A West Coast developer is making senior housing a fundamental component of its $250 million opportunity zone fund, focusing on assisted living and memory care.
San Jose, California-based Urban Catalyst submitted plans last month for Delmas @ Downtown West, a $45 million facility in downtown San Jose including 52 assisted living units and 32 memory care units, Urban Catalyst Partner and COO Josh Burroughs told Senior Housing News.
Delmas @ Downtown West will be the first community of its kind built in downtown San Jose in 35 years, and will be part of a master planned development centered around the city’s central transit hub, Diridon Station.
To fund these developments, Urban Catalyst established an opportunity zone fund with a target of $250 million. That goal is to raise that amount by June 2020, BisNow reported.
Created by the 2017 Tax Cuts and Jobs Act, opportunity zones hold untapped potential for senior housing investment and development, especially for more affordable options. Opportunity zones offer significant tax benefits to investors who re-invest capital gains earnings into new investments, without having to pay taxes on the gains.
But investors have been slow to embrace opportunity zone funds. There are over 8,700 opportunity zones in the U.S. Interest in the funds tapered off after an initial flurry of fundraising in 2018. Opportunity zone fund managers have raised 10 cents per dollar on their target goals to date in 2019, and the program has not brought the benefits promised to the communities they are supposed to help, according to research from real estate data analytics firm CoStar.
Burroughs believes Urban Catalyst can buck the trend. The firm was founded last year by real estate professionals experienced in developing properties in the San Francisco Bay area and Silicon Valley, across a range of product types.
“Many of the qualified opportunity zone funds — particularly on the East Coast — are not developers themselves. Our [value-add] to investors is we are developers with a cradle-to-grave synopsis [to development]. We find the land, do the entitlements and approvals in house, and have a long-term hold strategy that is suited to opportunity zone investment,” he said.
Urban Catalyst is planning up to 10 developments within walking distance of each other around Diridon Station. Plans for a multifamily apartment building, Madera, are underway, and the firm wants to build student housing, two office projects, a Marriott hotel and a second multifamily project nearby, Burroughs told SHN.
Urban Catalyst will not develop independent living, which Burroughs feels is overbuilt in the area.
“We’re familiar with how difficult it is to find [an assisted living] community to live in. It’s undersupplied in the Bay Area. As we view our portfolio, we’re responding to demand generators and one component of that is quality, new accessible assisted living,” he said.
Urban Catalyst plans to build a second community — either a combination of assisted living and memory care or standalone memory care. The firm tapped Vacaville, California-based operator Calson Management to operate Delmas @ Downtown West. The two firms previously partnered on a 113-unit community in Los Gatos with a mix of independent living, assisted living and memory care, Calson Management Managing Partner Jason Reyes told SHN. That community will receive its first residents in spring 2021.
Urban Catalyst expects to break ground on Delmas @ Downtown West in the fourth quarter of 2020.
To date, there are a handful of senior housing developments in the works using opportunity zone funds. Sage Oak Assisted Living and ANG Development partnered to develop an $17 million assisted living and memory care campus in Denton, Texas. As part of the project’s capital stack, the two companies formed an opportunity zone fund, GoodHorn Senior Living Opportunity Zone Fund, with a target goal to raise between $6 million and $7 million.
Fairfield, Connecticut-based Senior Living Development aims to leverage opportunity zones to build a series of middle-market assisted living and memory care communities in New York, New Jersey and Connecticut. Senior Living Development Principal Mark De Pecol called this model the “Hampton Inn of assisted living.”