Large Downtown San Jose Housing Tower Project Seeks Funding
SAN JOSE – A high-rise apartment building in downtown San Jose is moving forward with a revamped proposal and high-tech approach to raising the funds needed to build and complete the residential project.
Tower 27, as the development is known, would be an eye-catching 24-story addition to the San Jose skyline.
Dallas-based Alterra Worldwide is the primary owner and developer of Tower 27, a 374 unit residence that would grow at 27 S. First St. in downtown San Jose if built.
The owners of the project aim to attract the attention of investors in a quest to raise $ 100 million to fund the development of the tower using a security token offering, which is a digital system that allows investors to buy from small pieces of property in the skyscraper.
“We believe digitization is the future of finance with the convenience, speed and global participation it offers,” said Ali Tuzmen, board member for Alterra Worldwide and project manager for Tower 27.
Blockchain technology will be used to track every transaction involving security tokens held by investors in the project, including the buying and selling of any tokens representing an investment in the project.
Tower 27 development officials acknowledge that their approach to raising $ 100 million for the project is an unusual, if not unprecedented, approach to raising funds for a real estate company. Alterra Worldwide calls its investment offering the T27 Silicoin Security Token.
“The real estate security token is a whole new concept, and we are one of the first to adopt it,” said Tuzmen. “With a size of $ 100 million, the T27 Silicoin security token offering will be, by far, the largest real estate security token offering ever in the United States.”
Perhaps the simplest way to think of a security token investment is that it has some similarities to the liquidity of holding stocks in a publicly traded company.
“Security token offerings are essentially digital representations of ownership of assets such as gold or real estate, or economic rights such as a share of profits or income,” said Deloitte, the firm. global accounting and consulting firm, in a 2020 report.
Still, some financial gremlins could haunt investors who embark on security token offerings, warned Kelly Snider, director of the real estate development certificate program and professor of urban and regional planning at San Jose State University. .
“The developer is attempting a Go Fund Me style participatory investment strategy, which is risky and unlikely to be successful with a commercial lender or insurance company in the United States,” said Professor Snider.
In early 2021, StarCity attempted to launch a similar financial model to swing real estate investment opportunities in front of smaller investors. The effort failed to jump off the launch pad. In mid-2021, Common Living struck a deal to buy ailing StarCity.
“It (Tower 27) may attract foreign investors, but based on the size and the advertised finishes and equipment, the cost of construction will be over $ 200 million,” Snider said. “That’s a lot of Main Street investors and it’s hard to manage that way.”
Still, Tuzmen pointed out that security token offerings provide the opportunity to buy and sell investments of varying amounts in the project.
“Especially in the real estate market, which is very illiquid, tokenization offers better liquidity to investors,” Tuzmen said. “In addition, splitting offers investors the opportunity to invest small amounts in real estate. “
Tower 27 will not use opportunity zone funding for the project, despite the tax benefits offered by these funding vehicles. The areas of opportunity are “too cumbersome,” Tuzmen said.
The security token offering for Tower 27 is scheduled to begin Oct. 1, according to Tuzmen.
Alterra Worldwide, which is run by Turkish-born entrepreneur and real estate manager Mike Sarimsakci, has developed several successful projects and struggled to complete some projects.
Successful and completed developments include a luxury Ritz Carlton hotel in Moscow and two major Dallas projects that could help revive the dying downtown of this Texas city. Alterra Worldwide, however, had hiccups in two other projects: the redevelopment of a residential St. Louis skyscraper into a hotel tower and the construction of a new hotel in Dallas.
With Tower 27, Alterra executives say they already have enough money to build the project now.
“We got all the funds in traditional financing methods needed to develop Tower 27,” Alterra says on a website that describes the proposed tower and solicits investment. Alterra said his belief in this new method of financing and his desire to be a pioneer in such ventures prompted the company to resort to crowdfunding.
In addition to the hundreds of residences, Tower 27 would add 35,300 square feet of retail space such as stores and restaurants. It would dominate neighboring structures, including the historic Bank of Italy building and a former bank tower.
The proposed high-rise apartment building could be so tall that it could dramatically overshadow that part of downtown San Jose, some potential neighbors in the project warn.
Snider warns that because Tower 27 is an infill project in a neighborhood that includes long-standing buildings – some historic – the project could result in unforeseen expenses.
But Alterra Worldwide has announced plans to begin construction on Tower 27 in the first half of 2022, complete the project by the end of 2024, and fill the tower with tenants by the end of 2025.
“If this project does see the light of day, it will be a sign that funding is available for high-rise residential buildings on hard-to-build sites,” said Bob Staedler, Managing Director of Silicon Valley Synergy, a consulting firm in territory Development.