FOR ACCREDITED INVESTORS ONLY. The views and opinions expressed herein are provided for discussion purposes only and are not intended to be, nor should they be construed or used as financial, legal, tax or investment advice with respect to interest in Urban Catalyst Opportunity Fund I LLC or any investment sponsored by Urban Catalyst LLC. An investment in this offering is speculative and involves significant risk, including possible loss of your entire investment. This is neither an offer to sell nor a solicitation of an offer to buy the securities described. An offering is made only by the Private Placement Memorandum (PPM) which must be read in conjunction with this material. As such, a copy of the current PPM must be made available to you in connection with this offering in order to understand fully all of the implications and risks of this offering. Neither the U.S. Securities and Exchange Commission nor any other state or federal securities regulator has passed on or endorsed the merits of this offering or these securities or confirmed the adequacy of the PPM. Any representation to the contrary is unlawful. All information contained in this material is qualified in its entirety by the terms of the current PPM.
There is no assurance that the fund objectives will be met and performance of the fund depends on many factors and cannot be determined with any certainty. Prospective investors should consult their own tax and legal professionals prior to making investment decisions. Past performance is not a guarantee of future success. Potential tax benefits are subject to limitations and tax regulations are subject to change.
Investing in Urban’s common units is speculative and involves substantial risks. You should purchase these securities only if you can afford a complete loss of your investment. See the section entitled “Risk Factors” of Urban’s PPM to read about the more significant risks you should consider before buying our common units. These risks include the following:
- This Initial Offering is being made to allow investors to take advantage of recently adopted rules and regulations under the TCJA. The legal and compliance requirements of this legislation, including with regard to Opportunity Funds like us, are relatively untested.
- An investment in us will be illiquid, as there is no secondary market for our interests and none is expected to develop; and there will be substantial restrictions on transferring such interests. Accordingly, an investor may be required to maintain its interest in us for an indefinite period of time. The interests in the real property to be acquired by us are subject to leverage and their investment performance may be volatile. Investors should have the financial ability and willingness to accept the risk characteristics of us.
- If we fail to qualify as an Opportunity Fund for U.S. federal income tax purposes for any period and no relief provisions apply, we would be subject to penalties which could be significant. As a result, returns to investors could be materially reduced.
- We depend on our Manager to select our investments and conduct our operations. We will pay fees and expenses to our Manager and its affiliates that were not determined on an arm’s length basis, and therefore we do not have the benefit of arm’s length negotiations of the type normally conducted between unrelated parties. These fees increase your risk of loss.
- We have a limited operating history. The prior performance of our Sponsor and its affiliated entities may not predict our future results. Therefore, there is no assurance that we will achieve our investment objectives.
- Other than the properties discussed in Urban’s PPM, we have not identified any other investments to acquire with the net proceeds of this Initial Offering. You will not be able to evaluate our future investments prior to purchasing units.
- We determined to hold the initial closing of this Initial Offering without regard to the number of commitments received or amount of proceeds raised. The failure to successfully raise additional operating capital and sufficient additional investor purchase commitments could result in our bankruptcy or other event which would have a material adverse effect on us and our unitholders.
- Mr. Erik Hayden, our Manager’s President, is also the President, manager and key professional of our Sponsor and its affiliates. As a result, he faces conflicts of interest, including time constraints, allocation of investment opportunities and significant conflicts created by our Manager’s compensation arrangements with us and other affiliates of our Sponsor.
- Our Sponsor may in the future sponsor other companies that compete with us, and our Sponsor does not have an exclusive management arrangement with us.
- We may not be able to acquire a diverse portfolio of investments and the value of your units may vary more widely with the performance of specific assets.
- We may change our investment guidelines without unitholder consent, which could result in investments that are different from those described in Urban’s PPM.
- Our organization documents permit us to pay distributions from any source, including cash flow from operations, offering proceeds, borrowings, or sales of assets. Until the proceeds from the Initial Offering are fully invested and from time to time during the operational stage, we may not generate sufficient cash flow from operations to fund distributions. If we pay distributions from financings, the net proceeds from this or future offerings or other sources other than our cash flow from operations, we will have less funds available for investments in real estate properties and other real estate-related assets and the number of real estate properties that we invest in and the overall return to our unitholders may be reduced. If we fund distributions from borrowings, our interest expense and other financing costs, as well as the repayment of such borrowings, will reduce our earnings and cash flow from operations available for distribution in future periods, and accordingly your overall return may be reduced. If we fund distributions from the sale of assets or the maturity, payoff or settlement of debt investments, this will affect our ability to generate cash flows from operations in future periods.
- Our limited liability company agreement does not require our Manager to seek unitholder approval to liquidate our assets by a specified date, nor does our limited liability company agreement require our Manager to list our units for trading by a specified date. No public market currently exists for our units. Until our units are listed, if ever, you may not sell your units. If you are able to sell your units, you may have to sell them at a substantial loss.
- Our Manager intends for us to be classified as a partnership for U.S. federal income tax purposes. As a result, it is expected that you will include your allocable share of income, deductions, gains, losses and other tax items from us on your U.S. income tax return, regardless of whether or not cash is distributed to you by us.
- Real estate investments, including our intended investments in Opportunity Zones, are subject to general downturns in the industry. We cannot predict what the occupancy level will be in a particular building or that any tenant or mortgage or other real estate-related loan borrower will remain solvent. We also cannot predict the future value of our properties. Accordingly, we cannot guarantee that you will receive cash distributions or appreciation of your investment.
- Our intended investments in commercial real estate and other select real estate-related assets located in Opportunity Zones will be subject to risks relating to the volatility in the value of the underlying real estate, default on underlying income streams, fluctuations in interest rates, and other risks associated with real estate investment generally. These investments are only suitable for sophisticated investors with a high-risk investment profile.
- We expect to invest primarily in our Target Properties, which are comprised of real estate assets located in the west coast of the United States, with a focus on Northern California, primarily downtown San Jose. Investing in a limited number of regions carries the risks associated with significant geographical concentration. Geographic concentration of properties exposes our projects to adverse conditions in the areas where the properties are located, including general economic downturns and natural disasters occurring in such markets. Such major, localized events in our target investment areas could adversely affect our business and revenues, which would adversely affect our results of operations and financial condition.
QOZ PROGRAM OVERVIEW
The QOZ Program, created by the 2017 Tax Act, is a tax-incentive program designed to encourage long-term private sector investments in Qualified Opportunity Zones through investment vehicles called Qualified Opportunity Funds. Qualified Opportunity Funds seek to promote real estate development, job creation and overall economic growth in lower income communities through the use of substantial potential tax incentives to investors.
QUALIFIED OPPORTUNITY ZONES
The U.S. Department of the Treasury has designated over 8,700 Qualified Opportunity Zones1 located across all 50 states, territories and the District of Columbia. Qualified Opportunity Zones are designated census tracts that have been nominated by state governors and certified by the U.S. Department of the Treasury for inclusion in the QOZ Program.
QUALIFIED OPPORTUNITY FUNDS
Qualified Opportunity Funds can be structured as a partnership or corporation and must invest at least 90% of their assets in Qualified Opportunity Zone Property located in Qualified Opportunity Zones (which includes real estate or new or existing businesses), including commercial real estate, housing, infrastructure and start-up businesses. Qualified Opportunity Funds may hold single or multiple assets.
INTENDED IMPACT OF THE QOZ PROGRAM
Qualified Opportunity Funds offer an attractive tax-advantaged investment solution that may be used as a force for social impact and economic growth.