BUSINESS FIRST: Underhill Associates Leading Fund to Target Apartment Bargains

Underhill Associates is leading a fund to target apartment bargains

Business First of Louisville - by Terry Boyd Staff Writer

The owners of a family-owned development firm have created a venture fund to hunt for undervalued apartment buildings. Brothers Todd Underhill and Jeff Underhill and Todd Underhill’s son, Colin Underhill, owners of Underhill Associates, are general partners in the new Pluris Property Fund LP.

The Underhills are joined by Louis “Andy” Willinger, whose family owned Cummins Cumberland Inc., a regional engine distributorship, and his son Matthew Willinger. Pluris’ managing partners are Colin Underhill and Andy Willinger. Andy Willinger, an accountant, manages several real estate investment firms, including Cumberland Investments, which was formed to handle the family’s investments.

The limited partnership plans to use $10 million it is raising from investors to leverage purchases of multi-unit residential properties. Those purchases are expected to begin with two apartment complexes for a total of about $30 million. They would be acquired in a partnership with NTS Corp., a Louisville-based real estate developer.

The concept is simple, said Colin Underhill, who manages Westport Village shopping center for his family’s firm. The partners plan to buy apartment complexes with high cash flows from owners who need to raise cash. With the long-running real estate downturn, there are opportunities to buy high-cash-flow, multi-family units from firms that invested at the top of the market, Underhill said. “There are value plays no one has ever seen, and there is no one to take advantage.” Underhill said his family began preparing last year to go after these opportunities, reorganizing the property-management side of Underhill Associates in anticipation of adding staff to manage more units.

Since the 1960s, members of the Underhill family have bought and renovated distressed apartment buildings and other real estate, and they have about 1 million square feet under management. In addition to retail, residential and commercial property development, Underhill Associates manages about 800 units in 12 apartment complexes in or near Louisville. But because they invested heavily in the $40 million transformation of Camelot Shopping Center into Westport Village, they have been held back from making further acquisitions by a lack of liquidity — “like 99 percent of the other (developers) out there,” Colin Underhill said.

In 2004, the Underhills bought the 14-acre Camelot site, which then had a 40-percent vacancy rate, for $7.4 million. That was about $1.1 million less than the $8.5 million the previous owner paid — a 13 percent discount. Westport Village now is about 80 percent leased, Underhill said. “We want to build on the momentum of a project that no one else thought was possible,” he said.

Contracts waiting for funds

After creating the venture fund earlier this year, the partners have secured contracts on two Orlando, Fla., properties in a partnership with NTS, with Pluris owning 49 percent of the real estate, and NTS owning 51 percent. Pluris would manage the properties. The properties are Sabal Park Apartments, a 162-unit development on 13 acres, and Golf Brook Apartments, a 195-unit development on 20 acres. The developments are about a half-mile apart and are what Underhill describes as “A-class” properties in desirable areas with access to interstates. The average apartment size at both developments is about 1,500 square feet.

NTS built both properties in 1987, then sold them together in 2006 to 302 Sabal Park Place Longwood LLC and 385 Golf Brook Circle Longwood LLC for $71.5 million, according to documents filed by NTS. The contracts would allow Pluris and NTS to buy back the apartment complexes for $32.5 million, a 55 percent discount, the Pluris partners said.

NTS signed an agreement in April to buy the properties with a third party, according to a company filing with the U.S. Securities and Exchange Commission. That purchase was not completed. The Pluris partners have preliminary plans to buy three more properties, Colin Underhill said. He declined to give details, citing negotiations with the sellers.

Brian Lavin, CEO of NTS, said his firm has had “conversations” with Pluris partners concerning the Florida properties. But he declined to comment, noting that NTS is a publicly traded company and cannot discuss forward-looking information.

All investments have inherent risk

The Pluris fund is limited to accredited investors as defined under Securities and Exchange Commission rules, said Bill Strench, a corporate attorney and member at Frost Brown Todd LLC’s Louisville office who represents the fund.

The SEC defines accredited investors as individuals or couples with net worth exceeding $1 million, or investors who have earned at least $200,000 for two years, and who have “reasonable expectation” of maintaining that level of annual income. Todd Underhill, who is Underhill Associates’ co-chairman with his brother, Jeff Underhill, acknowledged that the economy still could worsen, with unemployment leading to increasing vacancies. But he added that he has never seen any period that offered discounts on multi-family properties. He also cited National Apartment Association data that projects demand for apartments rising as home ownership declines.

Home ownership in the United States peaked at about 69 percent in 2005, roughly seven percentage points above the historic average of about 62 percent since such record keeping began in 1965, according to data from the Federal Reserve Bank of Atlanta. Underhill said he expects the ownership rate to return to historic norms, meaning more Americans will seek rental units.

Deal making starting to accelerate

The real estate crash increasingly is attracting the attention of investors looking for bargains, said Matt Saltzman, CEO and managing partner of Pallas Partners Inc., a Louisville-based investment and consulting firm. Saltzman said he has had discussions with local investor groups with real estate experience that are trying to raise money to pursue multi- unit apartment buildings. “I think there are a lot of opportunities in terms of these types of properties,” Saltzman said. A group with good managers who can accurately appraise variables such as cash flow and building condition “and make certain there are no hidden liabilities” has a reasonable chance of success, he said. “It’s an interesting play — a smart play — if you’ve done your research, if you have proven people on site,” Saltzman said of the Pluris fund But Saltzman added that there are multiple variables, including the health of Orlando’s economy, and complications such as rising unemployment, which could lead to rent cuts. “The question is, who’s nimble enough to buy it right, and are they really buying at the bottom of the market?”

The Pluris Property Fund LP

Description: A fund to invest in “undervalued” multi-family residential properties
Management team: Colin Underhill, Todd Underhill, Jeff Underhill, Louis Willinger and Matthew Willinger Properties under contract: Two Orlando, Fla., properties with a total of 357 apartments
Eligibility: “Accredited investors” under Regulation D of the U.S. Securities Act of 1933

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