Sequel to inner-city fund planned

Real Estate Alert, March 3, 2004

UrbanAmerica, a fund operator that invests in inner-city properties, is seeking to raise $300 million of equity for its second value-added vehicle.

UrbanAmerica LP II will target office and retail properties around the country that can be significantly improved. It will use roughly 66% leverage, creating total buying power of $900 million. The targeted internal rate of return is 16%, after fees.

New York-based UrbanAmerica is expected to have the fund at least partly raised by the end of March, when it would begin investing.

The company' initial fund raised $126 million of equity in 2002. The investors were almost entirely institutions, including Los Angeles City Employees, which kicked in $30 million of equity. The vehicle is fully invested in inner-city neighborhoods, mostly in grocery-anchored shopping centers and office buildings that are primarily occupied by government agencies.

UrbanAmerica may eventually convert that fund into a REIT. The conversion would allow existing investors to cash out and be replaced by retail investors.

UrbanAmerica is run by chairman John Utendahl, chief executive Richmond McCoy and chief operating officer Hal Reiff. Utendahl's other real estate firm, Utendahl Capital Partners, helped UrbanAmerica get started and remains an investor in the company.