NMHC, Acquisition Strategies, and UAA Fund II

We’re just over a month into 2024 and it might have been the “longest” January on record for UAA. We can feel the unmet demand for deals, we are hearing about money sitting on the sidelines, and we are busier than ever responding to the market, our investor’s needs, and preparing for what we anticipate being a highly competitive acquisitions market the second half of the year.

We spent three days at NMHC at the end of January meeting with current partners and exploring new partnerships from all over the nation. The general consensus was that finding deals that make sense is tough but that the demand for apartments is strong and will likely remain strong. Another frequented topic was that construction starts are continuing to plunge equating to substantially less supply by late 2025 and well into 2026-27, and the fact that supply is king after all. The numbers speak for themselves. Occupancy and rents have fallen due to a 50-year high in supply, most significantly where said supply is going or has gone.....but if you look closely, rents are still growing where supply is not.

While we were proud to have delivered and stabilized a Class A new development project in Portland, OR last year (that exceeded the underwritten rent levels by the way) and are set to deliver 129-units in Bend, Oregon this October – a market which continues to grow with a quantifiable need for housing - we redirected our focus and resources to acquisitions about a year ago. We are now seeing attractive pricing well below replacement costs along with cash flowing assets with upside. We’re also seeing a significant subset of projects (and portfolios) where the highest need and true value add is on the asset management side versus an exorbitant amount of capital investment. Projects where we’re able to optimize asset performance through revenue and expense management with highly collaborative property management partnerships in markets we fundamentally understand.

Even so, finding a deal that fits our acquisition criteria and meets the needs of our investors is going to be rare and when these opportunities do arise, it will be highly competitive. For those of us that have been “here” before, we know that buying at or near the bottom of the cycle is the best time and we believe we are there. With this in mind, we have recognized the need to structure our acquisitions strategy a bit more aggressively to allow for us to move swiftly and with certainty towards a close to best position ourselves for selection as the buyer.

With that being said, we are excited to be launching our second fund, aptly named UAA Apartment Fund II. As many of you are aware, UAA launched our first fund just over two years ago. This was a smaller $5 million fund for both our investors and us to test the strategy and wrap our heads around the overall approach to raising and deploying fund dollars. That fund was fully subscribed to and is fully deployed across five projects as originally planned. The purpose of that fund was to invest only a portion of the equity required on each project the fund was involved in; we then raised the additional equity with direct investments alongside the fund via our accredited investors.

We are confident this second fund will allow us to be more competitive in the call for offers and buyer interviews as well as in pursuing off-market opportunities. For this fund, we have identified metrics that align with our overall return profile in markets that allow us to deploy our asset management strategies effectively.

The UAA Apartment Fund II will be focused on acquiring multifamily assets that are:

• Stressed and/or Distressed: Newer Core/Core-Plus assets where the developer or owner needs to refinance their existing loan and they need a large amount of additional equity to do so with these higher interest rates. These scenarios are seemingly delivering high quality assets at more of a Value-Add/Opportunistic level of return.
• Value-Add Apartments: Purchasing existing apartment buildings deals that aren’t being managed effectively and/or need some capital investment back into the buildings. Assets where there is room to mark-to-market, grow rents, and/or optimize expenses.

Target Markets:

• Select Pacific NW markets and Mountain states that present strong growth fundamentals with a clear disparity of cost-to-rent vs cost-to-own and below average production of housing.

Fund/Investment Parameters:

• Fund Size:? $25 million
• Minimum Investment: $100,000; though UAA has discretion to accept lower investments.
• Fundraising Timeline:? First closing to occur this coming June 2024.?
• There are incentives for the first $8 million of investors in the fund. Because it is anticipated that the Federal Reserve will cut rates later in 2024, it is our belief that early- to mid-2024 will present the most favorable conditions for the Fund to capture the best acquisition opportunities.
• The fund is a closed ended fund that we are targeting to close out in 4-6 years.

Acquisition Criteria:

• Assets greater in value than $5 million.
• Targeting an overall Internal Rate of Return (IRR) of greater than 15%.
• Spreading fund investment across 4-8 projects.

We frequently hear the question, “what is the difference between investing in a UAA fund versus directly into a project?” from our long-standing project investors:

• The primary difference and advantage of investing into a fund is that the investment of say $100,000 gets invested into between 4-8 projects of different types and locations versus into one project. The risk is spread across multiple/varying investments.?
• Unlike “UAA Apartment Fund I”, this second fund is larger and intended to either be the entire equity into the project(s) or would be co-invested alongside our larger/institutional partners; meaning that project level investors would likely not have an opportunity to do a direct investment into the fund participating projects.
• We feel the fund will allow us as sponsors to be more competitive in vying for highly sought after acquisitions.

If you would like to learn more about UAA Apartment Fund II, feel free to call me directly or email me to schedule a time to walk through current investment opportunities at UAA.

Tim O’Brien

Founder & CEO

503-445-7557

[email protected]

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