Urban Catalyst Launches $200M Opportunity Zone Fund

Icon/Echo. Image courtesy of Urban Catalyst

Urban Catalyst, a leading Opportunity Zone Fund in Silicon Valley, has launched its second real estate fund with the goal of raising $200 million. Urban Catalyst commences Fund II with the Icon/Echo multifamily and office project on its plate.

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The introduction of Fund II comes just six weeks after the Dec. 30, 2020, closing of Fund I, which wrapped up having raised $131 million in commitments through a diversified group of 356 investors, including tech workers from neighboring companies. “We are building off of the success of our fundraising in Fund I and continuing that momentum into Fund II,” Erik Hayden, founder of Urban Catalyst, told Commercial Property Executive.

Like its predecessor opportunity zone vehicle, Fund II will contribute to the mitigation of Silicon Valley’s housing crisis with the creation of 300 apartment units at the Icon/Echo development. With a location at the intersection of Fourth St. and Santa Clara St. in downtown San Jose, just a stone’s throw from a Bart Station, the mixed-use, transit-oriented development will also feature 420,000 square feet of office space.

While Fund I will leave its mark on San Jose via seven ground-up developments consisting of multifamily, office, senior housing and hotel projects, Fund II’s development scope won’t be quite as broad. “For Fund II, we have only planned on including the Icon and Echo projects. Office and multifamily are the two most common types of real estate assets in Silicon Valley, which provides us with project-type diversity,” Hayden said.

Demand drivers

While many office developers are wary of moving forward with projects amid the pandemic-sparked remote work trend that may have more staying power than originally anticipated, Urban Catalyst has every reason to be confident about planning such a large office segment at Icon/Echo; San Jose possesses a unique factor that works in its favor in terms of long-term demand for office space. “Contrary to nearby San Francisco, where office work is prohibitive due to density, San Jose’s dispersed office districts may attract companies seeking their own buildings,” according to a fourth quarter 2020 report by Marcus & Millichap. “Firms that have a difficult time working remotely due to the nature of their business, in particular, may be the first to seek out new accommodations or take the opportunity to expand if their industry is not threatened by the pandemic,” the report noted.

As for the San Jose apartment market, the vacancy rate went on the upswing amid the pandemic as renters moved out of the metro when jobs went remote for the foreseeable future. As noted in the Marcus & Millichap Report, the short-term performance for apartments may be murky, but the long-term outlook is bright. Although Google committed to a one-year remote work period for its employees, the company is still planning an 80-acre mixed-use project with office and retail in the city. And Apple has touted the collaborative office environment as a hotbed for creativity. “Beyond the pandemic, Big Tech will begin to bring employees back into offices, supporting long-term demand,” according to Marcus & Millichap.