San Jose: The Land of Opportunity Zones

When most people think of Silicon Valley, they envision the land of technology titans and start ups, with the stereotypical California wealth and flair. Those of us who live in Silicon Valley know that there are still areas of poverty and urban blight, even among the gleam of office buildings and shining corporate campuses. Yet, finding the newly created Opportunity Zones in Silicon Valley is a bit of challenge. Few communities within Silicon Valley have census tracts that meet the federally mandated requirements.

Except for one –  San Jose

Click Here for more about how Opportunity Zones work.

According to  BizNow, the Opportunity Zones peppered throughout San Jose have some serious advantages:  geographic diversity within the community, and diversity of asset types, from residential and multi-family, to mixed-use, office, research, and industrial spaces. This potent combination should leave the San Jose area primed for an injection of real estate capital into the more economically stricken areas.

Image by Darshan Karia via Flickr (Public Domain)

For instance, the downtown area of San Jose area is home to numerous Opportunity Zones. The highly-anticipated Google Transit Village is expected to bring an estimated 25,000 new jobs to the area. San Jose has seen a significant rush to secure property around Diridon Station, the heart of the Google Transit Village. Also of note, Google’s master plan includes the potential for revisiting the self-imposed hight restrictions on buildings. Changes to the height restrictions could allow for increased housing density, which could help alleviate some of the affordable housing issues that have arisen in the area. Increasing building height will change the face of downtown San Jose, but poses opportunities for developers and real estate investors.

According to local officials cited in the BizNow article, there has been plenty of developer interest in downtown San Jose. But since costs of procuring properties and the rising material and labor costs, it has become difficult to raise the capital needed to bring projects to completion. This is where Opportunity Funds, which are the investment vehicle that drives investing in Opportunity Zones, could have the greatest impact. The tax incentives could bring much needed capital from investors who were previously sitting the sidelines, or who seek to diversify their investment portfolios. The hope is that this investment will stimulate additional growth and development in these distressed communities.

 

Map by Economic Innovation Group

Opportunity Funds serve a dual purpose. They pool the investment assets for in order to inject capital into specific projects within Opportunity Zones, but investors who choose to invest are also expect a return on that investment. Constant movement of money in and out of funds could put projects at risk, and would not help the communities served by the Opportunity Zones. To encourage long-term holding of the investment, the IRS requires a 10-year holding period in order to realize the maximum tax deferral benefits.   Opportunity Funds will need to be very committed to successfully developing and sustaining real estate projects in the Opportunity Zones over the long term. This can benefit San Jose, with the potential for job creation, more affordable housing, and other tangible advantages.

Image by Tama66 via Pixabay

While the downtown area is the most prominent, given the proximity to the Google Transit Village, there are actually numerous Opportunity Zones that cover a range of diverse types of real estate assets, including industrial areas, retail areas, and residential areas. Depending on the specific fund, Opportunity Funds could participate in the market in multiple ways, from acting as the developer on specific projects, entering into joint ventures, or supplying capital to other developers.

Read more at BizNow.

Keystone Commercial Brokerage serves the needs of commercial real estate investors in the Santa Clara and San Mateo counties, specializing in commercial property, multi-unit residential, office space, and multi-use property. Paul Phangureh has over 16 years of experience in buying and selling in the Santa Clara and San Mateo County areas. Contact Paul at 650-924-2544, or email at paul@keystonecommercialbrokerage.com.

Leave a Comment