San Jose housing tower moves forward
SAN JOSE >> A housing tower in downtown San Jose is pushing ahead with a revamped proposal and a high-tech approach to raise the money needed to build and complete the residential project.
Tower 27, as the development is called, is a 24-story tower that would sprout on South First Street near West Santa Clara Street if it’s built. Dallas-based Alterra Worldwide is the principal owner and developer of the 374-unit residential project.
The project’s owners hope to catch the eyes of investors to raise $100 million to finance the tower’s development by using a security token offering, a digital system that enables investors to buy small chunks of ownership in the highrise.
“We believe that digitalization is the future of finance with the convenience, speed and global participation it provides,” said Ali Tuzmen, a board member with Alterra Worldwide and project manager for Tower 27.
Tower 27 development executives acknowledge that their approach to raising the money needed for the project is an unusual — even unprecedented — approach for a real estate endeavor. Alterra Worldwide is calling its investment offering the T27 Silicoin Security Token.
“Real estate security token is a brand-new concept, and we are one of the first adopters,” Tuzmen said, adding that the offering would be the largest single real estate security token offering in the U.S. Blockchain technology would be used to track every transaction involving security tokens held by investors in the project, including the buying and selling of any token that represents an investment stake in the project.
Perhaps the easiest way to think of a security token investment is that it bears similarities to the liquidity of owning shares in a publicly traded company.
“Security token offerings are essentially the digital representations of ownership of assets, such as gold or real estate or economic rights, such as a share of profits or revenue,” Deloitte, the global accounting and consulting firm, said in a 2020 report.
Still, some financial gremlins might haunt investors who jump into security token offerings, warned Kelly Snider, director of the real estate development certificate program and an urban and regional planning professor at San Jose State University.
“The developer is attempting a crowd-sourced, Go Fund Me-style investment strategy, which is risky and unlikely to pass muster with any commercial lenders or insurance company in the U.S.,” Snider said.
In early 2021, Starcity unsuccessfully attempted to float a similar financial model to dangle real estate investment opportunities in front of small investors. In mid-2021, Common Living
struck a deal to buy the struggling Starcity.
“It (Tower 27) may get some traction with foreign investors but based on the size and advertised finishes and amenities, the construction cost will be $200 million-plus,” Snider said. “That’s a lot of Main Street investors and it’s hard to manage that way.”
Yet Tuzmen pointed out that security token offerings create the ability to buy and sell investments of varying amounts in the project.
Alterra Worldwide, headed by business entrepreneur and real estate executive Mike Sarimsakci, has developed several projects successfully — and struggled to complete some projects.
The firm’s completed developments include a luxurious Ritz Carlton hotel in Moscow and two big Dallas projects that might help revive that Texas city’s moribund downtown.
In two other projects, however, Alterra Worldwide has experienced hiccups: the redevelopment of a St. Louis residential highrise as a hotel tower and the construction of a new hotel in Dallas.
Alterra said that its belief in this new method of financing and desire to be a pioneer in such endeavors has prompted the company to crowdsource the funding.