Hugo F. Aviles formed JH Properties, Inc. (JHP), the predecessor to JH Real Estate Partners, Inc., in 1989. Mr. Aviles formed JHP to provide a variety of real estate services including apartment brokerage, property management, investments and apartment consulting; services which were desperately needed due to the gripping real estate recession which existed at the time. JHP specialized in acquiring and disposing of distressed apartment investments for troubled developers and property owners with mismanaged apartment properties. From 1989 to 1995, JHP acquired, disposed of and worked out well over $300 million in troubled apartment properties; the majority of which were held by savings and loan companies, banks, thrifts, asset management companies and the Resolution Trust Corporation (RTC).

In 1994, Mr. Aviles recognized that the real estate recession was lasting longer than expected as evidenced in part by higher than normal vacancy and continued high capitalization rates. Mr. Aviles recognized an opportunity and sought capital partners to exploit opportunities in the market. After completing a number of successful apartment transactions for Hunt Enterprises (a JHP client and well-known apartment real estate operator), Mr. Aviles approached Gary C. Otto, Chief Executive Officer with Hunt Enterprises, about the concept of a joint venture or platform to co-invest with a pension fund or opportunity fund to purchase and reposition distressed and foreclosed apartment buildings in California.

In 1995, Mr. Otto resigned his position with Hunt Enterprises and joined Mr. Aviles to form JH Real Estate Partners, Inc. (JHREP), a vertically integrated real estate operating company specializing in the investment, property management and asset management of multifamily housing in California. Together they sought an institutional capital partner who would co-invest with their new venture. That same year, Messrs. Aviles and Otto received a commitment from Lazard Freres for $30 million in equity to invest. Messrs. Aviles and Otto, together with some private investors, raised $4.5 million of their own capital to co-invest with Lazard to seek out opportunities in distressed multifamily properties in California.

JHREP purchased its first apartment portfolio with Lazard Freres and its affiliate American Apartment Communities (AAC) in 1996. The portfolio was located in Monterey County, California, and consisted of 11 properties for a total of 2,200 units. The portfolio was owned by a family trust and had been mismanaged and suffered from high vacancy. The portfolio also had substantial deferred maintenance issues and a poor quality resident profile. JHREP completely renovated and repositioned the portfolio by spending approximately $10 million in capital improvements.

As a result of JHREP’s efforts, the occupancy improved from 78% to 95% in two years and the portfolio net operating income improved from $6.2 million to well over $12 million in five years. JHREP succeeded in turning this troubled portfolio around because it had identified inherent property management problems at acquisition (i.e. poor onsite managers, unskilled and untrained maintenance staff, poor customer service and lack of supervisory leadership) and had a game plan to remedy those problems. JHREP’s detailed market due diligence regarding competitor occupancy levels and land use restrictions related to the Monterey County Agriculture Preserve Ordinance revealed that the portfolio’s problems were management driven and not market driven.

Detailed due diligence has permitted JHREP to excel in the identification, negotiation, acquisition and property management of apartment investments in California. JHREP went on to purchase an additional 3,000 units in Southern California from various owners, developers, lenders, banks and syndicators with its sub-platform relationship with Lazard and AAC. All told, the JH/Lazard/AAC venture acquired approximately 5,000 units that were in some form of distress or were undervalued because of neglect, mismanagement or a lack of capital to renovate and reposition the assets for maximum value.

In 1999 Lazard/AAC sold its interest in some of the JHREP properties as part of a roll-up to United Dominion Realty Trust (UDR), a publicly-traded REIT. Thereafter, JHREP became a successor partner with UDR and continued to own and manage the 5,000 units in California with its new partner.

By 2000, JHREP had earned a stellar reputation in the multifamily industry and as a result was approached by a Pension Fund Advisor, Transwestern Investment Company (TWI), which was looking for a California-based real estate operating company to become its operating partner to invest in multifamily housing opportunities in California. TWI’s goal was to set up a platform relationship with JHREP to purchase apartment properties in California. JHREP completed a number of transactions with TWI, all of which were among TWI’s most profitable multifamily investments.

Between 1996 and 2000, JHREP utilized its sub-platform relationships with institutional investors to acquire, successfully rehabilitate and reposition approximately 8,000 multifamily units. In 2001, JHREP recognized that the market was becoming more expensive and attractive deals were becoming scarce. Consequently, JHREP recommended to its partners that all relationships be unwound and properties distributed in accordance with the sub-platform formulas.

By 2003, JHREP had concluded negotiations with all of its partners, and all properties were either distributed at prices based on market value or sold and the proceeds distributed. At the end of this process, JHREP ended up owning 100% of approximately 3,800 multifamily units; some of which it had acquired on its own during the unwinding process.

By 2005, Messrs. Aviles and Otto made a strategic decision to pull out of the apartment market and stop purchasing apartment properties as capitalization rates had compressed to below 5%. Virtually all apartment investments that had been presented to JHREP were not economically viable. Instead, Messrs. Aviles and Otto decided to simply continue managing their apartment holdings and seek new investment opportunities. With higher capitalization rates in the retail shopping center arena, JHREP invested in retail. Using built up equity and 1031 exchange funds, JHREP purchased approximately 500,000 s.f. of commercial space comprising three shopping centers and a medical office building that included some land for a mixed-use development in Orange County, California. Shortly thereafter, shopping center investments also became economically infeasible and JHREP ceased such acquisitions.

Today, once again, JHREP is poised to take advantage of opportunities in the multifamily housing market in California. With the California unemployment rate approaching 12%, the shadow housing market continuing to decline, and foreclosures at record highs; JHREP sees this as a unique opportunity to grow its apartment portfolio through strategic acquisitions that would not otherwise be available at favorable prices. Many multifamily owners are experiencing extreme cash shortages due to the lack of credit and unsecured lending capability in the marketplace today. This is forcing many of these participants to sell assets in order to generate much needed liquidity. JHREP is seeing a significant number of opportunities to purchase these assets at substantial discounts to recent fair market values.

JHREP believes that this real estate correction may last for some time, especially since many of these assets are just in the beginning stages of liquidation. Additionally, as long as unemployment remains high and consumer confidence remains low, JHREP believes the recovery will be long and slow. Even if by chance the recovery is hastened, the opportunity to create capital appreciation in apartments will still exist because of all of the homeowners that have lost their homes to foreclosure and who will need to find alternative housing. Notably, California homeownership had reached an all-time high of approximately 70%, compared with the historic norm of approximately 63%. JHREP believes that over the next few years California will return to its historical percentage distribution of homeownership. This potential for upwards of 7% of the adult renter population returning to renting versus owning should have a significant positive effect on apartments. As a result, because the circumstances today are much like the circumstances that existed when Mr. Aviles formed JHP in 1989, JHREP believes that now is the time to take advantage of unique opportunities in the multifamily real estate market resulting from the fear, distress, weakness and market inefficiencies that foster such opportunities.