Urban Catalyst reacts to latest IRS Opportunity Zone regulations as first project nears closing

SAN JOSE, Calif., April 18, 2019 /PRNewswire/ -- Urban Catalyst, a multi-asset Opportunity Zone Fund headquartered in downtown San Jose and gearing up to close on its first opportunity zone project, responded enthusiastically to the latest round of IRS Opportunity Zone regulations. Written into the 2017 Tax Cuts and Jobs Act, The Opportunity Zone program is bipartisan legislation aimed at stimulating economic revitalization in distressed communities across the country. But vagueness in the guidelines left qualified opportunity funds and investors feeling confused. With the announcement of the latest regulations on Wednesday, excitement is rising at Urban Catalyst as the legislation is now clear and final on investing in multi-asset real estate funds, as well as startups in opportunity zones. 

Part of the new guidelines, updated verbiage allows for investment in businesses in a Qualified Opportunity Zone, a game-changer for the program. In downtown San Jose, an already active opportunity zone, things will certainly ramp up even more with this type of clarification. The area is already a development hot spot for every tech firm, venture capitalist and incubator in the Bay Area.

According to Erik Hayden, President of Urban Catalyst, "The release of the IRS Guidance exceeded our expectations. The regulations really gave us a sense of clarity and finality. Perhaps the most exciting part of the regulations are the clarifications regarding how to invest in operating businesses, specifically start-ups. The primary geographic focus for Urban Catalyst is redevelopment of the downtown San Jose Opportunity Zone. With these new guidelines, every new Silicon Valley start-up with Angel investing or Venture Capital backing is going to be incentivized to locate in San Jose's downtown Opportunity Zone. We are talking hundreds, if not thousands, of new start-ups. With San Jose already at a development tipping point, these new regulations are like pouring gasoline on fire. This will change the course of history for San Jose. In ten years, San Jose will be the true Capital of Silicon Valley."

There was also important clarification of multi-asset complexities. Previously, in order to be a successful multi-asset opportunity fund like Urban Catalyst, funds had to become a REIT (real estate investment trust). This was basically a workaround to get funds from point A to B so Qualified Opportunity Funds could give the fund's profits to customers taxfree after ten years. Clarification getting rid of the need for this extra complexity makes it easier for multi-asset funds to comply and less complicated to provide tax-free profits to investors, significantly increasing funds' ability to raise money.

"On balance, the proposed regulations appear to provide a number of favorable and flexible rules for opportunity funds," says Kelsey Lemaster, Tax Partner at Goodwin Proctor, LLP.

It also appears that the ability to refinance assets and then distribute those profits to investors, tax free, is now on the table. This makes it easier for Qualified Opportunity Funds to return money to investors, quickly and with the benefit of being tax free. It also allows for the possibility of a fund providing profits to investors multiple times over the lifespan of the fund instead of only after 10 years. In a similar vein, it is also an option for funds to sell assets before the 10-year mark, as long as they reinvest profits from the sales in an opportunity zone within 12 months. 

Launched in response to the Tax Cuts and Jobs Act legislation that created Opportunity Zones and Opportunity Funds, Urban Catalyst has garnered attention with a team skilled in Bay Area entitlement, development, and construction processes and asset management, and has already submitted plans to develop a 76,000-square foot mixed-use project of office and ground-floor retail space. Urban Catalyst is on track to raise $250M over the next year, if not sooner as investors now clamor for Qualified Opportunity Funds that have already acquired the prime locations. 

About Urban Catalyst
Based in San Jose, Urban Catalyst is the first multi-asset Opportunity Zone Fund in the Bay Area focusing on downtown San Jose and downtown Oakland. Employing a world-class team of experienced local professionals to build out impact investment opportunities—multi-family, office, and industrial investment projects—Urban Catalyst is focused on advancing and improving the community while earning investors advantageous financial returns. Learn more at https://www.urbancatalyst.com/. 

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SOURCE Urban Catalyst