmy: Good. And then I think we’ve got time for one more question here. This one’s from Brad, it’s kind of a related question. He asks, “Erik, does Urban Catalyst own or control the land? And is there any markup on purchase price versus contribution to the QOZB?”

Erik: So, Urban Catalyst does own the land. We own all the land except for one parcel, which is one of the parcels of a four-parcel assemblage that is under the Icon office building, which we’re planning on acquiring that final property next month. We’ve been in a binding option contract to purchase it for some time. In some cases, we have transferred properties from one fund to another. And that does provide us with somewhat of a conflict of interest, which we resolved through our private placement memorandum by getting third-party appraisals to determine what is an arm’s length transaction. In every case that we’ve done it so far, we have found that there is no markup on contributions in between funds and no markup or any degrade of the land value itself.

Jimmy: Fantastic. Well, Erik, we are at time. I see that we do still have a few unanswered questions. If you have a question for Erik, please do hop into that breakout session right now. My colleague, Scott Hawksworth, will be moderating that breakout session. I know he’s there and he’s awaiting everybody to start arriving. So, Erik, thank you for joining today. Thank you again to Urban Catalyst for being our title partner on today’s OZ Pitch Day event. It’s always great partnering with you and your team, Erik. Have a great one, and enjoy your breakout session. I’ll see you on the other side at some point.

Erik: Thank you, Jimmy. Always a pleasure. And I look forward to talking with everyone in the breakout session.

Jimmy: All right. Thank you, Erik.