How Advisors Can Get Clients Into the Coveted Bay Area Real Estate Market

Advisors have long known the benefits of the real estate investing and those advantages are amplified today amid what's now a lengthy low-yield environment.

Having the real estate conversation with clients is easy in this climate. From an equity perspective, real estate is the best-performing sector in the S&P 500 this year. As noted above, bond yields are low, which is conducive to embracing an asset class known for above-average yields.

Likewise, inflation is running hot and historically that's positive real estate because landlords, particularly in the commercial arena, have pricing power and often have inflation-fighting escalators built into rental contracts. Add in rental properties that some clients own and it appears as though many real estate boxes are checked.

True, but there's more to investing in this space and disruption is here, providing advisors with another avenue with which to add value for clients by discussing with them unique real estate opportunities they likely thought were off limits to them. Enter Urban Catalyst, a Bay Area real estate equity fund specializing in development projects in San Jose.

Understanding Urban Catalyst Methodology

One of Urban Catalyst's core competencies is opportunity zones, which advisors have undoubtedly heard more about in recent years. In regulator parlance, they're known as “qualified opportunity zones (QOZ).”

“A QOZ is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.  Localities qualify as QOZs if they have been nominated for that designation by a state, the District of Columbia, or a U.S. territory and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service (IRS),” according to the tax collection agency.

One of the reasons that advisors are getting more acquainted with opportunity zones is because the asset class offers several important tax benefits any client is likely to enjoy and that's a prime value-add opportunity for advisors.

Those tax perks include deferral of capital gains, reduction of capital gains and not paying capital gains taxes on fund profits. That last point is likely to grab clients' attention and Urban Catalyst explains how it works.

“After holding an investment in the Opportunity Fund for at least ten years, an investor’s disposition of an investment in the Opportunity Fund does not result in any additional federal income taxes,” according to the firm.

Urban Catalyst Project Diversity

While many clients are familiar with the income benefits and inflation-fighting power of real estate, many aren't aware of the sheer expanse of the investable landscape here. They simply think of residential and commercial real estate without realizing those segments take on many forms and there's much more to real estate investing than just traditional office buildings and the like.

Another way of looking at that scenario is that it pays for clients to be diversified, something Urban Catalyst offerings accomplish. For example, the firm's first offering, the now closed $131 million Fund I features mixed used commercial/retail space, a hotel near the Google campus, a student-focused high-rise near San Jose State University, multi-family apartment buildings and senior living facilities.

Fund II, which is open and is a Silicon Valley opportunity zone offering, is starting with an office/residential building near San Jose City Hall and a future Bay Area Rapid Transit (BART) stop. Clients can expect more to come regarding the Fund II slate.

Bottom line: It's the right time to think outside the box when it comes to clients' real estate allocations and Urban Catalyst accomplishes that objective with compelling diversification and tax benefits.

Related: Building a City Through Revitalization with Erik Hayden