Jim Butz
Jim Butz

Two key cogs in JPI’s Eastern division have announced that they’ve bought the JPI East platform and plan to start their own apartment and investment group. Last week, Jim Butz, former president of JPI East, and Greg Lamb, former executive vice president of JPI East, announced that they’re leaving the Dallas-based firm to start Jefferson Apartment Group, which will be headquartered in McLean, Va. Butz will be president and managing partner of the new entity, while Lamb will serve as executive vice president. Washington, D.C.-area office and mixed-use developer Akridge is investing in the venture.

While at JPI, Butz and Lamb were responsible for acquisition, development, construction, and management of more than 15,000 units valued at $3 billion across 15 cities on the East Coast. The move, which has been in the works for about three years, continues the unwinding of JPI, once one of the top multifamily builders in the country. The death of J. Frank Miller III, JPI's chairman and CEO, in 2007, set in motion’s JPI’s succession plan to sell its property management business and JPI East.

Butz says the poor economy slowed that process. But in the past year, JPI sold its property management division to Greystar Real Estate Partners in Charleston, S.C., and also spun off its information technology services group to RealPage in Carrollton, Texas. The company still owns and operates nearly $2 billion in multifamily assets around the country.

MULTIFAMILY EXECUTIVE Senior Editor Les Shaver sat down with Jim Butz to chat about his new venture.

MFE: How did all of this come together?
JB: We have known the guys at Akridge for a long time. We cut a deal with JPI two or three years ago.  The principals of JPI were working on their succession plan. They could sell the company, go public, or they could just keep it private. They gave me the opportunity to take the division on the East Coast and buy it. Then, of course, the economy happened and the capital markets went crazy and got very difficult to finance companies.

The opportunity was there to take what was left of the team we had in D.C. and spin off. We were talking to the guys at Akridge as friends as much as anything and working on raising money with a couple of wealthy individuals and Wall Street-type institutions when they said, “What about us?” We had known them a long time, and we said we’d certainly consider that. Well, they gave us a proposal as they wanted to diversify and get into the multifamily business and not just to be in the office world. We needed an investor. It made sense.

MFE: Are there investor groups with you other than Akridge?
JB: No. Other than the principals, there are no investors other than Akridge in Jefferson Apartment Group. We are working on raising private or institutional equity to be a partner in the real estate opportunities we’re looking at.

MFE: How will the company be branded? Under the JPI name or the Akridge name?
JB: Akridge is an investor. We took the JPI East opportunity and we bought it and we changed the name to East Holdings. And we did a venture with Akridge as our financial partner. Originally, we were going to be JPI East and keep the name. Then we changed it to Jefferson, which is the brand we name our projects. So the new venture is Jefferson Apartment Group.

MFE: How many people are coming over?
JB: In total, there are 22 people. We’re literally in the same office. Some of them are still working on the JPI assets until they’re sold or controlled back in the Dallas office. We will provide acquisition, development, construction, and management services.

MFE: Are you buying the existing JPI assets?
JB: No. It’s really the people, the processes, and the platform. Greg and I are still partners in all of the real estate at JPI. The company is still headquartered in Dallas, and they’ll continue to operate the properties. We didn’t buy any of the existing assets. They stay on the JPI books.

MFE: Any plans to buy those assets?
JB: Who knows? Right now, they’re refinancing everything to hold on to them for three to five years. We’re in the market to buy assets. To that extent, there’s one we can, sure. We’re in the market to buy existing core multifamily deals and potentially distressed land opportunities that we can build in two or three years.

MFE: A lot of people have been lined up to buy distressed deals, but there hasn’t been much out there. Do you think that will shake out this year and into 2010?
JB: I think there’s going to opportunistic acquisitions where some investors need to get cash out of the market. However I don’t see that there’s going to be huge distress in the multifamily business like you’re seeing in retail and hotel. It’s primarily because we have the benefit of Fannie and Freddie providing financing.

MFE: Will you be going after traditional brokered deals?
JB: Probably 70 percent of the opportunities [will be from brokers], but we like to make direct offers. Either with assets we like or sellers that want to have reason to get out of the market.

MFE: What’s your geographic footprint going be?
JB: Under JPI, we were doing business from Florida to Boston. With Jefferson Apartment Group, we’re going to focus on Washington, D.C., Philadelphia, the New York metro, and Boston—high-barrier-to-entry markets that are more difficult to build and buy in.

MFE: How much development is in your plan?
JB: Our stated goal for the next two years will be 80% acquisitions and 20% development. We do have development opportunities now for 2010. Generally speaking, it’s an acquisitions strategy for the next two years.

MFE: Were those things you had been working on at JPI or on your own?
JB: One of each. One is Fairfax County, Va., and the other is in Philadelphia.

MFE: Where are you looking to go for debt?
JB: Outside of Fannie and Freddie, we’ve done a fair number of transactions of the larger insurance companies. There are still a number of them active in the debt markets.

MFE: What kind of properties are you seeking?
JB: We’re focused on urban, transit-oriented products. They could be garden, mid-rise, or high-rise. It doesn’t have to be central city. In D.C., it could be Tysons Corner, Falls Church, and Bethesda. It just needs to be really well-located real estate. Primarily, we’re looking for product that is less than 10 years old.

MFE: As a new company with some familiar names, what’s your buying strategy in a competitive market like this?
JB: We do have the advantage of tenure in the industry, an experienced team, and Akridge as an investor. They’re also very well-known and have a fund. They’re a fund manager that invests in real estate. Our strategy will be to use our experience plus their relationships to bring in a relationship investor, whether its additional funds or it’s a large institution like we had with GE Capital, to help grow our platform, especially right now when things are challenging. Over the next 24 months, we think there will be some great opportunities. We do have the benefit of not having any existing assets weighing down our balance sheet. We do not have any debt.

MFE: What’s its like finding institutional equity out there, since some institutions seem to drawing back?
JB: It’s difficult on the institutional side right now, between the economic challenges and the public markets. We found there are a lot of individuals and funds that have money on the sidelines just waiting for the right opportunity to invest. We’re finding a lot of interest in multifamily because it’s more stable than retail, industrial, hotel, and office. There’s capital out there for acquisitions, especially.

MFE: What are seeing in the market right now? I’m hearing that things are starting to thaw out. Is that the case? Did it have anything to do with the timing of the announcement?
JB: This was timing we had worked with JPI principals. In the spring, the market loosened a little on equity and debt. That said, with 10-year treasuries moving up 100 basis points, that’s put a little chilling effect on transactions market. It will still be a tough 12 months ahead. Overall, the multifamily market is poised for growth over the next five years due to the demographic changes with the Gen Y group, immigration, the lack of new apartment supply, and the improvement in job growth.