A South Carolina real-estate investor contends that during his 5-year tenure as owner of Timber Hollow Apartments in northeast Greensboro, he fixed up units and increased occupancy. But the new owners, like the seller, specialize in “distressed” properties.
Nine months ago, many of the units at Timber Hollow Apartments in northeast Greensboro were in disrepair. Squatting, along with water and electrical piracy, were rampant at the low-income housing complex, according to a local housing advocate. One tenant, Natalie Carter, whose apartment became uninhabitable because of water damage and a collapsing ceiling, said the management office was closed and tenants didn’t even know who should receive their rent payments.
Eventually, after Carter sought shelter for herself and her children in a nearby hotel, the city condemned her apartment in the 140-unit complex.
Carl Withers bought the two properties that comprise Timber Hollow Apartments for $1.25 million in December 2013 from an LLC owned by L. Worth Holleman Jr., a local lawyer who died in 2015.
On Sept. 28, Withers sold the apartment complex to a pair of investors from New York and Boston for $3.85 million.
“We buy distressed properties, fix them up, and sell them,” Withers said.
Back in March, Brett Byerly, executive director of the Greensboro Housing Coalition, estimated that only a third to half of the units at Timber Hollow Apartments were legally occupied. Byerly told City Beat that multifamily housing owners typically need to maintain 80 percent occupancy to generate adequate income to service debt and keep up with repairs. Withers himself said in a 2016 podcast interview that with 60-70 percent occupancy, it’s generally still possible to keep up with mortgage payments and costs. The low occupancy at Timber Hollow Apartments raised a question: How was it possible for the owner to turn a profit on the investment?
Robert Kim, a South Carolina investor, suggested an answer.
As a member support coordinator for the Midlands Real Estate Investors Association in South Carolina, Kim said he decided to start speaking out against Withers because he wants to protect members from making bad investments.
Kim initially reached out to Byerly in response to publicity about challenges at another Greensboro apartment complex, Avalon Trace, that was also formerly owned by Withers. Reached by City Beat, Kim said that Withers typically finances multifamily real-estate investments through a syndication model that ensures that Withers gets paid while his investors shoulder the risk.
In response to the characterizations in the March 2018 article, Withers told City Beat that Kim doesn’t know what he’s talking about.
“He knows nothing about what I do,” Withers said.
Withers said that, in fact, he did earn a profit on the sale of Timber Hollow Apartments. Without specifying whether the deal also paid off for his investors, he said, “We used ourselves. We did use a little bit of outside money. You use a combination of that stuff.”
Withers describes his involvement with Timber Hollow Apartments as a story of two troubled properties that he made a good-faith effort to improve while dealing with tenants who failed to meet their responsibilities.
“These properties were distressed,” Withers said. “We put money into them. Regardless of what you think, we made them habitable. The ones that we rented, safety, cleanliness and stuff like that is always something we look at. There is a responsibility of the tenants to clean up after themselves. Out there we had a lot of tenants who didn’t clean up after themselves. We take it, get it in working order, however much we need to do, and then we sell it. That’s what we did with both of those properties.”
Withers acknowledged that the repairs were only partial.
“We didn’t repair all those units; we repaired some of them,” he said. “The units we did not repair were boarded up. We still had some squatting.
“We bought this property and we brought it up to another level,” Withers added. “There were more people in there when we sold it than when we bought it, so you go figure. We’d repair a unit and fill it.”
Byerly said he finds it hard to believe that Withers increased the number of tenants at Timber Hollow Apartments over the past five years, although he has no trouble believing that he made money on the investment.
“I wouldn’t say he’s investing very much,” Byerly said. “I’d say he’s holding on to them and waiting for the market to come up. The fact that these properties are appreciating even without a lot of investment shows that there’s a lot of speculation going on in the real estate market. Withers is not seeming to do much with the property and then selling at a profit. I think it’s just a symptom of where we are with the market and lack of affordable housing.”
In September, Withers sold Timber Hollow Apartments to Peter Auerbach of New York and Nicholas Leap of Boston.
Auerbach is the founder and CEO of Auerbach Funds, described as a real-estate investment fund that invests in “under-managed assets, distressed assets, REOs [lender-owned properties], and risk-mitigated developments in the retail, industrial, office, multifamily, medical office and manufacturing asset classes,” according to the fund’s website. Auerbach’s bio indicates that he started his career in the investment banking and asset management divisions of Merrill Lynch and Credit Suisse, and formerly taught as an adjunct professor at New York University.
Nicholas Leap is a principal of Nicas Group Capital, described on its website as “a vertically integrated multifamily ownership group” that is “focused on light to heavily distressed B and C class properties in the southeastern part of the US.” The website says, “We target ‘workforce housing’ in secondary and tertiary markets around metropolitan areas. When we initially acquire these opportunities, they are often struggling with occupancy problems, physical distress, deferred maintenance, crime, delinquency, and therefore under-perform financially.”
Leap said Timber Hollow Apartments is among three properties his company recently acquired that can be described as “distressed” and “low occupancy.”
“The industry has been rocked by a lot of owners that just don’t care about the residents,” Leap said. “They don’t care about the community. They run them into the ground. They just see them as a profit center.”
Leap said he understands that people might be skeptical about a new owner who targets distressed properties while promising to turn them around, considering the history of Timber Hollow Apartments. He mentioned that he came with his family came to the United States as refugees from Cambodia during the Khmer Rouge regime, and they lived in communities like Timber Hollow.
Leap said the first step in improving Timber Hollow will be investing $1 million in the property. The sum equates to $7,143 per unit, on average. Leap said it’s hard to explain in concrete terms what will be different under the new ownership, but that the results will be apparent once the work is done.
As for the management of the companies, Leap said the vertical integration of his company allows site managers to focus on advocating for the residents, while the corporate office in Boston worries about the bottom line.
Timber Hollow Apartments is one of three projects Leap is undertaking with Peter Auerbach. The other two are in Atlanta. Leap said he’s known Auerbach for less than a year, but the two men share a lot of the same values.
“He’s a giving person; he’s given a tremendous amount to charity,” Leap said. “He’s a tremendous human being. It’s important to find a partner who believes what we believe. He targets properties like this property. He creates value for the residents and shareholders.”
Leap said his company is also working to acquire Ashleigh Park Apartments, a similarly challenged low-income housing community that is located nearby Timber Hollow and is owned by Withers and three other investors from Florida and North Carolina.
“A lot of people think they’re in the apartment business,” Leap said. “We’re in the people business and the creating community business. We’re trying to get back to the roots of why we exist. I always say that the property management business is no more about making money than being human is about making blood. As humans, we have to make blood to stay alive, but it’s not the sum total of who we are.”